Delivering Value to Receive Value in Real Estate Investing
The Pax Investment Strategy: Deliver Value to Receive Value
“What’s your exit strategy?” they ask.
“Are you gonna hold for five-years? Seven? You gonna do a quick Flip?”
No. When we buy a property our aim is to own it forever. My exit strategy is a pine box.
Why do I want to frantically buy and sell? If we buy something, fix it right, operate it well and commit to maintain it… why should we sell? We can pull money out via refi’s over time. But to buy and sell is to churn without making butter. It’s like a sand painting. You do all this work then wipe it away. Rather than flipping, we prefer to build a portfolio.
Do we sell? Of course, we do. We sell for strategic reasons. We sell when the market makes it impossible to buy and impossible to resist selling. But we are in the bricks and mortar business. We buy it, we improve it, we own it, we assume the responsibilities of ownership, we strive to deliver value every step of the way.
To the construction team, the operational employees, the tenants, the community, the lenders, the investors… and if we take care of all of them… then also to the key managers and to ourselves. If it’s not a virtuous circle, you’re on a hamster wheel.
So, here’s the strategy:
Give and You Might Receive
We treat real estate like the business it is. We’re not point-and-click investors. We have our ideas about the future of the economy and prices but we don’t flatter ourselves that we have Nostradamus-like powers. So, we structure our investments so that we have good prospects to make consistent double-digit returns even if prices never go up by a single dollar.
We do that by focusing on the things we can control.
We can control whether we buy a property at a price that will produce sufficient cash flow to meet our return-on-investment targets. We control whether we put on long-term debt in the form of a fixed-rate amortizing loan. We control whether we combine those two in a way that produces positive leverage, increasing our returns without dramatically increasing our risk.
But that’s not all we do.
We strive to be diligent operators because we believe execution is everything. Good plans without good execution tend to produce poor results.
We work hard at honoring our commitments through good times and bad. A major recession, a pandemic, and unexpected economic shock are all reasons to refocus and double down on execution. You don’t want to hand in the keys. You don’t want to bail out and leave investors holding the bag while you walk away with fees. You don’t want the properties you’re responsible for to fall into decay because of temporary setbacks no matter how severe. You don’t want to be taken out of the game.
We know there will be good days and bad in any business, as in any other part of life. The long-term rewards tend to go to those who work and invest with an eye for the long term and don’t let circumstances of the moment deter them from their guiding principles.
For Pax, those principles are to deliver value in order to receive value. They are to make money for and with our investors, not off of our investors. They are to build a valuable company for and with our employees. They are to add value to the communities where we proudly take on the responsibilities of ownership.