Heaven help us… The rumors are true.
Hostess, the corporation behind infamous (and often delicious) products like Twinkies, Ding Dongs, and Wonder Bread has filed for bankruptcy. The iconic Twinkie is in danger of disappearing forever from the shelves and it’s strange to think my future children may grow up without the sweet enjoyment of plastic-tasting chemical cake.
On second thought, maybe that’s not so bad.
Whatever your opinion is on the value the Twinkie (and other products) brought to the world – I want to look at this situation from a different direction. Grab yourself a Ding Dong or a toasted slice of Wonder Bread and let’s look at five lessons that we, as real estate investors, can learn from the demise of Hostess.
1.) Hostess’ Products Were Becoming Outdated; Are Yours?
Sure, the Twinkie holds a special place in every American’s heart. However, as the national appetite is pushing further and further into healthier eating habits (following the examples set by much of the rest of the world) Hostess failed to introduce new products that would re-vamp their business. In fact, Hostess filed for bankruptcy in 2004 as well but, unlike the auto industry, failed to re-define themselves and emerge stronger. As the old adage goes, attempting the same thing over and over but expecting different results is the definition of insanity. Hostess inability to change the company direction to accommodate a shifting cultural shift was a large part of their collapse.
As a real estate investor, you also operate within a changing system (we call it “the market”). If your business model is failing and you continue to do the same thing, time and time again, you will find yourself in the same shoes as Hostess: bankrupt. A prime example are those “fix and flippers” who were caught with their pants down during the housing crash at the end of the last decade. Failing to recognize a changing market caused many investors to lose everything they had – including their life savings. I’m not suggesting simply changing your investment strategies to whatever is popular – but learning to recognize a changing tide is fundamental in staying in the investing game for the long haul.
2.) Like the Twinkie, Too Much Debt Is Unhealthy
The problems at Hostess were more than just the failing popularity of it’s products. Hostess also racked up immense amounts of unsustainable debt as a business that helped contribute to the inevitable collapse. I don’t think I need to belabor this point. Too much debt is bad. Some, like popular financial radio host Dave Ramsey, say all debt it bad. As an investor, it’s up to you to decide at what level of debt you feel comfortable with but recognize that too much debt, like too many Twinkies, is going to kill you.
3.) Losing is Only Good When Talking About Your Weight
The third nail in the coffin for Hostess came from the failed labor negotiations between the Hostess employees and the company. It’s easy to blame the labor unions for being unwilling to compromise or the corporation for being too greedy but regardless of who was at fault the inability to reach a goal was a result of a failed relationship between the employees and the employers. Simply put – the two parties could not find a “win-win” situation and the scenario became decisively “lose-lose.” The corporation officially closed it’s doors and nearly 18,500 employees found themselves without a job.
As in investor – being creative and finding “win-win” scenarios are key to growing a successful investing business. Whether you are a wholesaler looking to find motivated sellers or a buy-n-hold investor negotiating lease terms with a tenant – a “win-win” scenario is the ultimate goal. Both sides of a transaction must feel they were treated with respect, dignity, and fairness. Relationships are the lifeblood of an investor’s success and creating “win-lose” transactions will tarnish your reputation faster than you can say “ding dong.”
4.) Your Job Is Risky
This week 18,500 employees of the Hostess corporation no longer have jobs. It doesn’t matter if an employee was part of a labor union, never missed a day of work in their life, or had a sick child at home to care for. Those individuals are out of work and forced to scrape by on unemployment until a new job can be found. The employees of Hostess are not alone in this, as every day thousands of individuals lose their job due to no fault of their own.
This important lesson is clear: your job is not secure. Real estate and other forms of entrepreneurship is often seen as being a “risky venture,” but if you are relying solely on the paycheck coming in from your day-job you are in a much riskier position than you think. Investing in real estate offers you freedom from the fear of losing your only source of income if your job suddenly disappears. Whether you are an investor yet or not – being financially savvy and having an emergency fund set up is not only a good idea – it’s a requirement if you want to succeed in life. Don’t wait until your company goes belly-up before you start taking control of your financial future. Start now.
5.) Clean Up in Aisle Four
I’ve got some good news for you: it may not actually be the end of the Twinkie. In the process of the Hostess bankruptcy, the company will sell off most of it’s products to the highest bidder to pay off it’s debts. Most likely you will see Twinkies, Wonder Bread, and other popular products back on the shelf under the umbrella of another corporation, probably with a new and improved marketing plan and packaging. This “clean up” is a normal part of free market economics and will ultimately probably be good for the Twinkie name.
No doubt you see the connection this has to your real estate investments. Some of the best deals can be found by “cleaning up the mess” left by others. I buy the majority of my investments from banks who were forced to repossess the homes due to non-payment. I’m not taking advantage of the situation, but like the yet-unknown company that buys the Twinkie name, I am cleaning up a neglected and dilapidated product, adding value, and making that product a successful function of society once again.
What are your thoughts on the Hostess bankruptcy? Can you find any other lessons in the story? Share with me below in the comments!
Image Credit: Christian Cable