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3 Reasons Why You MUST Fail At Real Estate Investing

by Michael Blank on May 13, 2014 · 13 comments

  
Post image for 3 Reasons Why You MUST Fail At Real Estate Investing

I’m 35 years old and I never failed at anything.

This never troubled me before.

School was always easy for me and I got straight A’s. I graduated with a master’s degree in computer science and got a good programming job with good benefits and made everyone proud.

I joined a software startup that went public – I had put myself in the right place at the right time and got a good amount of IPO money in the bank.

I have been successful beyond my wildest dreams.

Yet as I read about other successful entrepreneurs like Donald Trump, John D Rockefeller, and Robert Kiyosaki they all had one thing in common: they all failed, sometimes big and often.

But it appeared to be failure itself that propelled them to their success.

I thought I was successful and wanted to become even more successful. Yet I had never failed before, and this puzzled me. I wanted to be like these famous entrepreneurs, but for some reason I didn’t share the one thing they all had in common: failure.

Maybe, I thought, I actually wasn’t on the path to success.

It occurred to me that perhaps I was drifting on the path of comfort.

I had a well-paying job with money in the bank, a beautiful family, house and cars.

So why was I developing such discontent?

Right around this time I read “Rich Dad Poor Dad”, and it articulated in words what I felt inside for a long time: I was at an entrepreneur at heart and it was time to do something about it.

After some reflection it felt right and I decided to abandon my software career in favor of real estate investing and cash flow businesses (the Rich Dad Poor Dad formula for achieving financial independence).

My cash flow business of choice was a series of pizza franchises. On the real estate front, I decided to flip houses.

I experienced colossal failures, setbacks and loss of capital in the restaurant business. Nevertheless I survived these failures and eventually the restaurants produced stable income.

I flipped about 30 houses and 90% of them were profitable, but not all.

Some broke even, a few lost a little bit of money, and two lost a TON of money. I mean, it was like amateur hour. I completely over-estimated the after repaired value, under-estimated the repairs, and cut corners when I knew better. Despite that, however, the business was incredibly profitable for me and my investors.

After buying an apartment building with a credible plan to double its value in five years, one of my tenants created so much trouble for me that it threatened to bankrupt the entire project (read the entire story here). But I was able to overcome this to produce a stable, income-producing asset.

Why am I trying to depress you with stories of failure that might talk you out of venturing out of your comfort zone in real estate investing?

Because I am convinced that failure is a REQUIREMENT to be a successful real estate entrepreneur.

All successful investors have experienced failure of some sort, have overcome it, learned from it, and used it to propel them to greater success.

Here are three things we can learn from failure.

Lesson # 1: Failure Expands Our Comfort Zone and Makes Us Face Our Fears

The mere fact that we have failed at something means that we stepped out of our comfort zone and attempted something hard, something that we think is worth while but that is not guaranteed to succeed.

When we fail once, we train ourselves to be able to deal with failure again in the future. And if we get more comfortable with handling failure in the future, we are less afraid to try something new again.

Donald Trump in his book “The Art of the Deal” describes how his first big development deal resulted in bankruptcy. The colossal failure of this deal is incredible.

Did he expand his comfort zone?

Yes, absolutely. Is he perhaps less afraid of failing again because he survived this failure? Most likely, since he went on doing much bigger deals.

Failure makes you face your fears and expands your comfort zone, two critical traits you must develop to be a successful real estate entrepreneur.

Related: How to Be a Terrible Cash Flow Investor (7 Guidelines for Ultimate Failure!)

Lesson # 2: Failure Teaches Us Priceless Lessons

While we all try to avoid failure, there is no question that some things we will not learn until we experience failure.

I was told to always price in a drain tile system when I rehabbed properties with moisture problems. I didn’t listen to this advice until it became a big problem with the first property I lost money on.

Now I won’t do the deal unless it supports the cost of a drain tile system.

I was told to research court records of each tenant before buying the apartment building. Had I done that, I would have discovered that the one tenant that nearly bankrupted me was in and out of landlord/tenant court regularly.

Brandon Turner, in the Podcasts with Brian Burke , describes how he got burned buying a fix and flip house with credit cards. Other investors probably tried to talk him out of it. Now he won’t use credit to fund his flips.

Tommy, an investor friend, lost his shirt holding property outside his own area during the recession. His lesson learned was that he needs to know the market inside and out before investing in it.

Was he probably told that before?

Probably.

Did he listen? Nope, not til he lost his properties in foreclosure.

Related: “BP Podcast 054: Investing in Under $30k Real Estate, Working a Day Job, and Good Vs. Bad Neighborhoods with Lisa Phillips

Failure is so critical in teaching us what not to do. Once we learn the lesson, we try not to make the same mistake again. Tommy decided to only invest locally and in fact, he is now obsessive about studying the local market each and every day. He attributes his failure as the number one reason he’s so successful now: because he knows his market inside and out.

Failures teach us valuable lessons that may set us back temporarily but that catapult us to new levels of success.

Lesson # 3: Failure Develops Our Character

Developing certain character traits make us better entrepreneurs and people. We probably already know what they are: perseverance, overcoming obstacles, solving problems, staying positive, and the list goes on.

