Warren didn\u2019t use fancy spreadsheets. He rarely used a calculator. After years of prodding by friends and co-workers, he reluctantly bought a computer\u2014but just to play Bridge.<\/p>\n
(Buffett plays Bridge for eight hours a week\u2014sometimes with cards, sometimes online. I find this amusing, but I\u2019m guessing life can get boring at the top.)<\/p>\n
<\/p>\n
Because Buffett stayed hyper-focused and poured over information on thousands of companies, he was able to spot inconsistencies between prices and earnings, between cash-on-hand and shareholder distributions.<\/p>\n Buffett became a master at spotting anomalies.<\/em> <\/strong><\/p>\n I just read The Snowball<\/em><\/a>, which is the authorized biography of Warren Buffett. I learned that Buffett made dozens of small investors into millionaires while he was relatively unknown.<\/p>\n Those were the days when he hated the spotlight. As I said, he spent his nights and days studying. He read and studied for up to 80 percent of his time. He still does.<\/p>\n Now that\u2019s focus! And dedication.<\/p>\n Those who know me know that I am fairly obsessed with The One Thing<\/em><\/a> by Gary Keller and Jay Papasan. My life goal is to live out the principles in that short but powerful volume.<\/p>\n This book teaches us to obsess over one thing,<\/em> the life goal we want to achieve. But it also boils us down to focusing on the one thing<\/em> we need to do today, in this hour, to get there.<\/p>\n Warren Buffett\u2019s long-term, big picture one thing was making money. But his daily one thing, that micro-level effort that demanded his focus, was reading and studying\u2014looking for anomalies.<\/p>\n They say you make money when you buy. That is partially true.<\/p>\n A typical operator in the commercial real estate space these days analyzes a few dozen deals that are brought his way. Though multifamily<\/a> if dreadfully overheated, there are still deals in self-storage and mobile home parks.<\/p>\n With several dozen deals to choose from annually, a good operator may be able to acquire a few good ones. And because of the fragmented market, they can often achieve good returns.<\/p>\n Related:<\/em><\/strong> Why Self-Storage Investing Is Red Hot<\/a><\/em><\/p>\n Our newest operating partner has a different strategy. With four full-time people working the phones daily\u2014making calls to about 2,000 owner-operators each week\u2014he has the opportunity to sift through hundreds and hundreds of potential deals each year. He has the pick of many deals that others will never see or hear about.<\/p>\n He has the chance to find anomalies. <\/em><\/p>\n This is one of several reasons he is achieving seriously outsized returns. And these independently verified results have led his company to be named the No. 1 performing value-add real estate fund (under $50 million) nationwide last year and No. 2 this year.<\/p>\n But like Warren Buffett in the late 1960s, you\u2019ve probably never heard of him (yet).<\/p>\n Let\u2019s take a look at one of his recent self-storage acquisitions.<\/p>\n As I said, this operator has a team of four or five full-time acquisition specialists who work the phones. They call about 150 to 200 self-storage and mobile home park owners and managers each<\/em> on a daily basis. Many of these are mom-and-pops. Their goal is to drum up off-market transactions.<\/p>\n They are looking for anomalies. <\/em><\/p>\n One of their team members, James, made contact with the owner of a facility built in the late \u201870s. She seemed nervous but admitted that she wanted to sell. James connected her with Matt, the owner of the firm, and he began a dialogue with her.<\/p>\n She explained to Matt that she had been the owner and manager for a very long time, and things were not going well. Though she had 80 percent occupancy, her delinquency was also running at about 80 percent. So four out of five tenants were not paying on time, and some had fallen months behind.<\/p>\n As Matt got to know her, he figured out why. She was neurotic, fearful and overbearing, annoying. She had apparently alienated the tenant base, and they learned that they could pay late (or not at all).<\/p>\n The operator visited the facility, noting many typical symptoms of a mom-and-pop self-storage asset:<\/strong><\/p>\n Matt was not only the prospective buyer for this facility, but he became the seller\u2019s personal therapist and retirement planner. She called him several times per week\u2014sometimes as early as 4 a.m.