When the pendulum swings in real estate investing, it covers the entire reach of the pivot- back and forth. Sometimes the pivot is pricing, another time occupancy, or availability of financing. Or just plain market stability. You will occasionally see a market in balance but this seems to be the exception to the rule.
Wait, hold that thought. Let’s say your assets are in a stable market, expectations are for continued stability and the asset is meeting your financial expectations. Do you buy, hold or sell? This is where many people get that uneasy feeling. This can’t be right- stability? What an unusual thing!
Many investors so are accustomed to constant flux that when stability arrives it is unrecognizable. Granted, real estate, does not love or feel. Nor should it be treated as a family member. But very often it can require only nominal tinkering. Not to be left alone unattended, of course, but unobstructed from producing positive financial results. Following are some of the things that people do related to their real estate investments that get in the way of success.
Greed (ignoring the fairness principle). In life and real estate there is always potential for litigation. Setting this aside for a moment, staying away from the margins, some people operate under the principle that a transaction that is fair to both parties is a quality objective. Other people, not so much. Their objective is to crush, diminish, and peel the deal to the nth degree to benefit their side. There is nothing you can do to stop such persons from acting in this manner other than decide, if you have this option, to pass on doing business with them and seek the next opportunity to buy/sell/transact with others operating more in alignment with the fairness principle. Nothing wrong with hard/tough negotiations. But there is a line that makes the entire process near impossible. Pick your fox hole and ready for a fight. Welcome to business as usual for many.
Boredom. Why are you selling/buying? Run out of things to do? Everything re-runs on cable and the cash flow is just stable? This is why you are trading? Some owned deals are just stellar – as is – no changes necessary. Sure, there is always capital expenditures to address. Yes, bad debt and evictions occur (that’s part of being in this business). But please, do not sell for a non-business reason or to create some excitement in your life. Make a business decision, not an I-need-a-new-project decision.
Over-leverage. Occasionally, over-leverage is a post-acquisition knowledge event. Such as what occurred often in the depths of the great-recession where many owners did not know they were over-leveraged until it was too late and the rules of the game had changed. Pre-acquisition, it’s one thing to press the loan limits because of equity capital constraints; but there is a red line (different for every investor based on their risk tolerance).
Corruption (larceny, graft, pay offs). Stuff happens- these things happen by design. The poor will always be with us. So will thieves and underhanded dealings. Addressing such sometimes requires forensic accounting, other times updated security protocols and modern-day common sense. The simplest advice is to trust but verify.
Inattention. Auto accidents and bad things on property both occur based on inattention. We often refer to this as taking your eye off the ball.
Over-confidence. Heed the advice of Napoleon, a man with the greatest army of his time.
“You don’t reason with intellectuals. You shoot them.”
Thus, regardless of your reasoning and confidence, if the decision (to buy/sell/hold) is not your decision to make, then perhaps it is better to keep your opinion to yourself.
Presumed Liquidity. Equity is a gift not right (this is an ethereal statement). Rental property of size, even in a “hot” market can takes months to sell. That’s one of the misnomers about multifamily; that although it is the most liquid class of commercial assets, the timing of a specific sale is difficult to gauge. Just a note that considering equity as liquidity is a presumption until a liquidity event occurs.
False expectations. Presumption killed the cat. Another quote from Napoleon:
“If you wish to be a success in the world, promise everything, deliver nothing.”
We are accustomed to politicians delivering half-truths, yet they are not the only ones to stand in front of a room of people or look at you eye-to-eye and deliver promises. Best to keep your own counsel and that of those you trust. Regarding new acquaintances…time will tell.
John Wilhoit is a real estate professional specializing in residential asset management and property management. John has an undergraduate Degree in Business and a Master’s Degree in Urban Studies. Learn more about John here.