The Key to Future Value is the Wisdom to Wait

Gary’s local downtown area was undergoing significant change. The city center had many vacant buildings. Gary saw an opportunity -- buy, renovate and rent these empty buildings, but only if he could “buy them right.”


Gary was a real estate broker and investor.  He had been successful early in his career and had made some sound investments.  So he didn’t have to chase every deal that came his way.  In fact, he had a reflex-like response to every proposal -- “I think I’ll pass on this one.”  Not “no,” just  “I’ll pass, ” leaving the door open for any revised proposal. 

The Problem

Gary’s local downtown area was undergoing significant change.  A mall had opened on the edge of town.  The city center had many vacant buildings.  The owners were primarily second and third generation folks who moved on to big city careers after inheriting granddad’s old store.  Gary saw an opportunity -- buy, renovate and rent these empty buildings, but only if he could “buy them right.”  Gary was fond of saying, “You make your money when you buy.”

The Solution

As the downtown rents declined and vacancies increased, the buildings began to attract businesses catering to local college students.  But the buildings needed extensive renovations to be both attractive and functional.  I suggested to Gary that we use The Profit Process to build a financial model.  The model related rents, rentable space, investment and renovation costs.  The goal was to standardize and speed purchasing decisions. 

Gradually word spread that Gary was buying the old buildings, especially those with such fatal flaws as long deferred maintenance, leaky roofs, and damp basements.  He never called the owners; they called him.  As usual, his first response to any offer to sell was “I’ll pass.”  It was usually his answer to the second and third offer, too, until time passed and the price drifted lower yet.

Finally, when the selling price matched our financial model, he quickly closed the deal --.  Because he knew it would take a year or two before he received the permits and completed renovations, he always bought  with his own cash rather than borrowed money.  With no debt, he could afford the wait.  He never “had to” do anything and, consequently, could make good business decisions.

The Result

Gary built a portfolio of very attractive buildings that yielded significant rental income.  After a building was renovated and established cash flow, he would occasionally take in a partner to recapture his original investment.  But never a partner who had to borrow money for the investment.  .  Over a number of years, the properties were sold to his partners and in some cases to tenants. 


Gary had an ability to see future value based on analysis and the wisdom to wait.  He was fond of saying: “There are hot assets and cold assets and there is hot money and cold money.  Cold money buys cold assets that can be warmed up, while hot money buys hot assets that will grow cold.  The trick is to know the difference.”