“If a man knows not to which port he sails, no wind is favorable.”
Seneca the Younger
Our goal is to build a portfolio of properties and financing with ever increasing quality. It makes buy and hold investing really fun, more profitable, and safer. To make clear progress towards this goal, we look at both sides of the balance sheet.
Properties and Financing:
Some ways to improve the quality of properties in your portfolio:
- Location – Does everyone want to be near this property? Does it create a moat? Does it convey monopoly powers? Is it romantic? Is it next to a landfill? Location is so simple and yet, so difficult to analyze.
- Vintage – How old are the bricks and sticks? Newer is generally better. How much are we cleaning up other people’s messes in construction? Is it built as an optimal buy and hold property?
- Macro Trend Tailwind – Are the major cultural, technological, and governmental winds at our back for this type property? Or are we fighting against them? Are the population drivers there for the dirt to appreciate? RV parks, red state residential, and industrial all have strong tailwinds right now.
How to improve the quality of financing in your portfolio:
- Maturity – How long can we utilize this financing without the headache and cost of acquiring new financing? Having financing that matches up to your expected hold time is ideal.
- Source – Does this source add diversification? Does it add other resources like connections or knowledge? How many strings are attached? How much brain damage does this source of financing cause us? I’m not against jumping through hoops, but the payoff has to be worth it.
- Cost of Capital – Lower is generally better. Honestly, I think other considerations are more of a priority. It’s common to work this number lower over time.
Further Explorations
There are many more considerations, but hopefully this stirs up some new thinking.
This is a different approach than most investors use. It’s a little more nuanced.
It would be difficult to fit these factors into a spreadsheet. However, it’s not impossible. Creating this as a quantitative model is definitely something I’d like to explore.
