Keeping up with the Joneses of Real Estate

Keeping up with the Joneses of Real Estate

Sticking to your goals but staying flexible

From 2008 to 2017, my team and I were aggressively buying real estate. We had little over a billion dollars’ worth of properties, about 10,000 units in total and a massive team to help manage all of these properties. But come 2016-2017, we started to notice that the values and projections of real estate were starting to go up and it got harder and harder to keep buying, especially when people were putting up non-refundable money.

This realization made our team get super conservative. You see, when you have a strategy, you have to stick with that strategy, no matter what that strategy is. For us, it was returning 7% cash on cash return to our investors. That was my strategy, my goal, my criteria. If my investor gave me a million dollars, then I’d be giving him/her $70,000 a year on that million dollars. Because that’s a 7% cash on cash return. That comes out of the operations, it has nothing to do with refinancing or equity, it has only to do with the investment itself and how it’s performing. So far, we’ve been able to deliver above that 7% goal. But nonetheless, we’ve always used it as a benchmark to never underperform. That’s why when we started to see the cost going up, we knew at some point, we wouldn’t be able to deliver on that goal.

So, every single time I look at a deal, I look at it from that standpoint. In other words, if I’m going to ask somebody to give me money from their bank account, or liquidate some stocks or whatever it is, I know that they’re probably not making a very good return. My goal is to be able to increase that return for them. That’s my number one goal.

Where I see most people make their mistakes is buying based on capital gain. I buy on cash flow. That’s a big difference between my company and a lot of others out there. They buy something in hopes that the market will take it up. They hope that the market will create a higher value for the asset that they bought. We saw this a lot during the real estate bubble. When the bubble popped, people were buying homes left and right and then one year later, they were worth a lot more than when they bought it. I’m happy that people were able to make a lot of money during that time but that does not mean that they are good real estate investors. That means that they had some money, they bought something, and it went up. That has very little to do with what we’re talking about here. And that is not a good sound strategy. To me, that is entirely gambling.

Now, if you can buy something and it cash flows, and it also goes up because of the market, then you have done both. But if you’re buying something that doesn’t cashflow very much, or at all, and then it goes up, that to me is gambling. And at some point, the music is going to stop and you’re not going to have a chair and it’ll be very difficult for you.

In the meantime, when you’re waiting for good deals, there are some things you can do. A couple years ago, my business partner and I went and started looking for land. We found some land that we thought would do well and now we are in the process of building properties. We have also gone out and invested in some office buildings with a strategic partner. And lastly, we went and built a self-storage property (700 units) with some seasoned storage professionals so we could learn about that business.

One thing you could never put a price tag on is education. I’m constantly going to real estate seminars and educational workshops put on by real estate organizations because they teach education on what you should be doing out in the field. There are all sorts of things to stay on top of. Right now, the hot topic is opportunity zones, which Donald Trump introduced. People who have capital gains are rolling over to these opportunity zones because they’re able to defer tax. So, for me, it's been a great time to not be in the middle of my business, making acquisitions, because I’ve been able to focus on the operations and my education.

If you want to learn and be relevant, I would suggest getting on every single real estate list you can. You want to be on top of everything, read everything that you can, and learn about new techniques that people are imploring all over the country. Because there are some really cool stuff happening. Do yourself a favor in this new year, start learning as much as you can. It’s the only way you’re going to find success.

If you have any doubts about being a real estate investor, you need to read my latest book: Return to Orchard Canyon. This book captures the feelings that too many people have today. Too many people are stuck working for a paycheck, giving up their lives to make a living, and throwing any dreams they may have had aside. But I pick apart these myths. Living doesn’t always mean sacrificing your dreams. On the contrary, our nation was built on the backs of dreamers who took risks.

Sometimes the best thing you can do in business and in life is to reinvent yourself.

Pre-Order Return to Orchard Canyon on Amazon here

Original publish date: December 12, 2019