Joseph “Joe” Haley is the president and CEO of Blue Sea Holdings, whose largest development project is the famous Red Frog Beach Resort in Bocas Del Toro, Panama. To better understand what these companies do and how they function, Joe Haley explains holding company operations, purpose, and intent.
From the outside, real estate can seem like a simple industry built around development and sales, yet the inner workings are far more complicated than many people realize explains Joe Haley of Red Frog Beach Resort. For example, entire companies can be established to invest in, operate, and manage real estate rather than simply buying or selling properties. These businesses—known as real estate holding companies—play a major part in the industry and its growth explains Joseph Haley of Red Frog Beach Resort in Panama.
Unlike a realty business, real estate holding companies are designed to solely hold real estate assets without active management. This results in operating entity focus and clarity in reporting Additionally, their operations are quite different and structured for more passive stakeholders.
What is a Real Estate Holding Company
A real estate holding company is a business that owns, operates, and manages income-producing real estate properties according to Joseph Haley of Red Frog Beach Resort. These businesses can be small, family-owned companies or large, publicly traded corporations. In either case, their primary purpose is to generate a profit from their real estate holdings.
There are two types of real estate holding companies—private and public. Private companies are typically family owned and managed with little to no outside investment. Public companies, on the other hand, are owned by shareholders who have invested in the business. Joe Haley of Red Frog Beach Resort in Panama explains that these businesses must follow certain regulations, depending on the country where they are domiciled and by type of investment.
What Real Estate Holding Companies Do
Real estate holding companies make money in two ways: by generating rents from operations and through the appreciation of the property’s value. Joseph Haley of Red Frog Beach Resort explain that generating profits from operations is shorter term after initial investment while the property value appreciation takes longer to build. However, it can result in a larger return on investment. In order to generate profits, real estate holding companies must deliver profitable business operations for their properties explains Joe Haley of Red Frog Beach Resort.
Joseph Haley of Panama explains that holding companies work with partners, marketing the property, marketing to potential guests and prospects. Once the operations entity successful generates profits over a consistent period, it issues dividends to the holding company.
Alternatively, real estate holding companies make money is through the appreciation of the property’s value. When a property appreciates in value, the real estate holding company can sell it for a profit. This profit is then distributed to the shareholders or reinvested back into the business explains Joe Haley of Panama.
Benefits of Investing in a Real Estate Holding Company
There are several benefits of investing in a real estate holding company. First, real estate is a tangible asset that is a good hedge against inflation explains Joseph Haley of Red Frog Beach Resort. This makes offers diversity for real estate holding investors. Additionally, real estate holding companies can offer investors higher returns on their investments since the value of real estate generally trends upwards over time.
Finally, real estate holding companies offer a degree of stability and predictability that other investments, such as stocks, do not. This is because the cash flow from rental income can help offset any losses that may be incurred during a down market explains Joe Haley of Red Frog Beach Resort.
The Role of Real Estate Holding Companies in Real Estate
Joseph Haley of Red Frog Beach Resort explains that real estate holding companies offset the risk of investing in real estate by diversifying their portfolios. This means that they spread their investments across multiple properties in different geographic locations. This strategy protects the real estate holding company from losses if one particular market experiences a downturn.
Additionally, real estate holding companies often hedge their bets by investing in both commercial and residential properties. Commercial properties, such as office buildings and retail centers, tend to be more stable than residential properties, such as single-family homes and condos. This provides a buffer against any potential losses that may be incurred from the volatile nature of the housing market.
This power allows real estate holding companies to maintain a level of control over the real estate market but to the benefit of everyone involved according to Joe Haley of Red Frog Beach Resort. Their diversified portfolio of properties often helps to stabilize housing and real estate prices, especially in times of instability. However, this can lead to localized price gauging if the holding company suddenly raises its prices.
Final Thoughts
Real estate holding companies are key players in the real estate industry. Their primary purpose is to make a profit from their real estate holdings by generating profits from operations and selling properties after they have appreciated. They can, however, provide stability and predictability in the real estate market, helping to offset risk.
