Work From The End In Mind

Deals, Deals, Deals

In the beginning, everyone focuses on deal flow. A healthy deal pipeline is the nucleus of a burgeoning real estate enterprise. It's imperative. However, there is an important question to ask.

The One Question

Before you spend countless hours in any real estate sector, you need to ask yourself a question. 

What is your end goal? 

Once you decide what you are chasing or avoiding you can plan accordingly. In other words, this is 'your exit'. This is your starting place. Work backwards from this answer to determine how you should organize your real estate efforts. For instance, if your aspirations is to own 1,000 units, your structure is going to be very different than if you wanted to buy a few properties for retirement. Think of the end before you get started.

The Considerations

The answer to the question will help direct your deal sourcing focus and networking efforts. Let's take my aspirations as a test case to work through some of these considerations. My end goal is to assemble a 5,000 unit mobile home park portfolio in the Southeast US. 

Here are some things I think about when I work from the exit:

Will outside investors be involved?

With my end goal, I will need to raise outside capital. In today's market, everyone is looking for return. Money is the easy part of the equation. In theory, I could partner with a different investor on every acquisition. However, I prefer to use less capital partners than more. Here's why: I want to minimize the number of decision makers. With outside capital comes a loss of control especially when the partners put up the majority of the equity. 

Imagine in 10 years a company comes along and wants to purchase my entire portfolio. If I partnered with a different partner on every deal, I have a problem. In this instance, I have to negotiate with each investment partners to agree to sell. This hurts my ability to exit. Ideally, I would want less investors instead of more in order to move quicker if a lucrative opportunity arises. Yes, that means turning certain people away who offer attractive partnership structures. Less is more.

What is your geographically focus? 

If I want to position my portfolio to be attractive to a larger buyer, I need to be thoughtful in how I purchase assets. In other words, I need to buy deals where other people want to own real estate. Owning twenty properties in five markets is better than thirty properties in twenty markets. Scale and operational efficiency are important to consider. In addition, financing several properties is easier when they are closer together. Flexible financing options is powerful for all investors. This increases my likelihood of actualizing on my long term goal. 

What is your acquisition criteria?

Location is important in all real estate endeavors but type of properties matters as well. In every sector, there are varying classes of real estate. People buy into stories and themes. Find a niche that works and stick with it. In mobile home parks, larger investors want properties that are mostly lot rental with 100 lots or more near large metropolitan areas. With my exit in mind, I need to purchase properties that fit this criteria.

Do the Work

Whether you are buying real estate for your retirement or building a large portfolio, think through some of the implications of your purchases to set yourself up for success. Investment partners, geographical preferences, and property type are just a few to consider. The work up front will save your investment later down the road.