I hosted a live webinar with Chris Powers that will be split into two episodes. If you don’t want to miss the next one, sign up for my email newsletter to stay up to date.
Chris is a great guy to keep up with on Twitter @FortWorthChris; he’s the founder of Fort Capital, which focuses on class B industrial real estate, and host of The Fort Podcast. While Texas-based, Fort Capital is actively breaking into new markets like Orlando, Tampa, and Memphis, while seeing expansion in Houston and San Antonio. Simply put, business is booming, and he’s looking to continue buying a lot this year.
Buying, Holding, and Not Sweating the Market
With capital flowing into niches like industrial and self-storage, everybody benefits from getting deals done. People are always worried about the marketing getting too hot and correcting soon, but that doesn’t keep me or Chris up at night as much as you’d think. Since sellers have usually optimized their properties for cash flow, stability, and high occupancy, there’s significant upside for those who are adding value or bringing new strategies. Badasses make a model to buy assets at market price, fakers can’t afford market price and never buy much at all. Badasses are constantly looking to expand their portfolio, fakers will give the excuse that the market is too hot and overpriced.
The recession from 2008 is fresh on a lot of investors’ minds, and any hot market will have them worried we’re due for another big correction. But one big difference between then and now is people aren’t able to leverage nearly as much as they were before, and the restrictions the government has put in place have made the scene a lot healthier. We’re also seeing a continued supply squeeze driven by NIMBYism–people are constantly upset about new developments in their neighborhoods and cities, so the pace for demand for an asset is outpacing supply, promoting the long-term outlook.
At the end of the day, you need to keep buying in all markets; it’s hard to build a sustainable company if all you do is try to catch the bottom of the market. The cheat code in real estate to be paid to wait; if you don’t need to flip, remodel, sell, etc. you can have cash flow and hold on for a long time until it’s the right time for you to sell. Continuing to do business builds rapport among your network and in your industry as well, meaning you’ll find more and better opportunities by being active than by waiting around for a unicorn deal.
When and Why to Sell
A close friend of mine advised me to sell off a chunk of my assets lately, and I’ve really been chewing on it. We have a portfolio of twelve properties in upstate New York with a cost basis of $21 million, and a recent deal popping up on the market suggests that we could sell the whole portfolio for $50 million now.
It’s all about opportunity cost, and the first big sale can change your life and let you live more comfortably for your future. And selling one set of properties doesn’t mean you have to stop buying either. It’s easy when things are great to not want to sell, but that doesn’t mean you shouldn’t. Chris has sold three properties in the last year and a half as well and doesn’t regret any of them. As you build wealth, the conversation on whether or not to sell becomes easier because the decision will have less of an impact on people’s lives.
GP Structuring and Fees
Recently I saw another GP on Twitter, who is a great operator with a strong track record, get torn apart when somebody posted a screenshot of his deal docs. His deal had total fees of around 8% of the purchase price, and people on RE Twitter started tearing it apart, primarily other GPs who were virtue-signaling that they would never charge these fees to their investors.
I don’t understand the outrage. This is a world of abundance, the more people doing deals the better. It’s so easy to scrutinize deals without a true sense of what’s going on, and people are getting worked up about a screenshot from a 30+ page deal doc. As capital is democratized and more and more people are trying to invest in every asset class, the dynamics of supply and demand change, and what’s “normal” changes with it.
Right now, tailwinds favor the GP, since money is everywhere but deals are limited. Not every investor has a deal flow, they may need to take a less favorable fee structure just to get their capital in the game. Some great operators are able to charge a higher fee because their impact on the deal is worth it. Being a GP is hard work, and anybody who can do it incredibly well deserves their paycheck. It’s a free market, and this GP got investors to agree to this deal structure.
Three Key Takeaways
- The best operators will find a way to promote healthy ROI while buying at market price, they don’t need to wait for corrections
- Selling early in your career, especially in a hot market, may not feel like the right move but can really change your life and avoid any risk in the market
- The more people doing deals in your market, the better. Don’t scrutinize the way others are finding a way to make business happen
P.S. If now is the time to start your own journey, the real estate community is for you. I weigh in on almost every post, and there are a lot of people smarter and more accomplished than me.
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