Category Archives: Underwrite Investment

Don’t Make Your Next Investment Until You Read This

 Issue 130 – Read This

Introduction…We have been using this investment model for many years.  This has unwritten projects in various industries.  A few of the projects include large retail development, industrial development, residential development, Aloe Vera processing, and a charter airline.  These are diverse industries, but the process is the same.  So, whatever investment you are considering, this tool will help in your decision-making process.

How to underwrite an investment…These are the five financial questions to ask.  There are also legal and political issues, but that is beyond the scope of this article.

  1.  Human Resources…Do you have the best person in charge of the five points discussed here?  We prefer a prefer a trustworthy person who is trainable over a highly skilled person who is questionable.  Everyone has a seat on the bus, but are they sitting in the right seat.
  2. Market…What is our market?  Is it local, national, or international?  Do we have a competitive advantage over our competition?  Do we have a contract or lease to sell our product before we start spending money?  Warren Buffet buys companies that have a franchise in their industry.  The Berkshire Hathaway HomeServices franchise operates under HSF Affiliates, which owns the Prudential and Real Living real-estate networks.
  3. Captial…What are our initial capital requirements plus the capital required to grow the business?  And more importantly, once we know the capital requirements how we structure that capital is critical.  Do we use debt or equity, or a combination?   Two of my friends will only do all equity deals in the oil business.  When prices fall, as long as you are covering your operating costs, they can stay in business.  One of the unique skills we employ is creating equity in the project.  “Captial can be a serpent that turns and bites us when times get tough,” Joe Grisel.
  4. Raw materials…Many businesses turn a profit or loss on the proper sourcing, pricing, and delivery of raw materials.  In real estate we start with the land, add horizontal and sometimes vertical development.  In the self-storage developing, we are sourcing a construction material that will reduce both costs and construction time.  More about that later.
  5. Technology…Do we have the best technology available?  Technology permeates our business and investment world.  In self-storage, we use a lease management software that controls our gate access for current payments and tracks our leases called SiteLink.  Several other good programs are available, but we have chosen this brand for its stability and for its compatibility with tablets and our website.

In conclusion...Now you know what five areas under the financial corner to consider when making your next investment.  If you are interested in a discussion of the Legal and Political legs of this table, drop me a note and we’ll discuss in a future issue.

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