Welcome to The Real Estate Venturist. Every other week, this newsletter will give you a behind-the-scenes look at what it’s like to be a real estate entrepreneur. As always, this is not investment advice and merely my opinion.

Why Long-Term Real Estate Is Harder Than Ever

My real estate heroes have always been the ones who amassed portfolios over the long term. I mean really long term—50 years or more. Their properties are old, carry little debt, and seemingly print cash. They’ve created an apartment piggy bank, leveraging those assets to buy more and more. They’re also the no-nonsense, all-cash, quick-close, never-the-highest-price-but-surest-to-close buyers. They don’t post on LinkedIn, don’t have a fancy website, and couldn’t care less about IRRs or multiples. They invest on their own terms.

Can this be replicated today? I’d like to think so—but it’s exponentially harder.

New(ish) Construction

These real estate legends likely started by buying properties that were relatively newly built. I think the core of a long-term portfolio needs to be either new(ish) construction or exceptionally well-located properties. Even better if you can get both.

Why new construction? Fewer things break, and your tenants are typically more able to pay rent on time. That matters, because time not spent worrying about collections or capital expenditures (capex) can be spent focusing on cash flow and paying down your investment basis.

Newer properties also allow an owner to stay ahead of future capex—roofs, parking lots, HVAC replacements, and the like. Preventative maintenance goes a long way, as does reserving adequate capital for these projects. If time and cash are used wisely, major problems rarely sneak up. And the property will be worth more when the owner decides to sell—or, more likely, refinance it to buy something else.

A long history of maintaining a specific vintage also creates an advantage when buying properties of that same vintage later on. For example, if someone started buying 1960s-era apartments in the 1970s, by the time 2010 rolled around they’d have 40 years of operating experience. They know exactly what will break, when it will break, and how much it will cost. Owners like this don’t need 30 days of due diligence—they have 40 years of real-world data. This allows them to transition into buying “older” assets that look exactly like what they’ve owned all along.

Interest Rates

Over the past 40 years, interest rates have largely been in decline. We know what that does to real estate values—they rise. Up until the Fed began hiking rates in 2022, if you refinanced your property every 10 years over that 40-year period, rates were lower each time. Assuming your net operating income grew—and I’m confident it did—your value increased materially.

There was no need to maximize leverage on every refinance, and it would’ve been foolish to do so. These owners have had the wind at their backs for a long, long time.

Property Taxes

My long-term investing perspective is through the lens of California real estate, where long-term owners have it particularly good.

Let’s assume someone bought a property for $20k per unit and it’s now worth $400k per unit over a 40-year horizon. That’s a 7.8% CAGR, not including cash flow. Because of Proposition 13, their property taxes have only grown by 2% per year over that time, without the property ever being reassessed.

After 40 years, the tax payment would grow from $400 per unit to $883 per unit, assuming a 2% tax rate. A new buyer paying $400k per unit would owe roughly $8,000 per unit in taxes. The long-term owner is saving $7,117 per unit per year in property taxes. Each year, they’re saving roughly 35% of their original basis.

That’s crazy—and also why this person will never sell.

I’m not aware of other states that reward long-term ownership as generously as California. In that respect, those owners have it best. At this point, long-term owners who’ve been good stewards of their properties also care very little about rent control for their existing assets.

Challenges to Replicate this Today

The hardest part is finding permanent capital to make this work.

There are plenty of examples of long-term holders who started as syndicators—raising money from others, pooling it, and acquiring properties. Others developed assets themselves, often with close to 100% financing, because that’s how things worked back then. In some cases, cash flow was so strong that higher initial leverage wasn’t a concern. Over time, they were able to buy out partners, narrow ownership to a small group, or keep investors who were content to stay for the long haul.

Today, buying new(ish) properties requires too much equity. A general partner must team up with an investment firm or family office to fund most of it. The family office might want to stay forever—but they don’t want you to. Some large asset managers are fine with 10-year holds, but they don’t need you. Most of the market wants short-duration investments where both GPs and LPs can monetize returns.

Long-term holds also don’t produce great IRRs. The longer you hold an investment, the lower the IRR typically becomes. Coming off a period where 20% returns felt normal, pitching a ±10% IRR deal isn’t especially compelling. Layer on the likelihood of a higher—or at least more normal—interest-rate environment, and marketing these deals becomes even harder.

To replicate this strategy today, I would:

• Find a growing market (Silicon Valley was once orange groves)

• Buy the newest property you can (likely < 100 units)

• Over-capitalize it to prepare for the worst

• Manage it for cash flow

• Be the sole investor, or partner with a small group willing to stay forever

• Add a new property every year or every other year, in the same market

We can’t all find the next Silicon Valley, but I know this strategy works even in slower-growth places like the Midwest. You just have to start. While I don’t think the winds of favor will be as strong over the next 40 years, they’ll still be there, and it pays to get in the game.

Building a portfolio over 30, 40, or 50 years is a long time. It’s even longer if you wait to get going.