Written by David Corley III of LanCarte Commercial
Prior to joining the team at LanCarte Commercial, I helped individuals and corporations build strategies for retirement planning, savings and investing. As a licensed Financial Advisor, I enjoyed being a trusted partner. It was an honor to help business owners review all their assets and liabilities, and understand how those intertwined with their business and their personal objectives.
While advising my clients, I became more interested in real estate transactions and strategies, dynamics of land and property values, and how acquiring real estate assets could help a company leverage positive growth to serve their clients, stakeholders, and employees. As a member of the LanCarte team, I am helping businesses and investors better understand how to build their portfolio and maximize efficiencies.
The fact is there is no crystal ball to get us through the bad times, and there is no magic bullet for “set it and forget it” investing. There are four universal rules that can help anyone improve or maintain the health of their financial position.
Protect First, Protect Fully
We buy insurance in case something unexpected or bad happens. In commercial real estate, it’s no different. We have to insure the asset’s full replacement value, therefore, we buy insurance for structure and contents, or any kind of liability to prevent loss or damage to the value of the property. It’s imperative that we understand the relationship between risk and reward.
Prioritize Savings & Time Value of Money (TVOM)
When we look at the balance sheet, we have to look at everything comprehensively and understand how it all fits together.
One important question: what is your savings rate? When you regularly set aside at least 15-20% of income or revenue towards savings (low risk vehicles or accounts), you give yourself the flexibility to take advantage of new opportunities. This is opportunity cost or TVOM. The growth ability for money saved compounds exponentially over time. That exponential value is lost if those allocated dollars are tied up earning nothing.
In real estate, time horizons have to be considered carefully when deciding on an investment strategy, but many of the risks are calculable and can be hedged against. Different types of real estate have different cycles, but the acquisition and management of commercial properties is much less volatile and more linear in its prediction of growth and value appreciation.
No matter your investments, you need enough liquidity to protect you when times are tough or when the unexpected happens.
Not All Debt is Created or Treated Equally
It is a common practice for companies to secure financing to buy and improve a property. Naturally, that debt must be serviced for as long as it’s on the balance sheet. However, once arrangements are made, they are often forgotten. Navigating the right financing terms is a very important aspect of investing in commercial real estate.
A good interest rate is around 5% or less. With the TVOM operating efficiently elsewhere on the balance sheet, we should be able to make upwards of 6% to cover that debt and still get a return. At LanCarte, we have relationships with bankers that are local, know their markets, and are specialized in real estate financing for commercial properties.
Cash is King
Many of us were recently shown that we needed about three months of accessible “savings” to get through the COVID-19 initial lockdown period. If you are diversifying your cash, it still needs to be liquid and accessible. Having cash on hand (or access to funds) also allows us the opportunity to buy quickly, avoid more bad debt, or resist selling out of necessity.
These are four keys that are essential to a healthy financial position. Real estate is one of the biggest assets on the balance sheet. Effectively managing and having strategies in place to protect and grow this asset should be among the highest of priorities.
Our team at LanCarte Commercial has an experienced and diversified group of individuals who can help you understand and maximize the value of your real estate. If we can be of service, please contact us.
