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Why Multi-Family Real Estate Is Like the Cattle Business Viewed 61,805 timesBy: Chris Tew
Published for Salt Lake City, Utah (Area-Info.net Mar. 23, 2012)
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.
(For other real estate articles by the author see: http://www.area-info.net/articles/show.php?cty=Salt%20Lake%20City&st=Utah&article_id=966 and http://www.area-info.net/articles/show.php?cty=Salt%20Lake%20City&st=Utah&article_id=1053 )
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Chris Tew received his degree from BYU. He has worked for over thirty years in promoting various disruptive medical and pharmaceutical technologies. He currently serves on the Board of Directors for Phoenix PharmaLabs, Inc, a pharmaceutical development company developing a family of safe narcotics. He is an active real estate investor and developer. Chris is the owner of Multi-Channel Marketing, LLC, a consulting firm specializing in revenue improvement.
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