The Holistic Real Estate Investor: Why Quality Beats Yield

A well-known investor once said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” The same can be said of real estate; indeed, “It’s far better to buy a wonderful property at a fair price than a fair property at a wonderful price.” Purchasing a wonderful property at a wonderful price may be the dream scenario, but it is certainly the exception and not easily repeated. What you want is a perspective and process that you can utilize in every real estate opportunity you are considering.

By the end of this short discussion, I hope you are persuaded to become a holistic real estate investor who considers the practical and ethical implications of your real estate investments and not merely the financial rewards from such endeavors. Real estate is by far the primary asset class that represents the vast majority of people’s accumulated wealth, both in terms of equity and income. It is therefore quite appropriate to discuss the proper stewardship of such holdings.

Management and Maintenance

The holistic real estate investor knows that it is not enough to merely maximize one’s “return on investment” and ignore the underlying practical and ethical implications of that investment. What looks good on paper may look very different in the real world. Real estate is unique as an asset class in that by its very physical nature it requires a greater level of management and maintenance than that of the equities markets, for example. You cannot own a property with zero management or maintenance for long before the physical deferred maintenance begins to compound.

Many people who invest in real estate treat it like a passive investment where you buy it and let it sit and wait for the value of the investment to increase over time. If they put tenants in the property they don’t see the inside of the dwelling for years at a time while it’s tenant-occupied. So long as the rent is paid they congratulate themselves on the “investment” they have made. Eventually, the tenant moves out or the owner decides to sell and they realize there is an incredible amount of deferred maintenance and damage to the property - problems that could have been avoided or remedied had the owner been actively involved in the management of the property. The owner must now pay out thousands (in some cases, tens of thousands) to repair what damage was done. This profound reversal of cash flow virtually wipes out whatever gains they were experiencing over the years and if the property has been financed with a mortgage, the margins are thinner still.

The claim by many landlords in these situations is that it’s “not worth making upgrades or major repairs because every tenant is going to trash the property and this is part of the business”. This is simply false and shows the true nature of their enterprise - the owner in this case is not a landlord but a hobbyist “slum lord” or “absentee owner” who has failed to take ownership and properly steward their real estate holdings. The practical implications are clear: if you own garbage you will attract tenants who live in garbage. If you have a clean and well-maintained property you will be able to house tenants who value clean spaces.

Returns and Quality

Do not be deceived by the higher returns often seen on lower-quality properties. These returns are higher because the overall property values are lower in proportion to the rents received. But as we just described, owning junk may seem good on paper until you have major repairs to complete and your profitability is reversed. It is far better to receive a lower overall return on your investment with a high-quality property than to receive a potentially high return on your investment on a junk property.

This leads us to the last point about the ethical implications of real estate investment. The holistic investor understands the demands and high ethical requirements of properly owning and managing a quality portfolio. You are not housing livestock - you are providing clean and habitable housing for people who are specially endowed with inherent worth by their Creator. It is the lazy speculator that produces the horror stories of landlord/tenant relationships and refuses to properly maintain properties in good condition. The benefits of real estate investing are numerous, but they do not come passively or without diligent work. You should commit to being a holistic real estate investor who considers the whole picture over decades and doesn’t merely focus on short-term profits. If you are faithful with little, you will be faithful with much.

Roseburg and Douglas County Real Estate (February 2024) Market Update

Comparing 2024 to 2023 over the last 12 months in Douglas County, the average sale price has decreased -3.96% from $359,251 to $345,031. In the same comparison, the median sale price has decreased by -0.03% from $320,000 to $319,900. Inventory decreased to 3.8 months in January. Total market time decreased to 83 days.