Preparing for Increased Transaction Benefits

These reflections come from years of good times and, too often, attendance at the school of hard knocks. I found out that markets move up and down without my approval or control. Usually, the hard-knocks education came from lack of attention to the following.

First: never forget that real estate investment is cyclical. Depending on your time horizon, never assume real estate is always, every day, a good investment.

Always remember that recovery of your initial equity investment is the most important thing to plan for.

Never assume the desired result will always work out, or that the investment will always be a winner. In buying and selling equity, developing real estate, purchasing mortgages and notes, or any other investment, there should be a clearly planned result in mind for the worst case, the most probable case, and the blue-sky case.

Questions to answer about the market

• If we own an equity to make a profit, what is our definition of profit?
• Is our profit horizon short term or long term?
• Are our profit objectives before tax? After tax? Before closing costs?
• Is the projected profit predicated on resale, increased income, refinancing, or a combination?
• How often should we review our desired results against the cycle? Monthly? Yearly? If the market worsens, what just happened to our plan? If it improves, what then?
• How well do we keep informed about potential changes to zoning and official plans that could change the use of what we own?
• Do we assume a downturn will never happen here?

Questions to answer about a specific equity

• Why do we want to move this particular equity? What is the real motivation?
• Are we buyers with our equity?
• What are our guidelines for using it?
• What would we consider taking for it?
• Is there a mandatory cash component, for example debt repayment?
• Have we truly determined our objective?
• Do we understand benefits beyond cash?
• What benefits exist for someone to take our equity?
• Are we mentally locked to a fixed price, or oriented toward increased benefits?
• What can we add to our equity to make a more attractive package?
• Have we explored being the user of a business opportunity?
• Will we instigate offers if it solves our situation and serves the long-term objective?
• Are we open to a joint venture with all or part of our equity?
• Do we have geographical limits?
• Finally, are we realists? Do we understand that takers of our equity need to see a future profit too?