Real Estate Investing Basics

You Know What They Say About Assumptions! Think Differently to Problem-Solve More Efficiently (With Embarrassing Real-Life Example)

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This just happened last week. I am somewhat embarrassed to tell you about it, but there is such a good learning opportunity here that I’ll swallow my pride and do it anyway.

‘Daddy, My Light Doesn’t Work’

My daughter Bella came to me with a problem: The ceiling light in her room quit working. It’s a rather basic two-bulb dome ceiling fixture—nothing special really, and nothing much there to break.

The first thing I did was try the light switch on the wall. Sure enough, the light didn’t come on. Next, I checked the breaker box—everything looked good there, too.

So, I went and got the ladder (which is sort of a funny thing in and of itself—ask Brandon Turner if you want to know more) and proceeded to check if the lightbulbs were tightly screwed into the sockets. It wasn’t likely that they wouldn’t be, but they do get loose once in a blue moon.

But that wasn’t it. The light still wasn’t coming on.

Thus, having run out of less labor-intensive options, I went and got a brand new four-pack of LED bulbs in the garage. This meant that I would have to perform manual labor, unscrewing the old bulbs and screwing in the new ones… but I’ll do anything for my daughter.

I am sure at some point someone has told a joke that started out: “How many Jewish violin players turned real estate investors turned prodigious syndicators does it take to…”

Ha! I can tell you—it takes more than one! LOL.

I worked up a sweat and an appetite screwing in those two LED lightbulbs from Costco, only to find out the light still wouldn’t turn on.

I was confused. I’ve replaced a billion of these light fixtures during the course of renovations but never because they were broken. They don’t break. There is nothing in them to break.

Oh, well, I thought. There is a first for everything.

frustrated young man with one hand up signifying confusion and phone in other hand

I Called the Electrician

We had a couple of other items in the house that needed attention, so I called the electrician. He took a look at the light and told me that there was nothing wrong with it. There was power to it and everything seemed in order. So, we pulled out the remaining two lightbulbs from that four-pack, thinking that perhaps I got a couple of bad one.

And… nothing. The light still wasn’t working.

Marco, the electrician, walked over to a torchier in the corner of my daughter’s room, unscrewed one of the working bulbs, and proceeded to put it into the ceiling fixture. And BAM—it worked!

He looked at me in disbelief and said, “I’ve seen one bulb be bad in a pack of four, but I’ve never seen all four brand new bulbs be bad.”

Ladies and gents, I did not follow the “first principles,” but I am getting ahead of myself.

Related: 7 Habits Employed by the World’s Top Entrepreneurs

How Do They Do It?

As you consider some of the prolific innovators in history, folks like Franklin, Tesla, Edison, and Musk, you’ll note that all of them knew more things about more things than most normal people. And if you ponder this reality, you’ll have to ask yourself, “How in the hell did they learn so many things about so many things?!”

How was it that Benjamin Franklin could invent the Franklin Stove, bifocals, and swimming fins? And how is it that Musk has created three multi-billion-dollar companies—PayPal, SpaceX, and Tesla? The respective industries have nothing to do with one another, and yet this guy knew enough stuff about enough stuff to create all three.

The answer is so simple. Think about it.

When Ben Franklin got cold during a Pennsylvania winter, he invented a heating contraption that produced less smoke and therefore was more functional. And when he got tired of switching from a pair of glasses that allowed him to see far to another pair that helped him see near, he invented bifocals. And when he wanted to swim faster, he invented fins.

In each case, there was a problem and Franklin created a solution. The same is true of Musk, who in each case recognized an inefficiency and found a better way of doing things.

But why could these guys do it, and why did no one before them find these solutions? Why did it take so long for a boring suitcase to get some wheels and a handle? Why did it take so long for a boring toothbrush to get a battery?

Examples of such problems are everywhere. The answer is: clearly some people are able to internalize problems and problem-solve in a different way than the rest of us.

But how?

First Principles Thinking

If you asked Musk how he accomplishes the things that he does, he’d tell you that he uses first principles reasoning instead of reasoning by analogy (aka copying what others have done in the past).

I can best describe this by tracing his steps throughout his various endeavors.

