Building to Hold vs Building to Sell


Why Building and Holding Real Estate for the Long- Term


Delivers Superior, Tax-Efficient Yield




At Alpha Equity Group, we believe in a simple but powerful real estate thesis: build strategically, finance conservatively, and hold long-term. In a world where many investors are focused on quick flips and short-term gains, our strategy aims to deliver tax-efficient, long-duration yield and wealth creation by developing ground-up assets with meaningful margins and holding them through full market cycles.


The Problem with Selling Too Soon


Let’s say you develop a Class A, 100-unit build-for-rent townhome community and stabilize it with quality tenants. Once stabilized, you’re faced with two choices:


1. Sell the asset, pay capital gains taxes, and figure out where to reinvest your after-tax

proceeds.

2. Refinance the asset, return investor capital tax-free, and hold for long-term cash flow

and appreciation.


At Alpha Equity, we believe the second option is the clear winner.


A Real Example: Build and Hold vs. Build and Sell


Let’s walk through a real-world example using updated and realistic assumptions.


Assumptions Overview:


  •  100-unit build-for-rent townhome project
  •  Average rent at stabilization: $2,100/unit/month
  •  Lease-up pace: 10 units per month
  •  Vacancy & credit loss: 8%
  •  Expense ratio: 35%
  •  Stabilized cap rate: 6%
  •     Includes $20,000/unit in land cost
  •  Construction leverage: 75% at 11% interest-only
  •  Construction draws: straight-lined over 18 months
  •  Budget for land & horizontal: $35,000/unit
  •    Budget for vertical development, soft costs, and financing costs: $155,000/unit
  •  Interest reserve: 5% of total cost
  •  Total development cost: $190,000/unit ($19M total) + 5% contingency = $19.95M total


Stabilized Financials (Year 3):


  •  Effective Gross Income: $2,100 x 100 units x 12 months x (1 - 8%) = $2,318,400
  •  Operating Expenses @ 35%: $811,440
  •  Net Operating Income (NOI): $1,506,960
  •    At a 6% cap rate, the stabilized value = $25,116,000
  •  Less 3% refinance/sale costs = $24,362,520 net


Scenario 1: Sell Upon Stabilization (Month 40)


  •  Gross Sale Price: $25.12M
  •  Cost Basis: $19.95M
  •  Net Profit Before Tax: ~$5.17M
  •  Capital Gains Tax (assume 20% federal + 5% state): ~$1.29M
  •  Net After-Tax Proceeds: ~$3.88M


Scenario 2: Refinance and Hold Long-Term


  •  Refinance at 70% LTV on $24.36M net value = $17.05M loan
  •  Original construction loan: ~$14.96M
  •  Refinance proceeds: $2.09M returned to equity
  •  New debt terms: 6% interest, 30-year amortization
  •  Annual debt service: ~$1,228,000
  •  Year 4 Net Cash Flow: ~$278,960


Equity Raise: $4.99M (25% of $19.95M), of which 5% ($249,500) is sponsor capital


Investor Ownership Example:


  •  $100,000 investment = 2.00% ownership share
  •  Refinance Return: ~$41,800 (41.8% of capital returned tax-free)


Annual Cash-on-Cash Returns (Years 4–10): Start at ~$5,579/year and grow 3% annually:


  • Year 4: $5,579 (5.58%)
  • Year 5: $5,746 (5.75%)
  • Year 6: $5,918 (5.92%)
  • Year 7: $6,095 (6.10%)
  • Year 8: $6,278 (6.28%)
  • Year 9: $6,466 (6.47%)
  • Year 10: $6,660 (6.66%)


 Total 7-year cash flow: ~$42,742


Sale in Year 10:


  •  Estimated Value: ~$29.5M (2% annual growth)
  •  Net of 3% selling costs: ~$28.6M
  •  Equity remaining after debt payoff: ~$11.6M
  •  Investor Proceeds: ~$232,000 from sale


Total Return on $100K Investment:


  •  Refinanced Capital Returned: ~$41,800
  •  Cash Flow: ~$42,742
  •  Sale Proceeds: ~$232,000
  •  Total: ~$316,500
  •  MOIC: ~3.17x
  •  IRR: ~17.2% net of pref/70-30 waterfall


