John D. Rockefeller: Top 10 Lessons For RE Investors

Who is the richest American to ever live? Jeff Bezos? Bill Gates? Mark Zuckerberg? While Jeff Bezos currently leads the pack at a whopping $166 billion, he is only half as rich as the wealthiest American to ever live. Yes, you heard that right. The richest American to ever live was a man by the name of John D Rockefeller Sr. (1839-1937) (“Rockefeller”). Rockefeller founded the Standard Oil Company, and at the peak of his business empire, his wealth was estimated at $318 Billion! You don’t see a business with the name of Standard Oil Company in existence today because it was declared a monopoly in the early 1900s by the US federal government and was broken up. However, its assets were sold off and today are key pieces of large, international energy companies including Marathon, BP, ExxonMobil, and Chevron.

So you may be asking yourself, ‘What does this have to do with me as a real estate investor’? The business lessons Rockefeller learned running an oil company are applicable to any business, including those of you that are rehabbers, single and multi-family buy and hold investors, property managers, and other commercial real estate investors. The rest of this article will detail those lessons and how you can apply them to your real estate business, and most sections will lead off with a quote (or two) by Rockefeller.

If you are interested in reading “Titan: The Life of John D. Rockefeller, Sr.” yourself, we highly recommend it. It's 35 hours, so be ready!

Lesson #1 – The Details (financial bookkeeping) Matter

Referring to his competitors, Rockefeller once said “Many of the brightest (competitors) kept their books in such a way that they did not actually know when they were making money on a certain operation and when they were losing”.

A little unknown fact is that Rockefeller started out his career as a bookkeeper (side note – I got renewed hope once I heard this since I am a CPA), which is why he was a stickler for the details, which ultimately became an obsession. In fact, I’d encourage you to google (‘Rockefeller Ledger A’) to read about his notorious first ‘personal’ ledger that he kept for himself prior to founding Standard Oil.

As for his obsession of details, there is a famous story where Rockefeller questioned a staff member why he was using 40 drops of liquid in a certain manufacturing process and could he use less? Ultimately, they discovered that 39 drops were enough, and thus they were losing 1 drop of liquid to unnecessary waste each production. While this change in process only saved $2,500 in year 1, the business doubled/tripled/quadrupled and ending up saving the company hundreds of thousands of dollars.

The takeaway is clear – while you can’t lose the ‘forest for the trees’, the details matter. Whether that is keeping detailed accounting records, reviewing construction bids in detail, or making sure you complete every step of due diligence when acquiring multi-family real estate, it’s imperative that you pay attention to the details.

Lesson #2 – Use Leverage to Grow Faster

“The hardest problem all through my business career was to obtain enough capital to do all the business I wanted to do and could do, given the necessary amount of money.”

Some people may disagree with me/Rockefeller on this one, but I am a firm believer in using leverage (RESPONSIBLY) to increase cash on cash returns and facilitate more transactions. For example, if I have a $1m of cash in my bank account ready to invest, I’d rather buy four $1m buildings with 25% equity and 75% leverage on each ($250k * 4 = $1m) than one building all cash. Certainly there is lower risk in the latter, but if you have identified four real estate opportunities with debt service coverage ratios (DSCRs) greater than 1.25 (which the bank will require anyway) currently AND for the foreseeable future using conservative assumptions, I would put loans on each of those properties all day long.

Again, there are multiple schools of thought here, but this is how I think about, and seemingly the say way Rockefeller thought about it.

Lesson #3 – You Can’t Do it all on Your Own

“I would rather earn 1% off 100 people’s efforts than 100% off my own efforts.”

This couldn’t be more spot on for any entrepreneur, but especially real estate entrepreneurs. When you start out in your business, you will be the head of finance, marketing, acquisitions, and investor relations. You will do it all, and as you get experience, you will likely become proficient in many of these area. However, you will eventually meet a breaking point where you need help. Furthermore, you will quickly realize that some of the tasks you’re doing (for example, stuffing envelopes) could be done by a high school kid (at $12/hour, for example) and are no longer worth your time. Lastly, while I know we all have egos, know that there are many people out there that do certain things better than you and that are looking for a job! You’d be well served to employ some of them in your business.

We are not saying adding more people is the cure-all in every situation, but we’ve yet to see a large, profitable business be comprised of just one person. When you can, outsource/outsource/outsource.

Lesson #4 – Buy and Hold

Sorry, no quote here, but rather a story.

It’s safe to say Rockefeller was the ultimate buy and hold investor. Standard Oil was founded by Rockefeller and his brother William (and a few others), but Rockefeller became significantly wealthier compared to his brother. Why? He refused to sell his stock (until the very end), and he watched his wealth sky-rocket. William (infamously) refused to take out debt to build his house and instead sold $50k worth of stock to finance the construction, much to Rockefeller’s dismay. Many historians point to this as a significant contributing factor to their ultimate wealth gap.

