October 2022 | Article
by Kevin Adatto, CPX Managing Partner

To some extent, investment preparation will be predicated upon goals and timelines, correlating with the risk profile, overall focus, and a number of other variables. A few key factors to consider:

1. Markets are cyclical. What goes up, must come down. Always consider your downside risk and be prepared to wait out markets.
   
   
2. Understand the market’s drivers, regardless of product type. Jobs trends, residential growth or constriction, municipality controls, competition subset. Where is there exposure and where is there an opportunity?
   
   
3. Don’t overleverage or financially engineer a deal. Again, markets are cyclical, and you must be able to withstand downturns. Additionally, have equity/reserves for re-tenanting, capital expenditures, and the “Oh shit!” moments. If you need all the stars to align to get to a baseline return, keep searching.
   
   
4. Be patient and be ready to react quickly. Build cash reserves during upswings when the herd mentality is all doing the same thing. Then, take a contrarian approach when the herd is heading in the opposite direction. More money and opportunities are made in the downturns, not the bull markets.
   
   
5. Think long-term. One might get lucky and make a quick profit given certain circumstances or markets gravitate toward them; however, be prepared to own the asset and weather different cycles. While there are a number of reasons to sell to increase portfolio size or otherwise, it’s also a good rule of thumb to hold and experience appreciation long term and pay down debt.
   
   
6. Avoid too many partners. This is my personal approach from anecdotal experience and is counter to many investment strategies — and again, relates to one’s overall goal. Yes, using other people’s money can springboard and accelerate you to great wealth; however, it also comes with restrictions, oversight, and potential misalignment. The flexibility of fewer partners allows for nimbleness and better control.
   
   
7. Purchase good fundamental real estate. Cash flow is important, and again, depends on your strategy, but good real estate withstands almost every market. There is always a flight to quality in down markets. This may come with fewer returns initially but inevitably will win over the long term with rental appreciation, fewer vacancies, and a larger buyer pool if you choose to sell. Location and fundamentals will likely win.