Simple Tools for Creating Value (Part 3 of 5)

Creating value in real estate is not a mystery.  This week we explore 4 more keys to creating value.

  1.  Diversification– Well selected multi-tenant residential buildings offer built in vacancy protection by virtue of its scale. 50 units with an 8% vacancy is still a viable investment with a modest risk. Conversely, purchasing a single family home or condo has a much higher risk profile: it is either 100% vacant, or 100% full. There is no market average effect when you only own one unit.
  1.   Market Cycles–   A smart investor can buy valuein all market cycles. If you watch the Real Estate market cycles you can time your purchase so you can maximize your short term appreciation by buying at the bottom of the cycle. However, one of the fundamental Real Estate maxims applies favorably: “All Real Estate is Local.” That is, local conditions apply. There may be a global recession, but there are always (local) exceptions for the savvy purchaser.
  1.  Appreciation– Real Estate will always appreciate over time and you don’t have to pay for the increase in value until you sell the building. Since 1968 historic appreciation real estate assets have been 6.7% per year according to the National Associate of Realtors. Since the 16thcentury the average is 4% per year. That is a 500 year sample size dealing with all manner of accommodation from mud huts to castles. Additionally, that increasing equity value can be leveraged again, used to build a solid net worth and estate value for your heirs.
  1.  In Control–  Investment risk is managed in large measure by the degree and nature of investor control. With multi-tenant real estate investing you are in control on the major decisions that affect the performance of the asset: purchase, holding structure, budget, dividends, mortgage, marketing, management and cash-flow decisions. AtRho – Orion Investments Inc. we manage every part of the investment to maximize investor returns and reduce risk. With investment in equity markets you don’t have this control; you simply have to trust that the board of directors and executive are making decisions that enhance shareholder value and are honest and transparent with their financial reporting.

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