The secret to buying low and selling high is the same secret to losing weight: time, focused attention and following a quality plan of action. Yet, if this was easy everyone would do it, right? Buying low is a relative term? Low where?
A Plan, Time and Expertise
Making money in any business requires a plan of action, time and expertise; and we need all three to have a high degree of success. In real estate, add capital. Lots and lots of capital. Sure, we can add leverage but along with this comes the need for an increased risk appetite. Yield requirements change along the capital stack; the thinner the equity, the higher the yield requirements from an investor.
Assuming leverage is at an acceptable level how long does it take to make any money in real estate? Here is my least favorite answer: that depends. No one can time the market. If they could, every real estate owner would have dumped their portfolio in 2007 and repurchased most of it for less than they sold if for over the next five years. So that's out.
While you cannot time the market, you can make educated guesses about future events. For example: interest rates have been artificially low for many years. Chances are they will rise. Chances are they will rise much fast and much higher than most people believe is possible. Thus, prepare accordingly.
Back to timing... Let's stick with rental property; property that generates a monthly income. There are five ways to make money:
• Mortgage principal reduction
• Active management
As an owner of real property you have no control over appreciation unless you consider market and submaket conditions prior to the buy decision. The other four categories, however, are ongoing parts of being engaged in this business.
How do you address income? Do you have good counsel for selecting how depreciation is taken? Did you select the right mortgage vehicle for long-term ownership? Are you actively managing the asset? These are all part of having a good plan of action.
Applying appropriate expertise to real property assets and given time to develop your plan will set your sail in the right direction for reaping benefits from an eventual sale. Thus, while you cannot time the market you can attempt to gage the best time to sell an asset based on the availability of equity and debt in the marketplace at any given time.
What is the secret to buying low and selling high? There is no one secret but many facets to solving the equation for making this occur beginning with time, giving the asset your focused attention and following a quality plan off action.
About This Blog
Multifamily Insight is dedicated to assisting current and future multifamily property owners, operators and investors in executing specific tasks that allow multifamily assets to operate at their highest level of efficiency. We discuss real world issues in multifamily property management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. Seek professional counsel. www.MultifamilyInsight.com
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