The beauty of real estate is that time is your friend. Buy real estate that you never plan to sell. If you can acquire real estate assets that earn a solid cash on cash return, time is on your side, as you (should) gain appreciation (based on inflation) and you will build equity through loan amortization (paid by your tenants of course :)). When in doubt, acquire assets, and hold onto them as long as possible.

Lesson #5 – Don’t Forget to Rest

“I know of nothing more despicable and pathetic than a man who devotes all the waking hours of the day to making money for money’s sake.”

“It is remarkable how much we all could do if we avoid hustling, and go along at an even pace and keep from attempting too much.”

Wow, these are two profound statements. If you’re like me (or should I say how I used to be), you will work morning and night, grinding/grinding/grinding. This may be especially true for those of you (like me) that started your real estate business while still working a 9-5 job. And to be clear, there is nothing wrong with this approach when you can sustain it and as long as it’s not (too much anyway) at the expense of your loved ones.

The lesson here is that you can’t forget about having balance, and the benefits of rest (both leisure time and actual sleep) are undeniable. There are people like Elon Musk that seem to defy the odds, but he is the exception. There will always be another deal to underwrite. There will always be another broker to call back. Work hard and work efficiently while you’re working, but don’t forget to rest, as you’ll need that rest to recharge and get right back at it the next day.

Lesson #6 – Time Block Your Day

If you’ve read any sort of time-management book, the author will undoubtedly have a chapter or section related to time-blocking, which means blocking your calendar off in advance to work on those activities that will move your business forward. In other words, be proactive, not reactive. In today’s age of ‘always on’ and ‘accessible anywhere’, it is VERY easy to become distracted and consumed by other peoples’ needs. It’s OK to be selfish and block time for you/your real estate business. Put the phone on silent (or better yet, turn it off) and focus intently on a singular task (say, underwriting five new deals that your top brokers sent you via email overnight), and you’ll be amazed at the progress you can make.

Don’t just take my word for it, though. Rockefeller was said to have ‘planned his day like clockwork, and there was a mechanical nature to it’, with each hour being ‘rigidly compartmentalized’ and ‘tightly budgeted’. Success takes planning (daily and long-term), and it is no different in the real estate investing business.

Lesson #7 – Success = Persistence

“Do not many of us who fail to achieve big things … fail because we lack concentration — the art of concentrating the mind on the thing to be done at the proper time and to the exclusion of everything else?”

You may have heard this before, but the key difference between successful and unsuccessful real estate investors is not giving up. Most people will dabble, and when confronted with some form of adversity, they will give up as the pain of discomfort or failure is too much to deal with.

I can tell you from experience…. you will miss key items in underwriting, and you will under-budget a renovation leading to little or no profit (or perhaps losses). The key here is to learn from these mistakes, and then apply those learnings to your next investment. Some of the biggest breakthroughs in our real estate investing business came after failures.

When (not if) you run into adversity, push through and persist. The 99% do not do this, but I can assure you the 1% of ‘big successes’ do.

Lesson #8 – Be a Sponge

Rockefeller’s visits to the oilfields earned him the nickname the ‘Sponge’ for the way in which he focused so intently on all the details of the operation to find ways to run more efficiently. Instead of sitting in the office and just talking to his managers, Rockefeller would converse with the people doing the actual drilling to learn what was working and what wasn’t.

As a real estate investor, the takeaway is to always be learning. Everyday. A goal of each day should be to try and be a little wiser by the end of the day. That could be knowledge about interest rates, knowledge on housing/apartment supply, or knowledge about marketing and where your best leads are coming from. Commit to always be learning the craft, and you will see results.

Lesson #9 – Give Back (Intelligently)

“Giving should be entered into in just the same way as investing. Giving is investing.”

“Charity is injurious unless it helps the recipient to become independent of it.”

For those that don’t know, Rockefeller was one of the largest philanthropists of all time, giving away $540 million dollars during his lifetime. That’s a lot of money!

If you are in the real estate investing game for the long haul and make disciplined, sound investments along the way, you are going to accumulate capital (and knowledge) in excess of the average person. And WHEN you do, I’d encourage you to strongly consider giving back to those in need, those that helped you along the way, or to the next generation (whether through time or treasure). I especially like the way Rockefeller approached his giving (e.g. the same as investing and with the explicit goal of making people less needy). Charity can be a touchy subject in certain areas (e.g. is it helping or exacerbating the problem), but it can drive huge benefits when done right.

Wrap-up

So there you have it. There are many famous ‘learnings’ written about Rockefeller, but these were our key learnings and how we have used them in our real estate investing and bookkeeping businesses. If you agree or disagree with what we have outlined above, let us know in the comment box below.

To your success.