real estate growth

Happy New Year Mr. Collier,

I hope this year brings you more peace, joy, prosperity and fulfillment than last year as you grow in more wisdom and understanding! When you have some time could you please answer the below questions?

What are your thoughts on capital gains?
If by capital gains, you mean the equity created by entrepreneurial effort, I’m all in favor of it. If you mean paying capital gain taxes, well, every time you sell and pay Uncle Sam 25% or so, your next deal has to be at least 25% greater than your last for you to just break even. Personally, I find that hard. Plus, all the time and effort it takes to find a seller, to put up with all the tire kickers and close but no deal negotiations. Then you have to turn around put the same time and effort to find your next deal. I’d rather put that time and effort into running and improving my existing deals, creating tax free equity I can pull out via refinancing and re-invest.

Most real estate churns because it’s bought through a fund and the owners are not hands-on and the only way to be sure of the value created is via a sale. A hands-on owner knows their real estate and does not need a sale to validate value creation. Also, most funds make their profit as a combination of fees and promote (a share of investors profits); the big fees lie in the buying and selling process i.e. there is a major incentive to turn the portfolio. Plus REITs tend to have a stated target average portfolio age that they must hold to in order to maintain credibility with market analysts and investors, this requires they sell their older communities on an ongoing basis and acquire newer either by development or purchase or both.

Communities do tend to require more capital investment and Sr. Mgt. TLC as they age, thus creating “value add” possibilities for the opportunistic investor.

What do you think would have made your growth faster in the early days? How do I take my current residential rehab business to $1M+ a year in revenue?
Same answer to both:
1) Scaling up as rapidly as possible i.e. larger and larger projects
2) Delegate; Build a Team

How many people would be part of a self-sustaining management team?
There is no absolute number and a lot depends on turnover/retention/commitment to organization and the level of team member i.e. the higher the level, the more challenging it can be to replace. Short answer is to apply the Mack Truck philosophy: If the #1 in any position got hit by a Mack Truck, their #2 should be capable of keeping things running smoothly. At the top level, I would suggest a three, a triad i.e. 3-legged stool.

Who was the first person you hired?
Combination receptionist/leasing agent.

How would you define retained earnings?
Retained earnings: Earnings (or cash flow after debt payments) retained to be reinvested i.e. not distributed to owners. More technically: on a balance sheet, the figure represents the sum of all profits retained since the company’s inception. In plain English, for the small investor, retained earnings is how much do you chose to re-invest v. how much do you take to live on.

As always, I share what I most want and need to learn. – Nathan S. Collier