Hello Mr. Collier,
I hope everything is going well with you.
Would you mind answering the below questions?
Do you approach each real estate asset you purchase with a long term commitment with keeping that asset?
Yes! Selling real estate is a time consuming process and Uncle Sam will want 25% of your profits which means that the next investment will have to earn 25% more just to be as lucrative as the one you just sold. Plus good new investments are hard to find, so why sell the one you’ve got if it is still a good investment? And it will have to be a good investment for someone (absent the “greater fool than thou” of investment exit theory) in order for you to sell. I do have some assets I’d like to sell for various reasons (small size, changing geographic focus) but when I look at the nice cash on cash return I’d have to give someone in order to sell (and broker commissions and other cost of sale, plus once again, Uncle Sam) and I generally decide I’d rather keep that nice cash on cash return for myself and save myself the time and trouble of dealing with a bunch of tire kickers wandering around my property and use that time to go do another deal of my own!
Generally, if I’ve created value, I’d rather harvest it by refinancing the asset (hopefully 10 year term, 30 year amortization, and at a good fixed interest rate). Debt proceeds are tax free. Of course, the longer you hold an asset the more Capex it will require to keep it fresh and competitive but I’ve always found it well worthwhile. Of course, if you have partners who wish to sell you may have no choice and if a neighborhood is headed down hill, best to exit before it is too late.
How do you feel about apartment communities in rural areas? Good idea? Bad idea? Depends on the area? Surrounding cities?
Rural is Risky! Markets are thin, thin, thin in rural areas, jobs tend to be low paying, employers tend to be few, apartment communities tend to be small without economies of scale, good loans are hard to get, plus rural communities are harder to sell when it is time to exit. Institutions generally will not touch, high net worth individuals or syndicates tend to be only buyers.
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.” – Warren Buffett, Letter to shareholders, 1988
As always, I share what I most want/need to learn. – Nathan S. Collier