Why Build-to-Hold Beats Buying Older Assets with Same Strategy in Mind


Many syndicators buy older assets with similar long-term hold intentions. But those projects come with:


  •  Compressed margins
  •  Higher ongoing capex
  •  Deferred maintenance
  •  Limited depreciation schedule


These factors increase the risk in the deal as the deal's spread is subject to deteriorating physical obsolesce. It becomes a game of "putting lips on a pig to justify higher rents in the short term and capture spread" while the market is still hot, and undersaturated. The problem is, once supply outpaces demand, these assets get hit the hardest, financially. NOI decreases because of forced pressure to drop rents to remain competitive against new product, and cap rates rise to reflect muted growth going forward.


By building new with a 25–30% margin to cost, we enter the hold period with:


  •  Significant day-one equity
  •  No major capex needs
  •  Maximum depreciation benefits
  •  Brand new systems and interiors that tenants love


Most importantly, if we do not hit our margins, we simply make less profit, not lose original equity.


And with conservative leverage, our projects are designed to withstand rate volatility and maintain positive cash flow even in tougher environments.


Final Thoughts


Short-term profits may be tempting, but they often come at the cost of long-term, tax adjusted wealth. At Alpha Equity Group, we believe in creating value upfront through disciplined development, then compounding that value over time by holding quality assets. Refinancing instead of selling means we keep working capital compounding. We defer taxes, continue collecting income, and maximize wealth creation without needing to constantly chase the next deal. This is how generational wealth is built, one long-term, tax-efficient asset at a time.


Many operators and developers, including institutional funds, end up selling assets too early to meet their business plan or life cycle of their capital. In reality, many of these sponsors admit they would have preferred to hold these assets for much longer as they are leaving upside on the table.


To be a successful developer, you have to choose quality locations that will remain strong for years to come while balancing capital market cycle timing with micro supply and demand. It is not an easy task, but it is worth it if done correctly.

Rent Control - Does it Work?

By Christian O'Neal • July 31, 2025
Rent Control: A Well-Intentioned Policy That Misses the Mark In the debate over affordable housing, few policies stir as much emotion—or controversy—as rent control. Advocates see it as a way to shield tenants from rising rents. Critics argue it does more harm than good. When you examine the economic evidence and real- world outcomes, the conclusion becomes clear: rent control is a deeply flawed solution to a real problem. What Is Rent Control? Rent control is a policy that limits how much landlords can increase rent, either through caps tied to inflation or fixed annual percentages. On paper, it sounds compassionate: protect renters from displacement and make cities more affordable. But in practice, rent control reduces the supply of available housing, discourages new development, and often hurts the very people it's meant to help. Why Rent Control Backfires 1. It Discourages New Construction Developers are less likely to build in markets where future rent growth—and thus returns—are capped. Why take the risk of developing multifamily housing in a city where your upside is limited and your operating environment is politicized? 2. It Drives Property Owners Out of the Market Faced with strict rent regulations, landlords may convert rental units to condos or remove them from the market altogether. Fewer units mean more scarcity, which ultimately drives prices higher for everyone else. 3. It Distorts Housing Allocation Rent control encourages long-term tenants to stay in apartments they might otherwise outgrow or vacate. This locks up valuable housing stock and prevents more dynamic turnover, often freezing lower-cost units in place for higher-income tenants. 4. It Creates a Two-Tiered Market Markets with rent control often develop into two separate ecosystems: regulated apartments that are underpriced and hard to find, and unregulated units with inflated prices to compensate for suppressed supply. The California–New York Split: A Tale of Two Approaches Historically, California and New York have been peers in over-regulating rental housing. But recently, they’ve taken different paths: California's Recent Steps Forward:  Voters rejected rent control expansion (Prop 21 and earlier Prop 10)  Streamlined approvals and reduced CEQA abuse to promote new development New York's Recent Moves Backward:  Passed “Good Cause Eviction” law—effectively rent control in disguise  Political calls for rent freezes and demonization of landlords If you’re an open-minded apartment developer evaluating both markets today, California’s message is increasingly: We need you. New York’s? Not so much. To be fair, both are still difficult places to build housing, and cities like Los Angeles and Berkeley remain deeply anti-development. But California has shown progress by recognizing that you can’t claim to be pro-housing while simultaneously vilifying those who create and operate it. A Misalignment of Incentives A core problem with rent control is that it treats housing supply as fixed and ignores the private sector's role in expanding it. If developers and operators are stripped of potential upside—and burdened with unpredictable political risk—they simply stop building. Even well-intentioned pro-development plans (like NYC’s "City oare undermined when operators believe they’ll be punished after delivery through hostile regulation or public scorn. You can't be truly pro-development unless you're also pro-operator. Policies that foster collaboration, not scapegoating, create the conditions for long-term affordability. The Real Way Forward Instead of imposing artificial caps, cities should focus on increasing housing supply through zoning reform, expedited approvals, and public-private partnerships. The more units that come online, the more pricing power shifts away from landlords and toward tenants—naturally. Rent control is seductive in its simplicity but devastating in its consequences. It’s a policy that tries to solve a supply problem with demand-side restrictions—and in doing so, it often makes things worse. At Alpha Equity Group, we believe that smart, sustainable development is the key to housing affordability. And that requires sound economics, not political theater.

