Friday, July 31, 2009

Two verities of real estate investment

Over the past few days, I have been in San Francisco, and have had the privilege of meeting with four real estate executives whom I am trying to interest in participating with the Lusk Center in one way or another. They are all doing remarkably well, all things considered, and some of the things they said to me explain why. Two things stand out:

(1) When investing in real estate, underwrite the real estate without consideration for financing. Unless the deal earns an acceptable unlevered internal rate of return, don't do the deal.

(2) If a deal depends on a going-out (i.e. exit) cap rate that is lower than the going-in (i.e., purchase) cap rate, don't do the deal.


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Doug Lytle said...

I agree with the comments you received from the execs. Buy for cash flow today, not capital appreciation tomorrow. You can't count on the market to continually go up - as everyone has to keep relearning every time we have a major downturn like the one we're in now. As long as the tenant is credit worthy and has staying power, and the investment provides cash flow from day one, you'll be better off in the long run.

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Alfred said...


It is an interesting post.

One important tip for real estate investing for beginners is that they should know the whereabouts of real estate investments. It's hard to get involve on something that you don't even have any clue on what is really going on. Training is one of the best tools to gain knowledge about this business, aside from researching and reading. For beginners, training will help you understand more about this kind of investment.

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amandasyke said...

Interesting, would not have thought about it that way myself.

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amandasyke said...

Good to know that this topic is being covered also in this web site.
Keep up with the good work.

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