I started investing in real estate at 22.
As a young officer in the Army, I leveraged my guaranteed paycheck and a VA loan to purchase a 4-plex.
My intention was to live in one unit and manage the others. By renting out the other 3 units, I’d be able to essentially live for free, pay down my mortgage and even have a little bit left over for myself. It seemed like an easy win.
Of course, things don’t always pan out how you plan.
Less than one month after closing the deal, I got deployed to Iraq. Instead of being able to manage the property myself, I had to hire a property manager. My intent was always to hire one, but not so quickly after closing. I wanted to get a feel for the property and manage it myself to better understand the ins and outs of management so I could hire the right kind of manager.
Sadly, I didn’t have this opportunity.
So I deployed to a combat zone thousands of miles away and left a massive investment in the hands of a property management company I didn’t know. For the next 12 months I attempted to manage my manager from abroad. The property was running fine in the beginning but month after month my cashflow decreased and I had no idea why. I couldn’t get straight answers from the manager – it had something to do with random expenses popping up every month, but since they weren’t itemized like I requested, I had no idea how to remedy the situation.
When I redeployed 12 months later, I found my 4-plex in really bad shape; the lawn was a mess, the interiors were dirty and falling apart, and a couple squatters occupied two of my units. To make matters worse, it became pretty obvious my property management company had been skimming off the top.
This is the quintessential real estate investor horror story – the kind that keeps most people from investing in the first place.
I thought I’d done my research, I thought I knew what I was doing, but the whole thing backfired – I was screwed.
I spent that first day back in the States hating myself – how could I be so naïve? How could I have made such a stupid mistake? I’m such a loser - I should just get rid of this property as quickly as possible. I’m not cut out for this.
After several hours of calling myself every name in the book, shouting expletives at myself in my head, and generally feeling sorry for myself, I came to a conclusion:
Nobody is going to take care of this bad situation for me. Only I can fix this. No more self-loathing or self-pity.
It’s time to get resourceful.
Learning Lessons the Hard Way Best Way
It would be an understatement to say turning that property around into a positive cashflowing investment was hard.
It took a lot of blood, sweat and tears. I spent the next year gutting and renovating each unit, getting rid of bad tenants, and filling the unit with good people who would actually pay rent.
But after all the heartache, I look back on that first property and say it was one of the best learning lessons of my life.
I learned a lot about real estate investing, sure, but the most important lessons were applicable beyond real estate.
1. Do your due diligence – twice.
Due diligence is the process of investigating a property to determine its true value. Many times, the seller of a property (or the seller of anything) won’t point out all the flaws of their product. That’s the responsibility of the buyer to identify. I did my homework and did it by the book, but I didn’t go deep enough. I didn’t play out negative scenarios. By looking only at the current situation and extrapolating from that, I didn’t give myself cushion for future operations if things went south.
And, of course, things always go south.
When it comes to making any sort of deal – whether you’re buying a new product, paying for a service, or writing a contract with a new partner – the burden of proof is on you to figure out why the deal isn’t good.
The marketer will always have a brilliant new course that will (claim to) fix your business woes, the car salesman will always have a great reason you should upgrade, and the financial advisor will always have the perfect mutual fund for your situation. Why? Because that’s their job. But before you hit the buy button and dive right in, remember: the situation is ALWAYS caveat emptor.
2. Failure hurts, but it doesn’t cripple us (unless we let it).
After surviving 12 months of gunfire, RPGs and mortar fire, I come back to the States and feel, for the first time, that I’m done. I’m defeated. I screwed up and there’s nothing I can do.
Funny how financial setbacks can sometimes feel more devastating than physical, life threatening danger.
Of course, the reality isn’t this grave. Anyone can recover from a financial setback. Anyone can rebound from a bad choice. It just takes guts and it takes asking the right questions…
3. Quit your pride - get resourceful instead.
Like I said, I wanted to quit, to walk away, to throw in the towel. But, in real life, there are no towels; we reap what we sow, good or bad.
After giving myself a good few hours of denial/anger/self-pity time, I finally stopped asking myself self-defeating questions:
- How could I be so stupid?
- Why did I let this happen?
- What should I have done differently?
(*notice how NONE of these questions lead to answers that could help the current situation in any way)
Instead, I started asking resourceful, empowering questions:
- What can I do right now to start down the path to fixing this?
- Who is one person I can call right now for some advice and help?
- What’s the fastest, least expensive way to turn this around?
It’s kind of fascinating – once we get over our pride (denial, anger and self-pity are all forms of pride) and start asking resourceful, empowering questions, those problems that seem insurmountable? They really aren’t so bad. In fact, they’re usually quite manageable.
So quit your pride and start asking the right questions (a reminder to myself more than anything else).
Failure and the Journey
I’ve been asked several times (in several different ways) the following hypothetical: if you could go back and do it again, knowing what you know now, would you still choose the same course of action?
Well…no. Of course I wouldn’t intentionally make a mistake. To say otherwise would be irrational at best and self-destructive at worst.
But this question misses the point.
The point isn’t to hit bulls-eye every time. It’s not about making the ‘right’ choice no matter what. It’s not even about failing less often as we grow.
If that were the case, the solution would be to stop trying in the first place. You can’t lose if you don’t play, right?
No, the point isn’t flawlessness – the point is to enter the arena every day. [click to tweet]
Sometimes we win, sometimes we lose; sometimes we make the right choices, sometimes the wrong ones. Sometimes we perform flawlessly, other times things turn out messy.
But by continually pushing ourselves, challenging our unique abilities, and learning from our mistakes, we become something greater than the person who started the journey…
We become the person finishing the journey.
And that makes all the difference.
“The secret of life, though, is to fall seven times and to get up eight times.” [The Alchemist] -> [click to tweet]