The Colossal Fail: How a Hard Landing Can Make You a Better Investor

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When I was 16 years old, I aspired to become an airline pilot. Using the money I’d earned from a week of bagging groceries, I took one flying lesson a week at our local airport after school. Learning to land an airplane was an incredible experience. After you complete your first unassisted landing, you feel like you are at the top of your game.

One day, my instructor set up the airplane on final approach to the runway. He intentionally set up the plane so that we came in too low with an airspeed that was too slow. It’s a condition called “being behind the power curve”—a concept I had not yet been introduced to.

“You have the airplane,” my instructor told me. It was time for me to take over the controls and complete the landing.

Related: 3 Things All Rookie Investors Need Before Diving Into Real Estate

As I crossed the runway threshold I cut the throttle, just as I had done on every other landing (not that I had done many in my whopping five hours of experience). And then, almost immediately…WHAM!

The plane literally fell out of the sky. Fortunately for me, we were only about 10 feet up or so, so instead of a crash it was just a very hard landing. Surely I must have damaged the airplane, I thought. I’d never felt such an impact before.

We assessed the damage: there was none. I  had dodged a bullet this time.

What happened? What did I do wrong? Well, a lot. And also nothing.

I failed to recognize what was going on because I’d never experienced this particular configuration before. I didn’t realize that I should have gone full throttle to get the heck out of there and start over. On the other hand, I did nothing wrong because I did what most students do when they are learning and lack experience. We make mistakes. And we learn from them.

Never again will I get behind the power curve on a final approach. Never again will I cut the throttle when I’m going too slow for the airplane to keep flying. The point is, you learn these things in training so you don’t learn them with passengers.

What Does This Have to Do with Real Estate?

Everybody wants to talk about their successes. But talk about their failures? No way! What failures?

Come on. We all have them, so just be up front about it. Here’s why.

Other people’s money fuels the growth of our real estate businesses, right? Attracting that money requires that you have a spotless record and never make mistakes. It is perfection that impresses investors and makes them want to invest with you. No one wants to invest with someone who has screwed up. Right? No; wrong!

In just the past few years, I’ve raised over $60 million, so you can imagine that I’ve talked to my share of investors. I’ve found that plenty of investors will trust you because of all of the things you’ve done right. But nearly just as many have decided to invest with me only after hearing a story about one of my failures. Failure is where the best lessons are learned. Your true colors show when you fail. Investors don’t want to get caught up funding the “rookie mistake” phase of someone’s career. But they do trust their capital with those who act with integrity in the face of adversity.

The Rookie Mistake

If you’ve read my articles on Multifamily Myths, you know that there are many things about investing in income property that new investors don’t yet know (think: student pilot). Proceeding under the assumption they have all of the knowledge necessary leaves them vulnerable to mistakes that lead to hard landings.

Such was the case early on in my multifamily investing career.

My rookie mistake was underestimating the power of an adverse economic cycle and its effect on economic vacancy. And overestimating the relevance of buying at a discount to the previous owner’s basis.

It was spring of 2008, and the real estate market had already seen a significant collapse. This allowed me to buy a 60-unit apartment building for half of the price the previous owner had paid. This (incorrectly) convinced me that I was getting a great deal, buying after a downturn at a steep discount. What could possibly go wrong?

At first, nothing went wrong. The business plan was ticking away flawlessly. I was renovating the property, upgrading units, replacing roofs, you name it. Occupancy went from about 80 percent to 99 percent. I was getting higher rents on my new leases. Life was great. It looked like this multifamily syndication would go down as a success.

But 2008 was offering up a double whammy. The earlier collapse in real estate prices finally made its impact on the greater economy, and by fall 2008, we suffered what can only be described as the Great Financial Collapse. In September, Bear Stearns and Lehman Brothers, both thought to be solid as a rock, came tumbling down in a subprime mortgage meltdown. Banks were failing. Companies were closing. Jobs were disappearing. And my apartment building had just hit 99 percent occupancy, and stayed there—for about a week.

Related: The Top 3 Real Estate Investing Mistakes I’ve Made (& What I Learned)

“People Always Need Somewhere to Live”

They say that residential real estate is a safe investment because people always need somewhere to live. While there is some truth in this assumption, the reality is that people will live wherever they must—even if that means doubling up with friends or moving in with family. It could mean moving from apartment to apartment until the Eviction Grinch catches up to them. That’s where this old saying comes in: “Half of the units are empty, and the other half aren’t paying.”

