{"id":143733,"date":"2022-07-11T09:06:09","date_gmt":"2022-07-11T15:06:09","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=143733"},"modified":"2023-08-07T15:53:26","modified_gmt":"2023-08-07T21:53:26","slug":"learn-how-to-say-no-to-opportunities","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/learn-how-to-say-no-to-opportunities","title":{"rendered":"You Need to Start Learning How to Say &#8220;No&#8221; to Opportunities"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC7622124444&#038;light=false\" width=\"100%\"><\/iframe>  \n\n\n\n\n<p><span data-preserver-spaces=\"true\">For you old folks out there, do you remember that irritating commercial from decades ago? The one where the nasally guy is sitting in front of a big desk with a big-shot hiring manager turning him down?<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The big shot says we only hire experienced people for this role. And then the pale, nasally guy turns to the camera, shrugs, then whines, \u201cBut how do I get that experience?\u201d<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">It&#8217;s the age-old question when you invest in commercial real estate: \u201cHow much experience is enough? And how do managers acquire that experience if you&#8217;re not supposed to trust them until they have it in the first place?\u201d<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">I&#8217;m in my third decade as a real estate investor, and I&#8217;ve invested with amateurs and experts. I&#8217;ve certainly been an amateur myself.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">There&#8217;s nothing wrong with that. But if you&#8217;re a passive investor looking to invest your hard-earned capital, I&#8217;m guessing you feel the same way I do. You don&#8217;t want to invest with a newbie.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">My friend&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/contributors\/brianburke\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Brian Burke<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;discusses this in his excellent book,&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/store.biggerpockets.com\/products\/the-hands-off-investor\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">The Hands-Off Investor<\/span><\/a><span data-preserver-spaces=\"true\">. He&#8217;s a pilot. He knows how to fly airplanes and probably knows what to do to avoid a crash. At least, I hope he does.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Brian reminds us that when we fly, we want to know that the pilot has a lot of experience, a great team around him, and a spotless track record. When I fly, I take that for granted.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">I would never knowingly fly with a test pilot\u2014someone still in training.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">There are names for people who are paid to endure these risks. They&#8217;re called flight instructors. I&#8217;m not one.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Similarly, I don&#8217;t want to risk my hard-earned capital with an amateur syndicator or fund manager. If you\u2019ve been saving up your money to invest, you&#8217;re going to want to be definite that<\/span><em><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/em><span data-preserver-spaces=\"true\">you\u2019re investing with a true expert.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">This is a critical issue because the rising tide has lifted all boats for many years. But as Warren Buffett says, \u201cSomeday the tide will go out, and then we&#8217;ll see who&#8217;s skinny dipping.\u201d&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">I don&#8217;t want to invest with a skinny dipper, and I&#8217;m sure you don&#8217;t either.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The problem is the rising tide blurs the line between true experts and lucky amateurs. I&#8217;ve discussed this in a previous post:&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/the-decline-of-real-estate-experts\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Warning: The Decline of Real Estate Experts Could Crash the Market<\/span><\/a><span data-preserver-spaces=\"true\">. Interestingly, the amateurs may even have a better track record over the last decade than the pros.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">How could this possibly be?&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">It could be that they&#8217;re taking bigger risks. Larger risks pay off big-time in a bull market. Think about investors who invested on margin. When the tide is rising, they look like heroes. And they outperform those who took lower risks. But when the tide goes out, this can be devastating.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">If you&#8217;re a passive investor, you could be the victim.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">For example, amateurs will often get into as much debt as they possibly can. High LTV debt can mean that an investor\u2019s equity goes much further and grows much more in good times. For example, syndicators with 80% leverage only have to raise 20% of the total capital in equity.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">In some cases, a true expert might get 60% leverage on this exact same deal. Their returns would be significantly lower if things went well because they shared those profits with twice as much equity. Make sense?<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">It\u2019s been easy to be nonchalant with due diligence because almost everyone has been winning for the last 12 years or so. But the problem is we won\u2019t truly know who the best managers are until there is trouble. Until investing collides with a downturn in the economy. Then we will know who is genuinely investing and who is speculating.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Investing is when your principal is generally safe, and you have a chance to make a return. Speculating is when your principal is not at all safe, and you have a chance to make a return.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">True investors can be boring, while many speculators are quite flashy. BiggerPockets put a stake in the ground a long time ago to try to help all of us partner with and invest with experts. Not gurus.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">True investors sometimes have not only had lower returns, but they also fly under the radar. You might not have heard of them or have been bored if you watched their videos or read their blogs.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Paul Samuelson was America\u2019s first Nobel Peace Prize winner in economics, and he said, \u201cInvesting should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.\u201d<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">The Search For Investment Professionals&nbsp;<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">If you\u2019re looking for experts, you will have to do a lot of due diligence\u2014much more than a casual look. I like to invest with specialists obsessed with their asset class and provide the best safety and chance for cash flow and appreciation.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Warren Buffett talks about investing inside your circle of competence. This could be your own circle or the circle of those to whom you are handing your money to. Buffett says it&#8217;s not important how large the circle is, but it&#8217;s critical to know where the edges are.