‘why would I ever sell a property if I didn’t HAVE to then?’ It’s occurred to me lately that it’s not such a simple question. Yes, a property you own today will likely be worth more money in the future, simply based on the power of inflation, and that real estate is a hard asset. Regardless of market cycles going up and down, when you look at the real estate market over time, values rise over time. Right now, we’re in the process of selling a few of our properties, and it has been a difficult decision for me — because I can’t help thinking I’ll be driving by some of those properties in 10 years and lamenting .. “I used to own that property.. and now it’s worth $5 million..” However, it’s easy to forget that there are valid reasons for selling today, which you may not remember 10 years from now. For example, we are selling one of the packages of land we have on the river in Calgary. We’ve achieved what we feel is a good price for it – top of the market for now. I know for a fact that land will likely be worth a lot more money in 10 years. But the key is, we’ve ridden the value up more than 50%, and we’re taking our profits at the full value today. Since we used leverage, our actual return on investment in terms of the cash we invested is somewhere in the 300% range annualized. We can now take that profit and recycle it back into another asset that we buy below market value, and again ride that value up. So yes, that river property will be worth more in the future.. but if we take the profit now, and re-invest that in something different, it’s likely we can make MUCH more return overall in those 10 years than had we left that property alone and not sold it. There are enough opportunities in the market that allow us to move the money faster than letting it sit in that property. This is the theory of “the velocity of money”. Building wealth is about trying to keep your capital and resources moving forward and building on itself as quickly as you can. Sure, we could leave the money/equity in these properties and let time make us wealthy. However, what we’re doing is taking that equity, and then going out and trying to find another asset we can buy well and create another 300% return in a year .. and then possibly doing it again next year. In other words, we are systematically now looking at our portfolio and trying to determine if holding every property is the best use of our resources, and we’ve decided that there are a few that we could get the resources moving faster for us. This is primarily because the huge returns are already behind us (ie: the value’s already been achieved) and so holding now will give us decent returns, but it’s the market creating them for us now .. not our creativity and negotiation skills. So, we’ll take this capital and roll it into something interesting that has a lot of upside and needs some creative problem solving. We’re always looking for properties (or people) with problems, because in the end, that’s where you make the best returns in real estate – solving headaches and problems. So while selling an asset may not seem like the thing to do when you’re in it for the long-term, you always need to make sure your resources are allocated into the best assets they can. When you’re in a hot market, take advantage and prune a couple of your lower performers, or the ones that you’ve made the best returns on and are unlikely to achieve going forward.]]>