Why a Long-Term Investment Horizon is Important

With every investment we make, it is important to think about how the investment’s value will change in both the near and distant future. What will the value of a given building be in one year? In five years? In ten years? Making a deliberate effort to answer each of these questions can help us determine which properties are compatible with our investment goals.

In the fast-paced world of real estate syndication, you will find plenty of firms that make their investments with only a short-term mindset. They will spend an endless amount of time scouring the market, looking for underpriced investment opportunities that can quickly be flipped for a profit.

There is no denying that, even in very competitive markets like Chicago and New York, there are countless underpriced properties that are currently available. Many of these properties could even be bought, held, and flipped for profit with relatively little risk. But even keeping this in mind, we remain—unapologetically—a company with a long-term mindset.

Long-term investing is the core of our business. Everything we do—the relationships we build, the properties we invest in, the projections that we make, etc.—is done with the future well-being of our firm and our investors in mind. We believe that if we can orient our philosophy to match future trends, then we will be well-positioned for long-term success.

Decreased Risk

One of the most effective ways for a firm, or an individual, to mitigate risk is to spread their exposure to risk over time. Take retirement, for example. Most individuals contributing to their retirement fund do not do so with the assumption that this year will be the year that their accumulated savings will satisfy their long-term needs. Counting on a single year to be “the year” when all of their needs are met by selling all their holdings is unnecessarily risky. People save for the future knowing that on average, each passing year will help move them a little bit forward—this includes many good years and a few bad years, as well.

The real estate market operates using a similar logic. If we “hope” a property will increase in value by twenty percent over the course of the year, we are exposing ourselves to a lot of risk because there is a relatively small chance this will actually happen.

But if we could give the property several consistent opportunities to appreciate annually, spread out over time, we are no longer as dependent on a specific event.

In other words, a long-term approach to investing is functionally a sort of time diversification that helps put us in a much more secure position.

Diversified Equity

A long-term investing philosophy also helps us diversify our equity. Anyone who buys a property with the intent to flip it within the year will obviously care much more about the building’s ability to appreciate than their ability to fill the building with a tenant. When appreciation becomes the only method for generating returns, once again, our exposure to risk will increase.

At Brit Properties, we like an opportunistic “flip” when it’s presented to us, but we want to invest in buildings not just to sell them, but to put them to good use. We want to be able to generate income, through leases, and maintain lasting relationships with each of our tenants.

This helps ensure that even when the industrial real estate market is down, we can continue increasing equity over time.

Even when it appears that we have a profitable deal within reach, we still might choose to hold. A few years ago, we bought a property at $6 million and sold it at $9 million just a few years later. A 50 percent return in 2 years is undoubtedly very attractive. But had we listened to our instinct and instead used a long-term investment horizon, we would currently enjoy holding that samebuilding which we recently learned that the same property is worth more than $14 million today – with the same tenant still in place as the day we sold it.

Developing Long-Term Relationships

As we have recognized before, developing relationships is an extremely important component of our sustained success. We currently have a portfolio of buildings and a team of investors and tenants who we love to work with. While, of course, we continue to look for ways of broadening our network, what we already have in place serves as a foundation for what we build going forward and as a template to establish the kinds of relationships that have helped us thrive.

Investing is about more than just grabbing short term money. Investing is also about time and effort. We commit ourselves to building long-term relationships because these relationships are what help propel our investors forward. If this means occasionally being flexible with leasing terms, giving discounts to companies committed to social good, and holding properties for longer periods of time, we will carefully rise to the occasion. By thinking about our values and thus where and who we want to be in the future, we can make decisions today that are most likely to create the most beneficial outcomes for our highly valued investors.