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Warren Buffett\u2019s partner Charlie Munger has a friend named John Arrillaga. Decades ago, Arrillaga decided only to buy real estate within a one-mile perimeter of Stanford\u2019s campus. It doesn\u2019t sound like a great plan to me.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">But Arrillaga became a billionaire using this strategy.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Was Arrillaga\u2019s circle of competence real estate? No.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Was his circle of competence real estate in the United States? No.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Was his circle of competence real estate in California? No.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Was his circle of competence real estate in Northern California? No.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Arrillaga\u2019s circle of competence was real estate within one mile of Stanford\u2019s campus. If he became a billionaire doing this, what do you need to focus on to grow multi-generational wealth yourself?&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">If you have a great full-time job, a family, a life, or even a retirement, you might not have time to become an obsessed expert in anything in the real estate realm. That\u2019s ok, but that\u2019s when due diligence comes into play.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Who can you find that you trust implicitly?&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Thinking about Buffett again, consider the Berkshire-Hathaway model. He\u2019s only got about 29 employees in his headquarters, yet Berkshire is one of America&#8217;s 10 largest public companies.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">He doesn\u2019t pick the flavors for Dairy Queen, yet he and his investors profit from the choices Dairy Queen\u2019s managers make. He doesn\u2019t pick home designs for Clayton Homes, but they profit greatly from this investment. Buffett counts on experts, and he diversifies across dozens of them.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Buffett\u2019s done pretty well for himself. $100 invested in Berkshire-Hathaway in the mid-1960s would be worth well over $3 million today. Buffett\u2019s done this by finding and partnering with great businesses with fantastic managers.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">What can we do to follow his lead?&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Buffett is an expert at saying no. Buffett says, \u201cThe most successful people say no a lot. The&nbsp;<\/span><em><span data-preserver-spaces=\"true\">very most<\/span><\/em><span data-preserver-spaces=\"true\">&nbsp;successful people say no almost all the time.\u201d \u201cNo\u201d is a complete sentence. And \u201cno\u201d should be your default when making any direct or passive real estate investment. At least that\u2019s my opinion.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Learning to say no could protect you from the tide that will go out sooner or later.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What Do You Look For When Passively Investing In A Syndication Or Fund?&nbsp;<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">There are a lot of important questions you need to ask. My company has a list of 27 questions and issues, and we take a deep dive before investing. Here are a few of the most important questions:&nbsp;<\/span><\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">What year did you first start owning and operating in this asset class?&nbsp;<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Can you share your track record with the hold time and net investor returns? Include your best deal, worst deal, money lost on deals, full-cycle deals, and active deals. What did you do when things went south (like in 2008)? How did you take care of investors, if at all?&nbsp;<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">How much of your own money are you investing in this deal or fund? Are you investing under the same terms as I would be?&nbsp;<\/span><\/li>\n<\/ol>\n\n\n\n<p><span data-preserver-spaces=\"true\">There are a lot of other questions you need to ask. Many of these and more are covered in Brian Burke\u2019s outstanding book.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Final Thoughts<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Remember, regardless of how well a manager has performed over the last decade, the true test of their skill often comes in times of economic turbulence. When everyone\u2019s winning, it&#8217;s easy to be nonchalant. But you won\u2019t really know who the best managers are until there\u2019s trouble.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">There\u2019s trouble coming. There always is. Because economic cycles always rise and fall. No, it\u2019s not different this time.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Don\u2019t be fooled by speculators. Investing with professionals is one of the safest and most reliable paths to creating multi-generational wealth. Whether you are the expert or trusting someone else, I would not compromise on the issue of extreme due diligence and default to saying \u201cno.\u201d&nbsp;<\/span><\/p>\n\n\n\n<div id=\"hero-block_6414b8af3a8be\" class=\"first:mt-0 hero-block py-4    has-background has-slate-200-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 lg:w-2\/3 \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-slate-800-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Early financial freedom is possible.<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:16px\">Building wealth is always possible, even while working full-time, earning a median income, and paying off debt.&nbsp;<em>Set for Life&nbsp;<\/em>gives young professionals the action plan they need to conquer their financial goals and achieve early financial independence.<\/p>\n\n\n\n<div id=button-custom-event-block_64134fe56b103 class='button-custom-event'>\n      <a\n    href=\"https:\/\/store.biggerpockets.com\/products\/set-for-life-revised-edition%20%20?utm_source=blog&#038;utm_medium=marketing_block\"\n        x-on:click=\"window.analytics.track('Blog Block | Publishing: Set for Life', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/learn-how-to-say-no-to-opportunities',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Get Your Copy<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\"lg:w-1\/3 first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/06\/SFL_cover_mockup_04_transparent-1-e1684415871792.png\" alt=\"\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>For you old folks out there, do you remember that irritating commercial from decades ago? The one where the nasally guy is sitting in front of a big desk with [&hellip;]<\/p>\n","protected":false},"author":214608,"featured_media":143739,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4433,7119],"tags":[7332,2378],"class_list":["post-143733","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion","category-biggerpockets-daily","tag-real-estate-experts","tag-syndications"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/143733","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/214608"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=143733"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/143733\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/143739"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=143733"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=143733"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=143733"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}