Pretty much without exception, every real estate investor or successful individual for that matter, will recount the many mistakes they’ve made before becoming successful. These anti-nostalgic trips down memory lane do make one feel better about their own mistakes and perhaps help one to realize such blunders are part of the learning curve. However, it is not uncommon for there to be an unstated yet harmful undercurrent. These discussions often come with a vibe that screwing up was a problem in the past and only in the past. Something like, “Yes, before I became successful, I made a lot of mistakes. Then I became successful and voilà!”
Let me let you in on a little secret: There is no point when you become “successful” and stop screwing up, sometimes royally.
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Embracing Mistakes & Failure
Mistakes aren’t just part of the learning curve. They are part of life. While errors are more common when getting your footing in a new field, experience can lead to its own unique set of mistakes, like overconfidence and apathy. Yet the fear that many new investors have of screwing up can be the biggest hindrance to jumping in and moving forward. Well, for those who are afraid of such things, let me assure you that you will make plenty of mistakes.
Accept it and embrace it.
Indeed, many mistakes are actually a sign of progress. They show we are trying something new or pushing ahead. And while getting educated is extremely important, sooner rather than later we need to jump in (be it with real estate or otherwise), inevitably screw up and then learn, improve and move on.
It is in that vein that my brother has a sign in his office that reads, “Make more mistakes.” Lucky for me, that has never been a particularly challenging feat to accomplish. I’ve been investing in real estate for eight years, have lived around it for my entire life since my father started the company I now work for and have read a small library of books on the subject. Yet even with all of that, I still take the advice of my brother’s sign plenty.
My Experience Making Mistakes
The first property we ever bought in Kansas City is still the biggest, and we purchased while we were all living out-of-state (I moved to Kansas City three months later and my brother followed shortly after). The price was so low that it had to be good, right? We skimped on due diligence, only walking a portion of the units and relied too heavily on an inspection report and ridiculous appraisal. We also trusted the rent roll without verifying it and learned that the $485 rents some tenants were paying were only being paid on paper. The property was a giant money pit and took almost two years to turn around. Good times.
The worst case was a project manager who, while seasoned in construction, was completely inept at any sort of paperwork or systematized process and thereby left an expensive, disorganized mess in his wake. He was so lazy in this respect that he passed off putting together scopes of work onto other people (including me) and wouldn’t even keep a time card. However, he was my friend and had a lot of experience that I looked at with a sort of mild reverence. I just trusted that he had it under control. It took well over a year to figure this out.
Oh and by the way, several months after we let him go, we came to realize he had been taking kickbacks from several subcontractors. Even better times.
More than once I’ve bought houses with broken sewer lines that I didn’t know about. More than once I’ve missed that a house had galvanized plumbing that was so rusted out it needed to be replaced. More than once I have misjudged the HVAC or windows or roof or missed knob and tube wiring or substantially underestimated the necessary budget of a project or used bad comps when analyzing the LTV of a property. I’ve hired a receptionist with a severe drinking problem and used a contractor who was uninsured unbeknownst to me. I’ve passed on deals I regret. I’ve bought deals I regret.
I hesitate to count the times I’ve sat alone in my office shaking my head thinking, “I know not to do that. Why on Earth did I do that?”
My brother can speak to the same. And my father, who is one of the best businessman I have ever known, can certainly do the same. He sold a house once for $45,000 in the late 1980s that he just learned sold for $950,000 a few years ago. He bought a house in Newport, Oregon (three hours from where he lives in Eugene) based on a lease option that would have guaranteed a sizable profit (spoiler: such guarantees don’t actually guarantee anything). A bookkeeper he hired appeared to have had a sort of scorched financial statement policy that left our books in such bad shape that at one point, no bank would even consider lending to us.
In Good Company
Fortunately for our self esteem, we’re not alone in this matter. Lists have accumulated throughout the Internet (such as these) about the many failures of extremely successful people. A brief sampling:
- Bill Gates’ first business failed miserably
- Richard Branson did terrible in school
- The Beatles were rejected by Decca Records
- Stephen King’s first novel was rejected 30 times
- Dr. Seuss’ first book was rejected 27 times
- Emily Dickinson published fewer than a dozen of her 1,800 poems during her lifetime
- Pete Carroll decided to throw the ball on the one yard line when he had Beast Mode in the backfield
You’ll also find many quotes from such people illustrating the same point. For example former IBM CEO Thomas Watson said, “The fastest way to succeed is to double your rate of failure.” Summer Redstone was even more blunt: “Great success is built on failure, frustration, even catastrophe.” And we all know what Thomas Edison had to say about his first 1,000 attempts at the incandescent light bulb.
Yet my favorite quote comes from Michael Jordan in what is indisputably the greatest sports commercial of all time,
“I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. Twenty-six times, I’ve been trusted to take the game winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”
I remember not so long ago while sulking about a particularly egregious purchase, my friend and colleague noted, “Well, we’re still standing.” And yes, we are. The company my father founded 30 years ago and that I joined eight years ago has grown to own more than 500 rental units in four states while employing more than 20 people despite having made enough mistakes to fill a three-volume novel (a fourth volume should be ready for publication shortly).
So don’t let the fear of making mistakes stop you from starting or pushing ahead. No matter how much you read or listen to, no matter how many seminars or REIA meetings you attend, you will still find a way to epically fail in some righteously, almost indescribably stupid way. Get over it.
What mistakes have you made, either while learning real estate or later in your career? What value has failure brought to your business?
Let’s share our biggest missteps in the comments section!