Sometimes adults act just like little kids. The pathetic part is occasionally that time is when we are investing in real estate. Maybe we feel we have read enough books and know exactly how to do it. Maybe, you heard how your neighbor had a great purchase on a small residential purchase. Maybe, we are convinced that Donald Trump is really not that smart… maybe he was just at the right place at the right time. Or, maybe, just maybe guys are absolutely positive about how to do it and they tell their wives or friends and then refuse to back off when they should.
I was one of those guys, I knew everything and if I didn’t I could hire someone who could. Yep, I was an absolute genius, with a full wallet. I told my wife and my friends how I had it all figured out. My wife just nodded like she does when I’m driving and refuse to use the GPS or ask someone for directions, even when I’m completely lost. My close friends were polite but strongly suggested I rethink what I was doing.
However, even an absolute genius, with a full wallet, a plan and pride the size of Texas was not going to back off and lose face. I knew how easy it was, buy a small rental house, fix it up and lease option it. A piece of cake.
I will leave out all the horrible details that follow as life seems better without dredging them up too often, besides the headaches and nightmares have finally gone away. Let’s just say that I lost my shirt when the market tanked, when the tenant got angry and trashed the house and fled in the night and when month after month of maintenance, utilities and taxes were eating away at that pride of ownership while sucking into my savings. That was real Genius.
Coincidentally, I was receiving checks twice a year from the group investment on a medical office building that I got into a few years before the crash. I was and still do earn a tidy 12% cash on cash return per annum. Due to slowly rising rents built into the leases from day one, strong tenants, premium location and amortization of the underlying mortgage the value of the building has gone up over time. So, simply put my principal is safe, I earn actual real dollars every year and the overall investment has gone up in value.
The office building purchase was a group of physicians who got together and built a building. We all became tenants and brought a few more non owners in to increase the cash flow. We all considered the risks as a group and the group was committed to the success of the building.
Now, if you have the cash on hand you could go and buy a nice class A office building or medical office building yourself. Since, YOU are a genius and have a full wallet. However, my advice from the trenches is to STOP right now! It takes some work and effort to manage the building and real expertise when things go wrong. If you have a group behind you those decisions are not solely yours and some of your partners might actually have good ways to solve those problems. In addition, by putting less into the investment you have reduced your risk and allowed the group to buy perhaps a bigger and better property.
Obviously, things can go wrong with group investing on real estate. I am not saying they can’t. But, with a group your risk is mitigated, you have people you can turn to when there is a problem and you can as a group buy a piece of real estate of substantial quality and value that you could never accomplish alone. Remember, one of the icons of American real estate The Empire State Building was built by a group of investors, not one man who refused to ask for directions when lost. That is real genius.