Economic vacancy is made up of several components: Loss to lease (the difference between market rent and the actual rent on the lease), physical vacancy (empty units), concessions (discounts or free rent given to attract a tenant), bad debt (the half that aren’t paying), and non-revenue units (down units, models, employee units, etc.).

During an adverse economic cycle, it’s hard to raise your tenant’s rent—you don’t want to rock the boat on those below-market leases. This way, your loss to lease doesn’t burn off. Units go vacant so your physical vacancy loss goes up. You offer concessions to prospective tenants because you are in an all-out war with your competitors to fill units. Tenants are losing jobs, so your bad debt goes up and your eviction costs rise.

If you don’t appreciate all of those elements of economic vacancy, each of them can catch you off guard. They can also all team up to deal you a knock-out blow.

I got hit by them all. By the middle of 2009, my property was collecting just enough income to pay for the operating expenses, but there was no money left over to service the debt. I was definitely behind the power curve now, and applying full throttle to go around and try again wasn’t an option. The engine wasn’t working.

Stuck Between a Rock and a Hard Place

This is a terrible position for a syndicator to find themselves. If you don’t make the loan payments, the lender will foreclose. Your investors will lose all of their money. You can sell the property, but because the income is only enough to cover operating expenses, the net operating income is roughly zero. This means that the property’s value is unlikely to exceed what would have been a conservative loan in the first place. So at this point, if you sell, you might pay off the loan (or perhaps the lender would agree to a short sale) but in either case, your investors would lose all of their money.

Although this was my first multifamily syndication, I had already done many single family syndications and a couple of commercial (non-syndicated) deals. Up to that point, I’d never had an investor lose their principal on any investment they had done with me. I wasn’t about to start now. So I was looking for a third option, and I found it.

I started paying the debt service out of my own pocket. At first I simply had to feed in a few thousand dollars. But it was only a matter of months before the situation deteriorated to the point where I was fronting the entire $15,000 monthly loan payment.

After a couple of years, things started to turn around. Eventually I started generating some income beyond the expenses and was able to reduce the amount of money that I was feeding each month. By the time the property could stand on its own, I had put in over $400,000. I had loaned the entity more money (interest free) than my investors had invested in the first place.

The property was originally forecasted to be a five-year hold. Five years turned into eight. We sold the property in 2016. Fortunately for me and my investors, the multifamily rebound was just as strong as the decline. We sold for a price that not only paid off the loan, but returned all of my investors’ capital. We even made enough to pay back all of the funds I’d loaned for servicing the debt. On top of all of that, we all managed to make a profit.

Apply These Lessons to Your Business

When underwriting income property, build all of the components of economic vacancy into your income forecast. Be sure to use conservative estimates so you don’t get caught off guard when things aren’t perfect (they never are). Don’t underestimate the power of an adverse economic cycle. And don’t let the concept of “everyone needs a place to live” lull you into a false sense of security.

So you want to syndicate real estate? First, know what you are doing. Make your rookie mistakes on deals that you fund with your own money—or get an experienced partner so that you don’t make rookie mistakes at all. Raising money from others is a serious responsibility. You don’t want to practice on the back of the hard-earned cash of others.

Your job as a syndicator does not end once you raise the funds and close the deal. That’s just the beginning. A good syndicator can salvage the best outcome from a really tough situation. A bad one can ruin a perfectly good real estate deal and destroy relationships with investors.

Always do right by your investors. When things aren’t going according to plan, be honest with yourself about it. Come up with a new plan. Communicate with your investors. Tell them what is going right, what is going wrong, and what you are doing about it. Airline captains will tell the passengers to put their seatbelt on when there is turbulence ahead. You should do the same. Don’t sugarcoat anything or make up excuses. And don’t lie or say all is well when it isn’t.

Student pilots don’t get a license to carry passengers until they’ve had the necessary amount of practice and can demonstrate a specific level of skill. These rules are in place for the safety of the passengers, of course. But there are no similar rules in place for real estate operators who take “passengers” (investors) on their real estate journey. Do yourself and your investors a favor: get enough practice to get past the “rookie mistake” phase of your career before you put anyone’s money at risk. Your hard landings will make you a better operator and allow you to add extreme value to your investors.