<\/p>\n Related:<\/em><\/strong> Work Less & Earn More With Commercial Investments\u2014Here\u2019s How<\/a><\/em><\/p>\n Matt patiently walked her through the process time and time again. It became clear why she didn\u2019t go through a broker when he saw her books, which were written with pen and paper and were in complete disarray.<\/p>\n Matt had to sell his banker on the significant upside potential of this asset since the revenues were light and the expenses were heavy (also typical of mom-and-pops).<\/p>\n After much wrangling and suspense, the acquisition finally closed a little over six months ago.<\/p>\n In the first six months, Matt and his team have created value in a variety of ways:<\/strong><\/p>\n Check out the new and improved property below!<\/p>\n This facility has 71,762 net rentable square feet with 650 units. It also has 114 RV parking spaces (which could provide an opportunity for facility expansion later). The facility was acquired for $4.3 million.<\/p>\n At the time of the acquisition, the facility had a net operating income of $295,322. Six months later, the income was increased by $161,569 to $456,891.<\/p>\n This translates to a projected increase in value of $2,300,000 to $6.6 million\u2014or even better if the cap rate is compressed.<\/p>\n Value = Net Operating Income \u00f7 Cap Rate<\/p><\/blockquote>\n Since the original debt on the facility was about 50 percent, the equity raised was about 50 percent, as well. That\u2019s a little over $2.15 million in equity.<\/p>\n That equity just doubled in projected value.<\/strong><\/p>\n The facility is projecting a cash-on-cash return<\/a> from operations of 21 percent and a 47 percent IRR (internal rate of return). If operations go according to plan, the property will generate a 4.2X equity multiple in four years to be shared by investors and the operator.<\/p>\n Can this type of scenario be routinely replicated? Well, not necessarily. Unless you\u2019re committed to finding off-market anomalies. <\/em><\/p>\n This is just one of two operators in our funds who have achieved these types of results over and over again for most of the past decade. Another one of our operators has provided investors with a 40 percent-plus annual return consistently over the past 21 projects that have gone full-cycle.<\/p>\n He employs a similar strategy of finding off-market mom-and-pops with latent potential. After upgrading the facility, he achieves:<\/p>\n By applying leverage, these operators are generating outsized returns for themselves and investors.<\/p>\n So how can you follow in the path of Buffett to find anomalies? If you\u2019re in the single family home world, maybe it means driving for dollars<\/a> while your competitors compete for houses on the MLS and the courthouse steps.<\/p>\n If you\u2019re in the multifamily or self-storage arena, perhaps you can take the time to build relationships with mom-and-pop owners, who will eventually sell to you rather than go through a broker. The same goes for mobile home parks.<\/p>\n And if you\u2019re busy pursuing a full-time career, or enjoying retirement, perhaps you should consider investing passively with someone like Matt\u2014an expert operator, who knows how to find anomalies.<\/p>\n I mean, hey, if you had the opportunity to either invest with Mr. Buffett in the 1960s or go it alone, picking your own stocks evenings after work and on weekends, I\u2019d ask you the same question I asked myself last year: \u201cWhy work harder than you need to… to make less than you could?\u201d<\/p>\n![\"\"](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/06\/Buffett-Playing-Bridge-854x1024.png\" "\\"\\"")
\u00a0<\/strong><\/p>\nSucceed in Real Estate by Pouring Over Numbers & Spotting Anomalies<\/h2>\n
Be Focused & Dedicated\u2014to One Thing<\/h3>\n
Be Strategically Different Than Your Competitors<\/h3>\n
![\"cutouts](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/06\/different.jpg\" "\\"\\"")
<\/p>\nAn Example of the Upside of Anomalies<\/h2>\n
Spot the Anomaly<\/h3>\n
\n
Make an Attractive Offer<\/h3>\n
Acquire, Then Fix What’s Broken<\/h3>\n
\n
![\"\"](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2019\/06\/Self-Storage-Facility-1.png\" "\\"\\"")
<\/p>\nRevel in the Glory<\/h3>\n
This Strategy Is Repeatable<\/h2>\n
\n
It\u2019s Your Turn<\/h3>\n
![\"\"](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg\" "\\"\\"")
<\/a><\/p>\n