BIGGER IS NOT ALWAYS BETTER
There are many ways to measure growth. As we watch the farm equipment venture out onto the highways during early spring, we think about local ranchers and farmers growing their businesses. A farmer can find ways to improve soil, irrigation and harvesting to potentially double the yield from an existing field. Or the very same farmer can invest in acquiring and planting 2 fields, to double his or her yield. Essentially the same outcome, but with two very different strategies.
Today’s real estate investor has more similarities with farmers than we realize. We choose which fields (properties) to buy, which seeds to plant (tenants and/or tradespeople), and then we harvest the results (income, capital gains) when the seasons permit.
Many people in our circle are driven, growing, acquiring and planting early seeds in Alberta’s recovering and/or booming economy (depends on your perspective). And let us be clear: the opportunities right now appear very attractive and exciting! As we grow our business and our investments, we are making every attempt to be strategic with our partners. The frenzy is real! Temptation for exploding growth lies around every corner.
Who doesn’t love the economy of scale that comes with bigger businesses? Isn’t that why so many of us flock to Costco, for bulk purchasing discounts? Paying less for the same product or service is what bargain hunters live for!
But we are noticing that growth comes with three key challenges for real estate investors.
- More people to manage. Depending on your investing tactic (flipping, new construction, buy and hold, rent-to-own), the actual humans are different, but the EQ and management skills are very similar. Somehow the tenants, builders, lawyers and even the permit people all need to be part of the process of moving forward, … without losing our marbles or our shirts.
- More money to manage. How many times have investors discouraged us for growing slow and steady? You don’t want to know. But these days we are watching numerous businesses/investors who flew by the seat of their pants—and are now getting caught as the tide goes out. Managing money is an acquired skill for most businesses; real estate investors are no exception to this. The only way to shorten the learning curve here is to work VERY closely with bookkeepers and accountants who have a high level of skill AND an astonishing ability to communicate their knowledge/advice.
- The bigger the ship, the harder it is to pivot. Imagine how quickly a speedboat can maneuver around an obstacle. Now imagine how difficult it is for a cruise ship! Like most real estate investors, we love closing on a good deal; the acquisition is fun! But we especially love multiple exit strategies!! The Alberta economy has taught us well.
In a game with incessant changes, we want to remain agile. The whole point of our investments is for financial freedom—which means choices with our time, energy and future life plans. One question today for our investor colleagues, “Are you playing the game that suits your goals best at this stage in your life and career?” Don’t get seduced by someone else’s strategy just because the sales pitch was awesome.
Postscript: our condolences to the family of the landlord who was recently killed by a tenant in Calgary, and also to the builder who was recently killed by a disgruntled subcontractor in Edmonton. We recognize there are two or more sides to every story. But for each conflict there can also be multiple solutions. Homebuilders and rental housing providers shouldn’t be in a life-or-death business.