Into the Future – Making Sense of Rates in a World That Doesn’t

By Christian O'Neal • June 24, 2025
In the world of capital markets, clarity is often fleeting — and today, it feels downright elusive. The Federal Reserve’s latest June dot plot offered little in the way of certainty. While the median projection sees the Federal Funds Rate in the mid-3% range by the end of 2026 , the dispersion among voting members is striking. Seven members predict no rate cuts in 2024 , reflecting just how divided the committee remains in the face of conflicting data. This latest update marks a 25-50 basis point shift downward from May , but the overarching theme is one of caution, not conviction. That sentiment is mirrored in the economic projections. Core PCE inflation , the Fed’s preferred inflation measure, is now expected to end 2025 at 3.0% , 30 basis points higher than earlier forecasts. Meanwhile, real GDP is forecast to slow from 2.3% in Q4 2024 to just 1.7% in 2025 — another sign that the lagged effects of monetary policy are expected to begin to show. At the same time, the Fed’s balance sheet has shrunk dramatically, from a peak of $9 trillion in April 2022 to just $2.3 trillion today . That quantitative tightening, coupled with a lack of consistent inflation suppression, leaves both equity and bond markets vulnerable to further volatility. This all feeds into an uncomfortable truth: rates are likely to remain higher for longer , and the market is struggling to price that reality. The VIX index , a 30-day forward-looking gauge of volatility in equities, is trending higher. When volatility rises even as indices fall, credit spreads widen , liquidity tightens, and financing risk surges. For commercial real estate investors , this has enormous implications. As we explored in our recent article on CRE Price Discovery , the market remains in flux. The bid-ask spread in real estate is still somewhat wide, and most transaction activity today is being driven by maturing debt — not opportunistic investments banking on future growth. This means valuations are being forced downward, especially for assets that were purchased or refinanced at ultra-low rates in 2021–2022. Consumer behavior is also in transition. Household formation is slowing, and personal savings rates are slowly ticking up although they are significantly down from longer term averages – which could reflect folks bracing for economic turbulence. U.S. household formation currently stands at 1.058 million, down 7.68% from last month’s 1.146 million and down 47.73% from 2.024 million a year ago. Looking globally, demand for U.S. Treasuries remains a critical economic indicator that has trickling effects on the economy . A strong bid-to-cover ratio — like the 2.67x seen at the June 11th 10-Year Treasury auction , with nearly 88% of bids from foreign banks — is encouraging. It suggests continued faith in U.S. fiscal credibility and currency strength despite market apprehensions in our strength, such as the US credit rating being downgraded by Moody’s. This equilibrium is rather fragile. Should the U.S. continue to run massive budget deficits with a debt-to-GDP ratio north of 120% , investors may begin to demand higher yields — or worse, seek refuge in alternative stores of value. Gold is one such store. The World Gold Council recently reported that 76% of central banks expect to increase their gold holdings over the next five years , up from 69% in 2023. This flight to real assets reflects growing concern about the long-term value of fiat currencies — and a desire to hedge against systemic risk. The Bottom Line  Rates are likely to remain high through 2025 and into 2026 Inflation remains persistent but progress has been unclear Growth is slowing, and volatility is rising Real estate is repricing around debt maturity events Global capital is shifting cautiously, looking for safety At Alpha Equity Group, we believe this is a time for discipline, not risk-taking. We’re staying patient, watching the data, and investing defensively — focusing on secured debt positions and capital preservation. While others chase uncertain upside, we’re building long-term value through downside protection while we wait out the convergence of dozens of factors completely outside our control.