Let’s consider SpaceX. When Musk underscored the necessity of space travel, making that his “problem,” the first thing he did was try to buy a rocket. He quickly found out that even an old Russian rocket was too expensive, which for most of us would have spelled doom.

Musk, however, considered this question in a more fundamental (I’d say lowest common denominator) point of view, which was this:

Rocket = Raw Materials + Knowledge + Labor

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Well, he added up the cost of raw materials and labor it would take to create his own rocket and realized that it would be drastically less expensive to build one than to buy one. All that was needed was a bit of funding to purchase said materials and the appropriate knowledge. Thus, SpaceX as we know it was born.

Such common sense.

close up of man's hands hovering under colorful drawing of lightbulb

3 Steps in the First Principles Method of Thinking

Step 1 – Identify the Problem

Inefficiency in the banking system was a problem. Enter PayPal. Inefficiency in space travel? SpaceX. Inefficiency in auto transportation? Tesla. Inefficiency in eyesight? Bifocals. Inefficiency in heating? Franklin Stove. You get the point.

Step 2 – Understand the Big Picture

In other words, if you are seeing a tree, focus on the trunk and the largest limbs, not the leaves.

For example:

Problem: Rocket is too expensive to buy.

Solution: Negotiate a lower price.

First Principles Solution: Build your own rocket.

In this example, negotiating a lower price is indeed a solution but very fringe, akin to messing with the leaves of the tree. Building your own rocket is attacking the trunk.

Problem: Cars pollute too much and are too slow.

Solution: Fine-tune internal combustion engines to pollute less and be a little faster.

First Principles Solution: Build an electric drive-train, which doesn’t pollute and goes 0 to 60 in under three seconds—because it’s electric.

Do you see what I am saying here?

Step 3 – Do Not Reason by Analogy

You can’t create a new solution to an old problem if you base this solution on what you already know. As advanced as your knowledge may be, it may still be limiting you. You don’t know what you don’t know…

When facing a problem, think like a baby—no skills, no knowledge, no pre-conceived notions. You are starting from scratch each and every time.

Related: BiggerPockets Podcast 352: No Driver’s License, No Money, No Excuses: How Diego Corzo Blazed a Trail to 18 Doors

Back to the Light That Wasn’t Working

The issue I ran into is that I could not fathom that all four brand new, high-quality, expensive lightbulbs could be defective. My experience told me, no way. I never even considered the possibility. Therefore, I came to a logical but erroneous conclusion that the problem must be the fixture.

Well, just because I’ve never seen it before doesn’t mean it couldn’t happen. I relied too much on what I knew and not enough on what I didn’t know, and I missed the proverbial forest for the trees—and that’s the danger in rationalizing by analogy.

Wrapping Up

I did not envision this article as a real estate piece but more a mindset thing, and yet…

As we ponder the importance of experience in real estate, the easy answer is to say that it is the absolute key—without it, you’re toast. I used to think that.

And then I got wiser.

Clearly, experience means a lot. However, less clearly but equally intellectually, experience honestly isn’t everything. In fact, it can actually get you in trouble.

Finding balance is the key.

What this means to us seasoned guys is that we must always remember that we don’t know what we don’t know. This becomes more and more challenging the more we do know.

And what this means to you, Mr. Newbie, is that if you learn to think the right way, now is as good of a time to start as any! The rest is just noise—even when it comes from yours truly.

Good luck, and try not to make the same mistake I made.

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Questions for me about any of the above? Comments?

I’d love to hear from you below. 

