By Troy Corman, www.t2realestate.com
No real estate developer had a larger impact on Dallas, Texas than it’s own hometown boy, Trammell Crow. Born in 1914, in a small frame house at 1318 Fitzhugh Street in Dallas, just like his office buildings and hotels, he rose to great heights. A large part of his formula for success was sharing in the profits of his projects. Many that worked for the Trammell Crow Company became millionaires themselves by getting a piece of the deals they helped develop.
Trammell Crow started his real estate career in October 1949, buying a parcel of land at 135 Cole Street from John Stemmons. For his very first development he built a 11,250 square foot warehouse that he leased to Ray-O-Vac and Decca Records. Several years later, The Trammell Crow Company would become the nation’s largest real estate developer.
From the biography by William Bragg Ewald, Jr., Trammell Crow – A Legacy Of Real Estate Business Innovation, Crow shares his investing formula.
1. Borrow the money. To Trammell Crow, the way to wealth was debt.” A 30-year note is better than a 20-year note. A 40-year note is better than a 30-year note. The only thing better than a 40-year note,” he believed, “was a note that you never had to repay… A man’s wealth mirrors his debt.”
2. Buy the land.
3. Build on speculation, then go find tenants.
4. Lease the space, not for 15 years or more but for ten or three or two. Consider real estate a commodity, a manufactured product. Consider rent a return on the cost of development, not a function of supply and demand. Consider real estate an inventory business in which you can cut delivery to 60 days.
5. Depreciate enough to wipe out your income tax liability. “Paying no taxes,” one developer observes, “is the ultimate leverage.”
6. At the end of the short lease, given inflation, lease again at a higher rate.
7. Pay off the debt out of income. Keep all rents in the property. Keep debt service greater than depreciation. As Crow himself said, “Hardly any part of a building would actually depreciate. Steel, concrete, brick! Obsolescence yes, decay no.”
8. At the end of 15 years, own the property free and clear.
9. Refinance the first mortgage.
10. Put the yield into new deals.
11. Never sell. Never convert your balance sheet to cash. The history of America, in Crow’s view, that to sell is wrong, to buy is right. The rich sell, the wealthy hang on to their assets and bet on inflation. To become wealthy in real estate, keep your assets and live a long time.