All Property is Investment.
How we think about dollars and real estate.
If you were to make an investment with a financial advisor, you’d want to know a little about their investing “philosophy”. The way we use money is indicative of what we believe in, what we value, and you want to know that you’re aligned with people who view opportunities similarly to how you see them.
This is how we think about investing in real estate.
The art of
the “Deal”
So many people are in a rush to get a deal done. Yes, sometimes there are good reasons to be in a hurry, but never at the expense of sound thinking and good shopping.
What’s right for you?
Not every deal, despite how it looks on paper, is right for every person. One of the worst things we can imagine from a macro-economic perspective is a bunch of people owning property that they don’t really appreciate or understand. The wrong deal can hurt the value of a property, like someone buying a ranch who has no clue how to ranch, they will make the wrong improvements out of sheer ignorance, and drive up the price in their own mind while in fact they are degrading the asset. Imagine fifty ranches like this in a small area and suddenly, you have a confused market with sellers who think they have goldmines and buyers who are frustrated at not finding anything good. No one wins in this scenario, and that’s why it’s so important that we put the right people and the right properties together.
Shop before you buy.
The faster you go, the more narrow your vision will be. It’s important to know the landscape. Sometimes, it’s just not a good time to buy real estate. Prices are high, deals are moving quickly, picture an oceanic feeding frenzy. Conditions are perfect for getting bitten. We strongly encourage taking your time and looking at the options. It’s better to be assertive and confident than hurried and reactive. Real estate, as an asset class, cannot be viewed like a day-trader’s stock portfolio. It lacks liquidity and the carrying costs can be much higher. It’s a phenomenal asset, but real property needs to be treated with respect.
Buying
If you’re buying real estate, it’s important to know your goals. Even for a young family looking at a home, there are criteria that define the expectation. For some, it may be a lifetime property, for others, a five-year hold starter home. What do you want from a house or raw land? That’s important to answer. Then, you know how to buy right. There’s an old adage that says something like, “The success of a deal is determined the day you buy it by the price you pay for it.” That’s a little extreme, but there’s some truth to it. Buy based on what you want to do.
We have advised hundreds of people over the years who have made portfolio types of investments in rental homes, commercial properties, raw land and developments. We’ve also helped families buy their first home. No matter which person you are, spend the time to clarify the goal.
Selling
When you list your land or property for sale, it’s the moment you say that you’re wanting to capture your gains or losses. You’ve been in the deal, and now it’s time to take your money and do something else with it. This cannot be a knee-jerk decision if you really want to maximize your exit value. Take the time to think through your property, seek good advice on what will help maximize value to a buyer, jump in their shoes for a bit and get an idea of what people are looking for. The best properties tend to sell first, and there are specific things that make one property nicer than another. Identify your reason for selling. Is it because you met your goal? Is it because you hated managing the property yourself? Is it because you need cash quickly? Selling isn’t always the right solution, so take your time and talk it through. These are the conversations that we really enjoy.
1031 Exchanges
For those of you who are new to the real estate investment game, there is something called a 1031 exchange that can provide tax benefits if you sell real estate. This tax code allows you to avoid paying capital gains taxes when you sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value. Having a plan in place in advance can mean substantial tax savings.
Why we like Real Estate
It’s a hard asset. You can see it, feel it, walk on it. And it’s limited, people need real property in order to live life, conduct business, have fun, get from place to place and buy things. It’s literally the bedrock of our economic livelihood. So we believe it would be very hard for an acre to go to absolute zero value, unlike some other investments.
Properties offer two potential means of earning income. First is the increase in the value of land. When we purchase a property, the value tends to increase over the long run. Second, there is cash flow. You can rent property to others and make monthly income from rent or other fees while you own the property. That makes a lot of sense to us.
Then, you can utilize debt as well. It’s simple to borrow money to buy property, and you can use that borrowed money to increase your earnings on the property without having to use all your own money. Debt and land go hand in hand.
And if there were more reasons needed than these first two, there are tax advantages to be found in real estate too. For all those commercial property owners, depreciation is a well-loved line item that is often used to shield income from taxes. Commercial property has long-been a conservative channel through which to earn income without overpaying on taxes.
This is only a taste
So let’s talk about investing in real estate.
These are just the basics, something to get the conversation started. We’d like to sit down and have a phone call or a truck-ride with you as we dive deeper into the conversation.
Call us on the phone, hop in the truck, and let’s go.