Knowing When Not to Buy

I have spent most of my career buying real estate, so it may sound strange for me to say that one of the most important skills in this business is knowing when not to buy.

There will always be another property and another opportunity. The difficult part is not finding something to buy. It is deciding whether the opportunity in front of you actually makes sense, especially when everyone around you seems willing to pay more.

We have seen a lot of that in Florida. Capital has come in from New York, California, Europe, and other markets where investors are accustomed to different pricing and different returns. Someone who is used to paying $600,000 or $700,000 for an apartment may come to Florida, see something at a fraction of that price, and immediately consider it inexpensive. Their point of reference is different, and that affects what they are willing to pay.

I cannot make investment decisions based on somebody else's point of reference. I have to look at what the property can actually produce, what it will cost us to own and operate, what we can realistically improve, and whether I am comfortable owning it for a long time.

That last part is important because our business is not based on buying something and hoping another buyer will pay more for it two years later. We buy with the intention of holding. When you think that way, you look at a property differently. You have to consider what happens when rents slow down, expenses increase, financing changes, or the market goes through a difficult period.

Experience has also taught me not to force the numbers. If I need everything to go right for a deal to work, I probably do not have a very good deal.

There should be room for things you cannot predict because real estate always gives you something you did not predict.

Our approach to development today is a good example. We bought land seven or eight years ago that we are now using to build around 3,000 apartments. That land made sense when we bought it. If you asked me to buy the same kind of land today and predict where construction costs, approvals, financing, and rents will be several years from now, I would have a much harder time making that decision. So right now, we are not spending money on new land. We would rather look at finished product where we can understand what we are buying from the beginning.

That does not mean land is a bad investment or that development does not work. It means the opportunity has to make sense at the time you are making the decision.

There is pressure in this business to always be doing something. I have never believed activity by itself is a measure of success. Sometimes the right decision is to buy quickly. Sometimes it is to walk away quickly. And sometimes it is to own what you already have and make it perform better.

Knowing the difference comes from experience, but it also comes from being willing to say no.

You do not make money on every property you look at. Sometimes you protect your money on the ones you decide not to buy.