It’s 5:30 a.m. The kids are still asleep, and so is Patrisha.
I am sitting in the backyard at my Arizona house hack, enjoying the reflection of the blue skies in my sparkling pool.
It’s quiet. It’s blissful. And being that it’s the day after the Fourth of July, I am thinking about the sacrifices so many have made to protect my freedom.
So, before I go any further, a big thank you to all of the veterans out there!
Now, back to the purpose of this writing.
How You Can Amass $40MM of Real Estate
In the last 10 months, my company and I have closed $40 million worth of apartment acquisitions. We bought three apartment communities in Phoenix, and we are on the lookout for many more.
Per our business plan, we strictly buy significant value-add assets, whereby we can project a $300 per unit increase in revenue within 24 months. If I am right about the re-positioned net operating income (NOI), the value of the three assets we currently own should capitalize to about $65 million when we are finished with repositioning.
Here’s the thing. Unless you are independently wealthy and have $15MM just laying around, in order to be able to buy $40MM of real estate as we did, you will need to syndicate equity from partners.
Therefore, in describing the steps to get there, what we are really talking about is what it would take for you to be able to mature as an investor to the point of syndicating large assets.
Here we go.
Step 1: Study
You have to study. To get to this level, you have to become an intellectual.
Even if your first purchase is a rental house or a duplex, try to understand the process on the deepest level you can. You must be able to see yourself in your mind’s eye as a person with $40 million of assets before you can actually be that person.
Study is a critical component to give you the confidence to envision yourself larger than you currently are. Your intellectual worth has to always supersede your net worth.
Step 2: Experience
I’ve said this many times before. Underwriting numbers is nothing more than a process of describing the dynamics in a lifecycle of an investment. As such, we don’t start with the numbers; we back into them.
Your job is to start with the dynamics (the “story”) and boil them down to the numbers. The more you can envision and predict the dynamics, the more accurately you’ll be able to express those with numbers.
Guess what? You can’t internalize the story from a book. You have to experience it.
Thus, start small, get smarter with every deal, and build upward. The more you can envision every little aspect of that story, the more dialed in your underwriting becomes.
Step 3: Network
You just don’t know when and how a door will open. Be available to people. Connect with people.
But be careful who you listen to…
Step 4: Teach
You don’t start learning until you begin to teach others! The reason for this is simple. A lot of what we do is subconscious.
This is specifically the case for those of you who are truly talented, as talent can hide a lot of analytical deficiencies. This means that, in a lot of cases, we are not aware of the exact intellectual processes underpinning our decision-making and execution—they are intuitive. Things just work out.
Well, you may be brilliant at doing something, but in order to teach it in a way that a student can internalize, you have to break the process down and bring it into the consciousness. This is the only way someone who is not you can retrace your steps.
Bringing that which would otherwise be accomplished subconsciously into consciousness illuminates all kinds of elements and dynamics that the teacher themself may have been unaware of. It’s actually a really cool process for the teacher—one that provides perspective on how to hone your skills even more.
This is why I’ve always taught. Every time I learned something new, I taught.
At first, I taught students to play the violin. Then I taught students how to buy small multifamily with nothing down. Now I teach syndication.
And somewhere in there, I managed to write a book on house hacking.
Step 5: Learn More and Learn Differently
Once you begin to teach, you start to learn all over again. This is where your knowledge transitions from mechanics (a lot of which may have been unconsciously executed by you in the past) to academia. You need to think deeper to grow!
Step 6: Eventually You’ll Hit a Wall—Recognize It!
Now that you really are a thinker—one who will continually learn, refine, and implement—I can guarantee that you will eventually hit a wall. At this point in your cycle, you’ll more than likely be the smartest guy in the room. You’ll know the answers to all of the questions anyone can ask.
And yet, you’ll know that something is really off with you. Despite having achieved all of those things, something is missing. You won’t be able to put your finger on it, but you’ll know that something is wrong.
I describe this condition in the following way:
Imagine yourself standing in a cornfield. The corn is tall and you can barely see above it. It’s dusk. All of a sudden you hear church bells. You strain your eyes, spinning 360 degrees looking for the church, but you can’t see it. It’s infuriating—you can clearly hear the bells. You know the church is near, but you can’t see it…
It is this feeling of so close and yet so far away that I describe as hitting a wall. And believe me, if you are as smart as you think you are, you will eventually hit that wall…
This is going to be your greatest test!
Step 7: Forget Everything You Knew and Learn the New Way
I know this sounds a bit on the liberal arts side, but such is life.
Figuratively speaking, the cup that you were yesterday is overfull. There is no more room for anymore knowledge—at least not such as you’ve always known it.
So, this is the time to empty out the cup and fill it with something new. You must be reborn as an investor and as a thinker to move forward. You have to question and reimagine everything.
It’s a painful process. You will eventually accept that almost everything you know is wrong, but you will not know a better way.
This is indeed painful, but in order to be the big investor you want to be, you’ll have to go through this. Then when it’s your time, you will find your path and be ready to operate on another dimension.
The Bottom Line
This cycle will repeat more than once in your career. Every time you hit that wall, you’ll have a choice: either take the off-ramp and call it a day or forget everything you knew and start over.
Each time that wall will be thicker and taller. And each time the process of reimagining everything will be more brutal.
At some point, you’ll be done—with all of it—having accomplished everything you are meant to. Until then, this is the life of a thinker.
Good luck to all!
What do you think about the steps I’ve outlined above? Where are you in the cycle?
Let’s talk in the comment section below.