Top Five Ways To Fail As A Commercial Real Estate Investor In The Coming Economic Storm

Hello from the metropolis of Cedar Crest, NM.

I am getting ready to take twenty kids from my youth group up to Durango, CO for the Christ In Youth Conference (www.CIY.com).  I think I am more excited than my high school kids are…..it is always a blast.  I am so grateful for commercial real estate because it allows me to do what I love to do….such as hang out with my youth group for a week long conference and go crazy (I can legally do this you know).

Anyway….Let’s talk doom and gloom….

Almost every article and blog on real estate is doom and gloom.  Forget real estate…almost every article on the economy is surreal and very scary.  It reminds me of the months before Y2K.  Remember Y2K?  If not….recall the panic starting in 1998 about how the whole world was going to turn the off switch because computer ‘date’ glitches.  Which may explain the year supply of beanie weenies and water in your garage. I remember how gas generator prices went through the roof.  Yes…I got caught up in all that too….not the beanie weenies….but the hype.  Is all this commotion just hype….or are we really heading into a disaster?

The fact of rice rationing, fuel prices, natural disasters, record breaking foreclosure rates, the sub prime crisis, Bear Sterns, etc….makes the future look rather dismal.  If history repeats itself (which it seems to always do…good and bad) then yes…it is going to get bad…then it is going to get worse.  But the one thing I have learned is that there are always survivors.  Actually, there will be a group of entrepreneurs that not only survive….but gain mass wealth in these troubled times.

Well…so what, Rob?

Well, there are going to be a number of things that this group of entrepreneurs will do (or currently doing) that will set them apart.  Instead of me writing about the Top Five Things You Can Do To Survive The Coming Storm…I am going to use some reverse psychology and tell you how to fail.  Why?  Well, because the 80/20 rule (Pareto) applies…so most investors will fail (pretty harsh huh?) and I am not immune to the failure I am writing about.  As a coach to many real estate students….I sometimes go by my own rule…”Do as I say, not as I do.”

So….here they are….Top Five Ways To Fail As A Commercial Real Estate Investor In The Coming Economic Storm (why only five?  Well…because there are about a hundred ways to fail…who will read that?)

1. Be over-leveraged

   Make sure that you are mortgage to the hilt on all your assets. This is a surefire way to make you scramble and panic as you come to the realization that you are upside down and if you sell…you will sell at a significant loss….  Even better….if you have any equity in your assets….leverage that too and buy more highly leveraged real estate.

2. Rely on your own inexperience

   Ignore your mentor’s advice…or better yet, do not get a mentor.  Mentors have a lot of advice based on experience.  If you want to make sure you fail.  Don’t get a mentor….and if you already paid for one…make sure you ignore his/her advice.  Don’t fall into the trap of being a student.  Your intelligence based on your inexperience is the best way to fail with flying colors.

3. Be Cheap

   Make sure and do not spend the cash for a great real estate attorney or an asset protection attorney.  This is a must if you plan to fail well.  If your spouse or “partner” is giving you hell about getting an attorney….buy a book “Legal Advice for Dummies” or better yet…sign up for pre-paid legal.  This way…you will still fail…but not fail fast.  Also…make sure you do your own taxes and bookkeeping.  CPAs and bookkeepers are for successful people….

4. Be a Lone Ranger

   If you hate to “network”…then failure is at your doorstep.  Make sure you are a loner and if you hate people….this is even better.  By no means should you build “wealth lifelines” with those that can help you succeed.  “Success breeds success” so say away from building relationships.  Of all the ways to fail…this, by far, is the most successful way to shoot yourself in the foot.

5. Don’t sell
   

   This is a great time to be greedy and hold out for your asking price.  Just because values are plummeting does not mean you should give in to lowering your price even though your are getting your return on your investment if you sell.  Most successful real estate investors are moving (or have moved) to a liquid (cash) position (getting ready to take advantage of plummeting values).  By no means should you sell anything you have.   Any equity you have will soon disappear and this my friends will help you owe more on your assets than what your assets are worth.  Most experts ( Robert Prechter, John Williams, Nouriel Roubinii, and Harry S. Dent) are ranting about how property values are going to go down the toilet.   Imagine selling your property today and buying it back at 40 - 60 cents on the dollar?  If they are right….then make sure you stay greedy.  The way to do this is to get emotionally tied to your properties…then your assets will be much more difficult to sell.

An Apology…..

Yes…I am being a drama queen and exaggerating everything….but there is a “nugget” here that I have learned and I hope to pass on to all of you.  I have had the honor of learning commercial real estate from some wildly successful people.  I have listened closely but in some cases I have not taken their advice.  Watch those that are doing well…the great ones do well in good markets and in bad ones.  See what they do and model them.  The great ones are in a liquid position because they sold when the market was buying high.  Now they are waiting to buy as the market plummets. Does the phrase “Buy low, sell high” ring a bell?  In some cases…it is that simple.

Until next time…….rob

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Tags: advice, Commercial Real Estate, commercial real estate investor, real estate, real estate blog, real estate leverage