I visualize the budding entrepreneur as a diamond just extracted from the mine. Each experience cuts the diamond from a rough stone to a faceted gem, turning it closer into its ideal form.

When we experience failures we learn how to deal with hardship. We learn that we cannot let failure paralyze us with fear. We learn that despite our best efforts we cannot control everything, and that we must trust in others and perhaps even a higher power.

We learn to not give up. We learn to remain calm despite the storms around us. And once we are able to overcome these challenges and have the ability to look back from higher ground, we recognize that it wasn’t so bad, that we are still alive and able to move on with our lives. It gives us a new perspective.

Aren’t these fantastic qualities to develop?

Would success contribute as much to developing these character traits as failure?

No, we all know it would not.

Conclusion

If we want to be more successful, we have to be willing to fail and actually experience failure for ourselves in order to become better entrepreneurs and real estate investors.

Failure helps us to expand our comfort zones, teaches us invaluable lessons, and develops our characters.

Talk about a time when you failed!

Be sure to leave your thoughts and comments in the comment section below!

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{ 13 comments… read them below or add one }

Matt Swartzendruber May 13, 2014 at 2:23 pm

The only way to experience said failures is to face the fears of failure. Kind of a double edged sword, but I agree that failure is a vital part of the process!

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Michael Blank May 13, 2014 at 2:28 pm

Anything further you can share about this?

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Matt Swartzendruber May 13, 2014 at 2:36 pm

Fear of failure is something that has held me back in this process. I was stuck in “I’m thinking about it” mode for a while. I have yet to find a deal and I think I’ve been overly cautious (the whole fear of failure thing). I am letting that fear drive me now as opposed to holding me back. I have met with sellers, taken quite a few phone calls, and am looking at properties now. I know that failure is coming sooner or later, but I now know that it won’t stop me.

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Lisa Phillips May 13, 2014 at 3:25 pm

Love the truthfulness of this article, Michael. I have failed, but sometimes, that’s why people listen to me now. When I lost my job, I found real estate investing is not only a passion, it can keep you off the street. My shortcomings changed my whole world views of whats really important, especially when your pride has taken a beating, and I absolutely love where I am now. The secret, of course, is to not pack your bags and go home: It’s to say,”How will I ABSOLUTELY do this better next time?” :-)

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Mike May 13, 2014 at 3:38 pm

Steve Jobs, Bill Gate, Larry Page, Mark Zuckerberg – they all succeeded from the first try. You don’t have to fail to become successful.

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Brandon Turner May 14, 2014 at 7:49 am

I would actually argue that all of these guys failed early in their careers. I mean, we aren’t using Mark Zuckerbergs FaceMash… which was his first failed version of Facebook. Bill Gates failed at his first company was Traf-O-Data. Or go Google “Steve Jobs – Lisa” and you’ll see how Jobs was kicked out of his own company for his epic failure, which later led to making Apple into a household name.

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Taylor Jennings May 13, 2014 at 5:19 pm

“Failure is just another opportunity to more intelligently begin again.” Henry Ford

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Nick May 13, 2014 at 7:31 pm

Wonderful article Michael!

I think failure is one of the features that sets apart entrepreneurs from wantrepreneurs.

I know this example gets used all the time so forgive me but Donald Trump was almost $1 billion in debt at one point and managed to prevail more successful than ever before. It’s those lessons that I think are the most important.

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Alison May 13, 2014 at 8:59 pm

Steve Jobs was dumped by Apple, the company he founded, in 1985. He didn’t come back until 1997.

In his famous commencement address at Stanford in 2005 he said, “The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.” And he added, “I’m pretty sure none of this would have happened if I hadn’t been fired from Apple. It was awful-tasting medicine, but I guess the patient needed it.”

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Sharon Tzib May 14, 2014 at 8:09 am

I’ve never failed at any of my entrepreneurial endeavors, although I’ve come close a couple of times. I’ve just done what it takes to make it through, like taking in a tenant as a boarder or living off my credit cards. What hasn’t killed me has made me stronger, and I’m under no illusion that it would be impossible for me to fail, but I don’t dwell on the possibility. Instead, I try to learn from past my mistakes and from people who know better than me (like all the great sharers on BP), and improve each and every time.

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Travis Daggett May 14, 2014 at 11:35 am

Awesome, awesome, awesome article!
Failing Forward by John Maxwell is a great book and it looks like you’ve read it.

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Brian Burke May 15, 2014 at 11:57 pm

Very well said, Michael. You are totally spot on. I’ve said for years that if you haven’t lost money on a RE investment, you just haven’t been doing it long enough. That said, every deal that doesn’t go your way is a building block that builds a better investor. Go ahead and fail, but a real failure is not learning from your mistakes and making adjustments to improve future outcomes.

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Shaun May 16, 2014 at 11:15 pm

I don’t think failure in a field is a pre-rec to success. I do think that not having the FEAR of failure is though.
Being able to overcome adversity in other situations can build this muscle in you before diving into your investing or entrepreneurial endeavors. Many people have lost a job as the impetus to get off their duffs and do these things.

Gotta be honest I am hoping that I don’t have everything go to hell and have to emerge like the phoenix from the ashes of my burnt empire to get ahead. :)

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