B1* - Business is easy. Just ask Sam Zell.

"Business is easy. If you've got a low downside and a big upside, you go do it. If you've got a big downside and a small upside, you run away. The only time you have any work to do is when you have a big downside and a big upside." Sam Zell

Sam Zell is arguably the best commercial real estate investor in the past 50 years. Known as the Grave Dancer for his unparalleled success transforming formerly bad real estate deals 40 years ago, Zell is credited with founding the modern institutional real estate market.

He is very quirky, but he's also got a lot to teach us. I read and listen to as much as I can about Zell.

This particular quote helps me when I'm looking to purchase investment properties.

If I find an obvious bargain (i.e., huge upside and low downside), I act quick to buy the property.

If the property is grossly overpriced (i.e., low upside and big downside), I act quickly to either walk away or make a lowball offer (and let the seller react).

I refer to the bargain properties and to the clearly overpriced properties as "No Brainers" (since it is very easy to make a decision on how to move forward with them). With No Brainers, as Zell says, "business is easy."

The only time I have to work hard is when a property is somewhere between a clear bargain and overpriced. That's when I've really got to roll up my sleeves, focus on the numbers, and complete some serious due diligence. In these cases, I always err on the side of being overly cautious to make sure I create a margin of safety (a margin of safety protects me from changing market conditions or errors in my judgment, both of which are likely to happen).

Hard work isn't fun, but sometimes a big reward is worth a big effort.

What do you think about Sam Zell's quote?

*Be sure to read the Intro post to this blog series to get the most out of it.