Navigating Volatility – Why We’re Leaning Into Debt

By Christian O'Neal • June 24, 2025
When markets break from fundamentals, the prudent real estate investor doesn’t chase noise — they reposition around truth. And the truth is this: we are entering a prolonged period of macroeconomic and geopolitical volatility . The world is realigning, and capital is responding accordingly. Global central banks are moving away from the U.S. dollar. According to the World Gold Council, 76% of central banks plan to increase their gold reserves — a jump from 69% last year — citing crisis protection, inflation hedging, and diversification as key drivers. This reflects a growing caution around U.S. fiscal policy , rising deficits , and ballooning national debt , now over 120% of GDP . Meanwhile, money market fund balances are climbing — a signal that institutional and retail investors alike are parking cash on the sidelines. These short-term investment vehicles offer safety and a yield that closely tracks the Fed Funds Rate. In other words, investors would rather earn 5% in cash than take risk in longer-duration assets, treasuries, or swinging equities. These trends are further complicated by geopolitical uncertainty. Ongoing wars, potential tariff escalations , and questions around U.S. fiscal leadership all introduce headline risk. Should unemployment rise , or growth falter , the Fed may face pressure to intervene — but its tools are limited. Cutting rates could re-ignite inflation. Raising taxes or cutting spending is politically unpopular. The Fed is cornered, managing debt service costs, inflation expectations, and political realities simultaneously. For CRE investors, this creates both risk and opportunity. Real estate pricing is driven by capital flows, leverage, and the cost of debt . When long-term Treasury rates rise , the “risk-free rate” increases — and with it, lenders widen their spreads to reflect perceived risk. Even when treasuries fall, spreads going higher can keep all-in interest rates higher. Spreads are higher for construction loans, transitional assets, and tertiary market, reflecting in lower asset prices. The net effect is simple: lower loan proceeds and higher cost of capital . As a result, buyers must lower offers to meet equity return thresholds . We are already seeing this play out in real time. In markets where price discovery is finally happening , bids are falling, and assets are being marked to market — especially those with near-term debt maturities. Until this repricing completes and stability returns, we believe it is wise to lean into debt rather than chase speculative equity returns. Debt Offers Strategic Advantages Right Now: Senior positioning in the capital stack offers downside protection Current yields are attractive , often exceeding return thresholds without relying on appreciation Shorter durations allow us to stay nimble as the market evolves And we can structure loans with sponsor-friendly terms , aligning ourselves with developers who need flexible capital during this transition period At Alpha Equity Group, we’re also putting our own capital to work on the equity side of the deals we know best — infill residential development. But we are doing so carefully, underwriting with stress-tested assumptions, and leaning on our operational expertise. As we’ve seen in prior cycles, market dislocation creates fertile ground for investors . With uncertainty around every corner, we see this moment not as a challenge, but as an opening — a window to preserve capital, generate yield, and position for long-term outperformance once growth does come back. What to Watch: The yield curve : steepening curves may signal higher inflation and longer-term rate risk U.S. bond auctions : demand strength, especially from foreign investors, impacts long-term borrowing rates. The US is expected to start buying treasuries and bonds again in 2026, increasing its balance sheet again after rounds of tightening alongside the recent rate hike cycle. Credit spreads : widening spreads reflect rising risk aversion and lender caution Geopolitical escalation : new conflicts or trade wars can drive capital away from U.S. assets and toward gold or other alternatives Fiscal response : keep an eye on Trump-era tax reform 2.0, tariffs, or large-scale spending plans heading into the election cycle. This can affect bets on future inflation, bonds, capital availability, and CRE prices. In short, we are in a time of reordering — politically, economically, and monetarily. Investors who embrace this shift and position accordingly will be well-rewarded. We’re not just investing in the market we have — we’re preparing for the one that’s coming.  That’s why we’re taking a conservative credit-first approach , with upside optionality where it makes sense, and defense where it matters most.
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