What mistakes have you learned from?

Share your experiences below!

About Author

Brian Burke

Brian Burke is President/CEO of Praxis Capital Inc, a vertically integrated real estate private equity investment firm. Praxis operates on multiple platforms, currently managing active syndications for the acquisition of multifamily, single family, and opportunistic residential assets in U.S. growth markets. Brian has acquired over $400 million in real estate over a 30-year real estate investment career, including over 2,500 multifamily units and more than 700 single-family homes, with the assistance of proprietary software that he wrote himself. Brian has subdivided land, built homes and constructed self-storage, but really prefers to reposition existing properties. As a recognized expert, Brian has been a frequent speaker at real estate forums and conferences and served as co-host and real estate expert on the Fox News Radio show The Best of Investing.


  1. Chris Conde

    Hi Brain, I’m curious if you can provide some more detail. For example when things were good what was your free cash flow per door and vacancy reserve percentage? Did you have X number of months of operating expenses liquid at the ready? How would your strategy for reserves be different now that you experienced this?
    Beck and Chris

    • Brian Burke

      Hi Chris, things “were good” for literally only weeks. Not enough time to even measure free cash flow. First we had to build up the occupancy from the seller’s dismal performance (which explained why he was in foreclosure to begin with) and that was a process (always is). We got the property to 99% occupancy and it was a very short time before the economic collapse. So there never was any free cash flow…well, a little, we were able to make one investor distribution before everything collapsed. The forecast, not that it turned out to mean much, was for cash-on-cash return ramping from 5.8% up to 14% over the hold period. Those numbers are reasonable (if the market cooperates) but it turns out that the forecasts upon which those assumptions were built were inadequate. We had forecasted 8% for economic vacancy in a market that was running about 4.5% physical. Nowadays I’d be forecasting closer to 8% just for physical and a total economic closer to 14% to 20% depending on vintage. For this vintage it would be closer to 20% if I were doing this deal today (not that I would–I’m out of the <100 unit size market now–another lesson learned from this experience).

      We raised about $30,000 for operating reserves and had a budget for routine capX and once the storm hit both of those were quickly erased. The purchase price was $1.8 million so the operating reserve was about 1.7% of the purchase price. I haven't changed that much, but with the price point I'm in now my operating reserves are in the hundreds of thousands. But that is also coupled with far wider margins as a result of more conservative underwriting of economic vacancy.

      • Jonathan Child


        Thank you for your insight. I am one of those young investors that hasn’t had any real trouble yet and I find it terrifying; something ugly is on the horizon. Please keep the “failure articles” coming!

        Also, why are you no longer interested in <100 unit properties?

        Thank you!


        • Brian Burke

          Smaller properties are more difficult to manage than larger ones. Bigger properties have more income, thus you can afford to hire better quality staff. Not to mention that they are easier to finance and produce a more meaningful payday. But you don’t go straight to big properties, you have to go through the right of passage of smaller ones. Make your mistakes on the smaller ones, because if you make them on the big ones they’ll crush you.

    • stacy hopkins

      Brian, I feel your pain. I was a licensed home builder back then. I made payments on vacant completed spec houses for over a YEAR before finally tossing in the towel (bankruptcy) in 2010. It’s easy to make money in upturns, but you better be prepared for the downturns. Many young investors today have never seen one.

  2. Juan Vargas

    Great article Brian. I’ve heard this story on a couple podcasts but you went much deeper on it here. No doubt you made the right decision paying the mortgage while the economy was in the ditch. Thanks for sharing your story.

    I know you like to underwrite your properties on 10 year terms just in case there is a market correction during that time. And we keep hearing the market is likely to turn soon. Based on your past experiences, do you see any similarities now as you did pre 08?

    • Brian Burke

      Thanks Juan, I think it was the right thing to do too.

      The only similarities I see to 2008 are the euphoria, the attitude that you can only make money on real estate no matter how much you pay…and more and more inexperienced investors jumping in and too gung-ho. The good news is I think most markets can support values, rents and occupancy—at least for now. I’m not predicting another GFC, but I am preparing for the possibility of an adverse market cycle during the hold period of my new acquisitions. Keep in mind that adverse conditions have many faces, and I think the next one will look a lot different than the last.

