Why Multi-Family Real Estate Is Like the Cattle Business

You may not believe there are any similarities between the cattle business and the multi-family real estate business. There is at least one important similarity.

This week I was traveling in the St. George, Utah area evaluating multi-family properties that are for sale. I was traveling with my friend, Walt, who is a real estate developer, real estate investor and a realtor. While we were enjoying sushi one evening we were discussing different businesses and business models that we admire. The cattle business came up in our conversation.

I told Walt, "The thing I like about cattle is that they keep having calves. Then the calves grow up and have more calves. Furthermore, as they grow they become more and more valuable." He remarked, "Don't you wish that apartment complexes could have babies. Wouldn't it be nice if that twenty unit complex could start giving birth to 4-plexes." Then we looked at each other and laughed as it dawned on us that this is exactly what rental complexes do, they give birth to other rental units.

At this point you either think I'm crazy or you realize what I'm talking about. As rental units drive cash into your bank accounts the capital becomes available to build or buy more rental units. Or, as the apartment complex builds equity as the debt is paid down or as it appreciates relative to the dollar a portion of the equity can be borrowed to buy additional units. The herd multiplies. And, of course, the newly purchased units also begin to throw off cash that can become part of the purchase price of other new units, and so on and so on.

Like cattle, you have to feed your multi-family units to keep them healthy. There are maintenance costs, refurbishment and updating costs, reserves, insurance costs, loan costs, management expenses and other costs that go into keeping your herd (or portfolio) of apartments healthy. If you let them deteriorate or do not manage them, they become worth less and less and can eventually die. Cattle also need a lot of tender loving care if you plan to maximize your return in that business.

The similarity between the two businesses that I most appreciate is that the older members of the herd help to propagate new members of the herd. I knew a man in the State of Washington who inherited 100 apartment units from his parents. He has been able to multiply that portfolio into over 1,000 units today. It took work, vision, reinvestment, time, and patience to see such a huge multiplication.

If multi-family is like the cattle business it's also like farming. Sow early so you can reap and replant then reap and replant again. Ultimately if you get started early building and buying apartments and then reinvesting (sowing) the income from them they'll grow up and throw off a harvest of additional units, appreciation, tax shelter, income, investment capital, security, and satisfaction.

Yup, it's like the cattle business….

Move 'em on, head 'em up,
Head 'em up, move 'em out,
Move 'em on, head 'em out Rawhide!
Set 'em out, ride 'em in
Ride 'em in, let 'em out,
Cut 'em out, ride 'em in Rawhide.

source: http://www.lyricsondemand.com/tvthemes/rawhidelyrics.html

(For other real estate articles by the author see: https://www.area-info.net/articles/show.php?cty=Salt%20Lake%20City&st=Utah&article_id=966 and https://www.area-info.net/articles/show.php?cty=Salt%20Lake%20City&st=Utah&article_id=1053 )

Disclaimer: Investing in stocks and precious metals is risky and could result in losing money. I am offering ideas for your consideration and education. I am not offering financial advice. Please do your own due diligence. I am not an investment adviser. Precious metals is not for everyone. I promote precious metals. You should do your own due diligence when making investment decisions of any kind. You should consult your own financial advisers before making any investment decision. I make no guarantees that by following any advice or suggestion I might make that you will realize any return. Beware, all commodity markets and other markets carry risk of loss.

leverton

I have been involved with publishing and marketing for the past 32 years. My passion is helping people share their voice. I am able to do this through two important venues: One, with Area-Info.net where people can share everything from opinions to events to news. It is your choice! What do you want to share? Two, through a new program called America's Real Deal I am involved with to help business owners get their voice heard.I schedule speaking engagements with community groups and business groups to share my passion about the importance of "sharing your voice".Contact me directly at lee@leeeverton.coom for scheduling information.

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