The Forever Factor

There is one often overlooked factor among investors, rehabbers, property flippers, and various other business owners that has slowly started to become a factor again. What is “the forever factor”? So many investors in real estate over the years have been so focused on renovating a property, or building a new property for that matter, and selling it to make their profit.

Until the last few years, it was a given that you could sell that property relatively pain free, as long as it was priced competitively and marketed properly, but because of the slow-down in the markets things have changed. Property owners are starting to refocus on what many corporate groups, hedge fund managers and “old school” investors have been focused on for years. “The Forever Factor.”

Many investment calculations take into account cash flow, return on investment and tax breaks, but when you look at these you also need to weigh out the advantages of a property that generates cash…..from now on. As we got used to being able to sell just about any property, at any time up until 2008, few investors even thought about holding a property long term.

With the slow-down in the economy, investors and property owners are now realizing just how important cash flow is. Ask any seasoned investor and they will tell you that cash flow is better than cash any day of the week. When other parts of your business take a hit because of economic factors, an asset that generates cash becomes priceless. It supports all other facets of your business.

Old school landlords and big corporate commercial property owners understand this. Although a ton of commercial properties will go through the default process over the next 3 years, because of commercial paper resets, smart companies that have been holding properties for many years are actually looking to buy. They know the type of leverage and bottom line profit dollars that long term, properly managed, real estate assets can create.

Residential duplex and multifamily property owners are now dancing in the streets because of the increase in rents over the last 2 years or so. When the economy takes a dip, there are less residential buyers out there and more tenants. And there are not only more tenants, but an abundance of good tenants to choose from. Downsizing property owners that have sold their properties often look for a nice place to rent, until they regain their stability. This demand drives rents and your bottom line dollars up.

The old worries about how long it takes a property to “break even” aren’t as much of a factor when profits go up and vacancies go down. If you have to sift through a tenant, chances are you have 3 or 4 waiting to get in. Screen them carefully, follow a process in rent collections that works, and you’ll find that the numbers are more attractive now than they’ve ever been.

We’ve seen demand for residential rentals continue to rise, even as average rent per square foot has continued to go up. Stop and take a look at some of the strongest investors in your local market, and compare what they have in common. Most of them have been holding properties long term, or have a portfolio of income producing properties that generate cash every month. They already know about the forever factor.

Look at the commercial real estate firms that have actually gotten stronger during this shake up going on in the commercial paper markets. Who are the ones that don't seem to be as affected as the small firms or weaker firms? The companies that have been holding and managing long term cash flow producing properties are not only doing well, but a lot of them are now buying properties at incredible deals, which means their hold to break even point is even shorter.

All of this leads to a much quicker turn-around time to break even and pay the property off. An investment like this will continue to generate cash forever with a little management and attention. Long term the property will continue to appreciate over many years while you’re enjoying the income that it generates, and The “Forever Factor” will become more and more important as it helps the rest of your assets become more seasoned and stable over time.


Scott Riggsbee
Sandhills Capital, LLC
Real Estate, marketing, Investment
PO Box 2014
Southern Pines, NC 28388
www.SandhillsNC.Com