Ben has been investing in multifamily residential real estate for over a decade. An expert in creative financing, he has been a guest on numerous real estate-related podcasts, including the
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    Wenda Kennedy JD from Nikiski, Alaska
    Replied about 1 year ago
    I agree with you. We get so caught up in our expertise levels that we forget the basics. Funny story and so true.
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 1 year ago
    I mean, I thought it was funny. It was one of those "stupid" moments for me...lol Thanks so much, Wenda.
    Peggy Liu Specialist from Los Angeles, CA
    Replied about 1 year ago
    Happy to hear that the electrician solved the problem :)
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 1 year ago
    New lights in both kid's bedrooms, if you can believe it :)
    Jerry W. Investor from Thermopolis, Wyoming
    Replied about 1 year ago
    Ben, I would laugh more at your story, but had the same thing happen to me with an outside light fixture. I actually replaced it and only when it still didn't work did I go test the new light bulbs. My only consolation is that I always try to upgrade whenever I replace something. So in effect it was a good thing and I got an upgrade. If you believe that I have some ocean front property to sell you in Wyoming. Good to see you posting friend.
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 1 year ago
    Haha It's funny you mention this, Jerry. I ended up replacing the light fixture, and while I was at it, went ahead and replaced my son's as well :)
    Adrian Ayub
    Replied about 1 year ago
    Similar men throughout history understand that we are paid in proportion to the problems that we solve, and if you devote the entirety of your energy and focus being obsessed with solving problems of such magnitude, vast amounts of wealth could potentially be a by-product of it.
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 1 year ago
    Money is the by-product of successful problem-solving. Agreed!
    Bruno Maluf Rental Property Investor from Putnam, CT
    Replied about 1 year ago
    What a well written post! Thanks so much for sharing. In my humble opinion; people focus too much on the numbers when talking to new investors. I value this sort of perspective/mindset much more than I do cashflow or cap rate advice. At the end of the day anyone can crunch some numbers, but posts like these go beyond linear thinking... thanks again ^^
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 1 year ago
    Thank you, Bruno! I've been writing on this blog since 2013. I have close to 200 articles here. I used to write every week. Today, I only write when I have something to say. And most of it does tend to address perspective beyond the numbers. Thanks so much for reading!
    Kevin Rinn
    Replied about 1 year ago
    My stepsons van quit running on the way home, me being the mechanic in the family, got recruited to help/diagnose the problem. Gas gauge showed 1/4 tank or more, he said he just put some gas in at the start of the week for short commute to work, I could spray starting fluid into the engine and it would run....must be the fuel pump! I have done my due diligence and being the rocket scientist that I am...LOL, have deduced that the fuel pump needs to be replaced. The fuel pump is located in the gas tanks in this day and age of fuel injection so this is a job for a friend who owns a shop. Pay for a tow to the shop, next morning i get a call from service advisor informing me they put a few gallons of gas in to the van and it runs great....yes I believe i heard laughter in the background as she informed me of the situation. Daddy always said to check the stupid/easy stuff FIRST! I broke the rule and made an ASSumption. As far as thinking non linear, Henry Ford back in the day pulled his parts suppliers aside and gave them specific instructions on how to make the wooden crates that contained the parts being utilized to assemble the Ford Model T. A few workers in the plant had noticed this going on and were watching and waiting for the parts crates to be delivered in the next few weeks and when they were delivered, Henry Ford pulled the wooden crates apart carefully and oriented the wood on the floor of the shop and then instructed the assembly workers to take the new just delivered crates/wood to the assembly line as this became the FLOORBOARD for the Model T! I love it, the best & ultimate, cost saving, efficiency enhancing, process improvement example I have ever heard of! Analogy to real estate world, the hard work will always be involved, taking time to think it through FIRST is where the working smart comes into play! I enjoyed and obviously empathize with the story you told!
    Ben Leybovich Rental Property Investor from Chandler/Lima, Arizona/OH
    Replied about 1 year ago
    Hahah Exactly!
    Deanna Opgenort Rental Property Investor from San Diego, CA
    Replied about 1 year ago
    I work on large conferences, which basically means I trouble-shoot for a living. We go to the "last known good point" and start from there. Frequent problems are Air gaps (stuff not plugged in) and issues located between the keyboard and the chair.
    Kevin Moules Rental Property Investor from Turlock, CA
    Replied about 1 year ago
    As a handyman I am going to take this one to heart. hahaha. Although pulling a bulb from a nearby fixture is something i usually do but not always! This was my favorite quote of the article right here. So powerful to be reminded of this type of thinking! "The issue I ran into is that I could not fathom that all four brand new, high-quality, expensive lightbulbs could be defective. My experience told me, no way. I never even considered the possibility. Therefore, I came to a logical but erroneous conclusion that the problem must be the fixture. Well, just because I’ve never seen it before doesn’t mean it couldn’t happen. I relied too much on what I knew and not enough on what I didn’t know, and I missed the proverbial forest for the trees—and that’s the danger in rationalizing by analogy." You don't know, what you don't know. Simple as that.