My eight-year-old son loves to read about presidents, kings, and military leaders, and he’d love to meet one someday. So I had to tell him about a personal hero of mine who went on a hunting trip with a president – George H.W. Bush – and a general – Schwarzkopf. His host for the trip was a king – King Juan Carlos of Spain.
My hero isn’t a king, president or general, he’s just a small-town boy who became a great basketball coach – Bob Knight. By simple hard work and intelligence, he became the sort of person with whom who presidents, generals and kings want to spend their time. He’s earned every bit of his extraordinary life.
I found many fascinating stories in Knight’s autobiography, “Knight: My Story.” But, of course I was more interested in the methods he used to become so extraordinarily successful. Coach Knight retired with more wins than any other coach in NCAA Division One basketball history and three championship trophies. Reading his book, I got the sense that he would have been just as successful if he had chosen some other career. If he had gone into real estate, there’d probably be a skyscraper in New York called Knight Tower.
The Will to Prepare
We’ve all heard of “the will to win.” The teams that wants it more, gets it. But Coach Knight doesn’t place much stock in a will to win. He writes (quoting another coach), “the will to prepare to win is more important than the will to win.” We can apply this lesson to our lives as real estate investors. The only differences are what we are preparing for, and when we see the consequences of our decisions.
Consider a basketball team going into a game. The team hasn’t been prepared well, whether they know it or not. They haven’t spent a lot of time on fundamentals or scouting their opponent. They aren’t in great shape. For these players, the next two hours are going to be miserable. They’ll know when the final buzzer sounds that they blew it.
Will the outcome be different if they have a “will to win”? No. Even if they go into the game with great energy and enthusiasm, they’ll still get beat. Enthusiasm in the moment, while important, is not nearly as important as enthusiasm before the moment that would have driven them to work harder to get ready.
Preparing for our Major Decisions
We’re preparing for major investment decisions, not basketball games. The will to prepare is everything, because it will help us make the right decisions. On the other hand, making the wrong decision enthusiastically is worse than useless – it’s like energetically running off a cliff.
In my little world as a real estate investor, the three major decisions are what and when to buy, to whom I should rent, and what and when to sell. A bad buying decision, or a bad renting decision, could cripple me financially. A bad selling decision isn’t quite as serious, but will still cost. My preparation is going to be research beyond what the average investor would do.
Here are some factors to consider when “scouting” a purchasing decision:
How does the property look (going beyond the inspection to take an extra look at issues with HVAC, plumbing, pests, the roof, and so on)?
Do the pro forma statements seem accurate? Can I get several years’ financials for the property, not just the last year?
Does it have any upside? Can I add an apartment, add features, or make other one-time improvements that will raise my ongoing revenues?
What is the future of the area? Can we predict higher rents and property appreciation in the future, based on trends in job growth and net migration (people moving in)?
How are the tenants? Did I get their rental applications as well as the rent roll? Does anybody look likely to leave, especially any commercial tenants? (By the way: although most buyers don’t do it, there is no reason not to contact current tenants before making an offer. It’s not unethical or illegal. You won’t be able to sign any sort of lease continuation with them, of course, since you don’t own the property.)
How are the town and state governments? Are there any code violations?
We at BiggerPockets can show you how to do this type of preparation, but the actual work is up to you. On the other hand, when you start the “game” – when you’re ready to make that decision – you’ll make a far smarter one because you know more than the average buyer. You may be able to negotiate a lower price, or you might just decide to walk away.
Remember that the consequences of a bad property buying decision are far more serious than losing a basketball game! You could wind up like some of the thousands of people who hold bad property investments, are losing a fortune every year, and can’t sell their properties.
Knight’s Sad Story
Of course I have to acknowledge that Bob Knight made some bad decisions of his own, and suffered the public humiliation of having been fired in 2000 after a number of controversial incidents. Not everyone likes the Coach, and I know that at age 68 he has some regrets. That doesn’t take away from what he has accomplished, however, or from what he can teach us.