  3. stephanie cabral

    Brian, this is reassuring to hear. On BP, we see so many grand success stories but rarely hear of the “tuition” that people need to pay via their mistakes to become better investors. As someone going through a tough flip right now (but absolutely committed repaying my investors by any means necessary), this is well timed. I also have started to talk openly about the mistakes that I’ve learned to the meetup group that I host and anyone else that wants to know what could go wrong and how to avoid the mistakes. That’s why BP exists! Thank you again!

    • Brian Burke

      Stephanie, bad deals are a right of passage. Those who have never had one just haven’t been doing this long enough. If you have investors in your bad deal, there are two ways to handle it. Walk away or keep grinding until your investors are made whole or you’ve at least done everything humanly possible. Those who choose the first route have met the end of their career. Those that keep the best interest of their investors at the forefront will have very long careers and one day will be able to look back at that bad deal as the best learning experience of their lives. Keep at it and one day you’ll be writing an article like this one. Good luck!

  4. Jerry W.

    Thanks for sharing what had to be a tough memory of a very hard and scary time. I have never used private money. The profit margins in my area are getting pretty hard to make money. When I first started investing I was too green to recognize the opportunity, and now the economy in this area is just scary. Folks say that they are looking forward to the next bust so they can buy the great deals like in 2008 through 2011, but when you own property and are in the middle of it often you are only concerned about staying afloat. While the market often comes back it is not guaranteed. Look at Detroit or in my state Jeffery City or Gillette. I can only imagine what trying to raise cash when the stock market has just crashed must be like. I look forward to when things are booming and everyone can make money, not from folks going bankrupt.

    • Brian Burke

      Jerry you are right and I assure you, being in the thick of it was a very scary time. I remember so many difficult conversations at the dinner table, sleepless nights, uncertainty and personal sacrifice. Looking back I know it wasn’t a setback. It was a setUP, an experience to prepare me for the much bigger things that have driven my success since. It forced me to completely overhaul my approach, tools and attitude. Without this difficult situation I not just believe, but know with certainty, that I wouldn’t be where I am today had this not happened. But I never want to go through it again!

  5. Mano Chidambaram

    Love these “failure” articles, Brian, since I think there is so much more that one can learn from these articles than from just success stories, since it highlights what to look out for and what can be done to either avoid them or to deal with those issues.

  6. Scott Skinger

    I’m just seeing this article now from your link in a BP forum post but “wow” is all that I can say. Thank you for sharing…super helpful to a new investor who is trying to underwrite conservatively and gives me even more confidence to invest in one of your syndication deals.

    • Brian Burke

      Thanks for the vote of confidence, Scott! Learning lessons the hard way is a far more thorough learning experience than any book or forum that tells you to underwrite conservatively. When you experience pain, you’ll do anything to not experience it again!

    • Brian Burke

      My pleasure, Jerry! That was great advice. I thought I had already learned from the mistakes of others, only to find out that human behavior seems to discount or “forget” those lessons in the heat of the moment. Make your own mistake and you can’t get the lesson out of your mind!

  7. Tyler Jahnke


    Love this article and thanks for sharing! Amazing timing and 100% relevant to me right now as I just experienced my first “hard landing.”

    Vacant property. Repairs needed. All because I didn’t properly vet the people I decided to work with.

    But as you said, this is the BEST way to learn. I’m not out of the woods yet on this one property, but am better prepared for the next one. And the next one. And the next one…


    • Brian Burke

      Sounds like you are completing your first semester toward your PhD from the school of hard knocks. When you graduate we’ll be alumni. Sorry to hear about your challenge, but in the long run it’s setting you up for bigger and better things. That’s how it worked out for me.

  8. Frankie Woods

    What a great article! I haven’t had my “hard landing” yet, but I’ve already made plenty of mistakes. Luckily for me, the market has supported these poor decisions. But I’m learning, and hoping to avoid any major setbacks because of poignant stories such as yours. Thanks so much for sharing!

    • Brian Burke

      As they say, “a rising tide lifts all boats”. But it also hides a lot of stumps! Thankfully your timing was good and the market helped cover your mistakes. That really emphasizes the value of timing! The market allowed me to recover too, it just took a long time. Timing wasn’t on my side in this deal.

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