Age – The Elephant in the Apartment Business
There’s an elephant in the room in the real estate investment business and it doesn’t get talked about enough. Age, and no not the age of the building but the age of the investor. As a multifamily real estate broker most of my clients are between the age of 55-93. Because of this age range I have had quite a few of my clients and prospective clients pass while working with them. This was certainly not something I expected to deal with when I started working within this industry.
At 53 my father passed unexpectedly when I was just 25. My mother and I were tasked with dealing with his real estate holdings and business affairs. I’ve gone through the probate process in 3 different countries, an endeavor I wouldn’t suggest anyone embark on. However, this isn’t blog about estate planning. One of the main problems I have with the passing of my father is that he never really enjoyed the fruits of his labor. He was working towards the perfect time when he could relax, unfortunately that day never came for him. I see this happening to many of the people I work with.
This isn’t meant to scare you into selling your property before you are ready (although we would love your business). The point is to remind you there does come a time when you have to let go. Let’s be honest owning an apartment building in Chicago is not easy- even with the best property management. These buildings demand time, effort, and resources from their owners. You do need a plan. If you’ve been managing your properties for the last 15-30 years maybe it’s time to start interviewing some property management companies to handle the day to day. Or maybe it’s time to hire an investment property specialist to sell some of your most labor-intensive buildings so that you can enjoy the profits from it.
This is where the plan comes in:
- If you want to pass the building on to heirs. Ask yourself a few questions – is it in functioning condition? Is it managed in such a way that another individual can easily step in and take over? Do your heirs want to be landlords? If the answer is no to any of these maybe its best to just sell and give them a portion of the proceeds to do with as they see fit.
- Are you trying to time to the market perfectly? That doesn’t exist. Even in the healthiest markets there are forces outside of your control that can drop your building value. Taxes, interest rates, etc. For example, with an area with an average 6% cap rate if the net operating income drops from 80k to 75k that can drop your value 83k! That’s right a 5k difference in net income can drop your value 83k!
- Selling isn’t your only option. A good management company can make sure your building is running efficiently. However, you need to take the time to interview 2-3 and make an informed decision.
I’ve been on walkthroughs with owners who can’t make it up the steps of the buildings they own, watched as family members of owners squabble over assets, observed expensive surprise repairs that force owners to sell at the wrong time, and the list goes on and on. We watch great athletes of our era reach the pinnacle of their success and we hope they step out of the game before inevitable ugly decline. Sometimes they make the right decision and sometimes they hang on a bit too long.
The same is the true for landlords. There is a point in ownership where the building is no longer working for you, but you are working for the building. Whatever your plan is execute it on your time, before outside forces make the decision for you.