How Studying Poker Can Help Investors Play Their Best Real Estate Hand

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My brother lived as a professional poker player for over a year before joining me in Kansas City to work in real estate and eventually becoming our property manager. He spent many a late night playing multiple online games at once, one time winning over $13,000 in a single tournament.

Indeed, had it not been for what poker players know as “Black Friday” (when the government cracked down on online poker), he may not have never have joined us.

To those who missed the poker craze or never saw Rounders, poker is not a game of a chance. The best players know all sorts of strategies, as well as how and when to bluff and how to read people. But the most important thing is that they know the numbers.

What are your odds of winning a given pot when you have an inside straight draw and you believe the person you are going against has a pair of overcards? Are your two aces enough to win against two other players? What about three? Four? If you are stuck with the big blind and someone raises pre-flop, is it worth paying more to see the flop if you have a weak starting hand? Et cetera. (And yes, he almost exclusively played Texas Hold’em.)

What’s key in all this is that odds are just that, odds. You may play a hand perfectly, but that doesn’t mean you are going to win it. It just means that you will win it more often that not. People “suck out” (get a lucky card on the turn, the fourth card dealt, or the river, the fifth card dealt) all the time.

Related: Snowboarding is JUST Like Real Estate Investing: Here’s How

The key with poker is to not second guess yourself if that happens, as well as not get overconfident if you are the one sucking out. You should know whether you played the hand well or not, whether or not you win or lose.

It comes down to variance. The best poker players will not win every hand. Indeed, the best poker players wouldn’t even think to try that, as if they did, they would certainly not be the best poker players. But furthermore, they won’t even win every hand they play perfectly.

And they know this going in.

The key is to pick your spots and win more often than not.

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Picking Your Spots

All this means is that it’s much more important to win one big hand than 10 really small hands. To rake in the blinds several times in a row doesn’t matter much if you go all in and lose on the following hand.

In real estate, how this translates is simple: You only want to buy the best deals, and those are usually few and far between. It’s not necessarily waiting for the best hand. In poker, you will become predictable. In real estate, you will miss some great deals that were made great more so because of the terms than the price. But the key in real estate is to view a lot of properties, make a lot of offers and only buy the best ones available.

Variance

Picking your spots may be a bit obvious, but the more obscure similarity is understanding variance.

Real estate investment is an inexact science, to say the least. No matter how much due diligence you do, you can still miss something. Perhaps it’s something rather large: The property won’t sell or rent for as much as you thought, or there is more rehab to do than thought, etc. Not every deal can be a winner.

But this is a two-way street. Let’s say some investor buys a property sight unseen while doing just a cursory look over at the comparables and no due diligence. And then it works out great, and he flips it for a big profit. This is like a newbie sucking out the river. Yes, it worked well for him this time, but it will not and statistically cannot work out well going forward on a consistent basis.

Gamblers always lose, so they say. That’s because the house has the statistical advantage, and even if a gambler starts off ahead, in the end, the gambler will come back in line with the probability of the game, and that probability is to lose over time.

Of course, gamblers are to speculators what poker players are to real estate investors.

We will all regress toward our mean, or namely over the long term, we will do as well on average as we are good at what we’re doing.

So variance is a critical concept to keep in mind. This is true when you get a great deal, but do it despite either finding, analyzing, performing due diligence, rehabbing or selling/renting it poorly. We had a bad apartment purchase turn out well in Dallas because of appreciation. It’s important that we didn’t learn the wrong lessons from that. Don’t let a good deal go to your head! Always look at what you did wrong and try to improve.

Related: 5 Real Estate Investing Lessons Learned From Building a Campfire

But it also goes for the bad deals that slip through the cracks. Don’t let them get you down or crush your confidence. They happen to even the best investors. The key is having a high average because variance strikes us all from time to time.

Conclusion

Jim Collins noted in his book Great By Choice that companies that were successful during volatile times didn’t have more luck than companies that weren’t successful. In fact, both sets of companies had about the same amount of both good and bad luck. The successful companies simply had a better “return on luck.” In other words, the better companies simply performed better because they were, on average, better.

Variance strikes us all, and therefore it’s critical to think of things in the long term and not get caught up in the short term ups and downs. Don’t get too high or too low, and always be looking for what you could have done better.

What do YOU think investors can learn from the game of poker?

Let’s talk in the comments section!

About Author

Andrew Syrios

Andrew Syrios is a real estate investor in Kansas City and a partner in Stewardship Properties along with his brother and father. Their company owns just over 500 units in four states.

14 Comments

  1. Bennet Sebastian

    Good article Andrew, thanks. It’s been awhile since I’ve played poker but I used to play a lot and the comparison you made is a good one.

    I’m sitting on two medical office properties that I purchased right, rehabbed right and have priced right, But despite playing my hand correctly the market just isn’t responding. Nonetheless I’ve really questioned myself over the past few months as these properties sit vacant and cost me nearly $5k a month in holding costs. But the reality is that the market for this product is just softening a little bit, its not necessarily that I suck at investing. In fact I’ve proven several times before that I’m actually quite good at investing in this particular niche. I just need to read the “tells” the market is putting out and adjust my play accordingly.

    By the way, I just started hosting a regular poker night again last week. I forgot how much fun it was.

  2. Eric H.

    Great article and comparison Andrew! My bad habit in poker is my impatience. And it has proven to be detrimental in other areas of my life including RE investing. But the good thing is I am learning from all my mistakes and lack of patience. Being a father and an investor has taught me a lot about patience. I’m not so eager to get a deal closed. I actually feel better walking away from deals with an understanding that there will be another. It’s about playing your hand right, and that takes a certain amount of patience. Your cards will come and you have to be in position to play them. Can’t win if you aren’t in the game. Thanks for sharing!

  3. Timothy Lewis

    Andrew, you’ve given a very refreshing take. Though I’ve never been a serious poker player, I can definitely tell there are a number of “gamblers” in my local market. My market is very hot. What’s working for the speculators is that the market is so hot, you can sell just about anything. If they plan on being successful in the long-term though I hope they realize the market is not only very forgiving at this point, but it’s practically encouraging imprudence.

  4. Daniel Ryu

    That’s the hardest thing about poker – sometimes you can play the hand right, and still lose.

    You read your opponent’s hand, bet enough to make the odds work against the player, and they still river you out ^^

    But I’ve adopted the strategy that is not necessarily how much I win or lose (since I’m usually playing low stakes) but more about how many hands I played right vs wrong. Optimal play vs suboptimal.

    And one thing I enjoy doing is discussing the night afterwards with a friend at the table to discuss strategies, how to improve, etc. And it’s definitely the same for real estate. It’s a proven strategy to improve at something – go through a post-analysis.

    BiggerPockets online poker tournament? I bet you that would get a lot of people interested ^^

  5. Jon Huber

    Excellent comparison. I have made this connections a few times in the past. The skill set is almost identical. The discipline not to bet, the ability to bluff, and the guts to go all in when necessary… great read. Thanks

  6. Larry T.

    Good article, Andrew. Quite engaging. You’re a pretty good writer.

    I’m not much of a poker player, and not a good one when I play. What I see in good players is that they can stomach the losses. But they aren’t just brave, they are also smart.

    • Andrew Syrios

      I’ve noticed a lot of poker players also do real estate, I wonder what if there is actually a correlation. Black Friday may have been some BS, but it got my brother in real estate, and I do think real estate is more lucrative. Hopefully the same goes for you as well!

      • joel bowen

        Yeah BF sucked but I went on a few months later to open my first business which worked out much for the better. Yeah I think the process of sitting down and figuring out a solution to solve a problem is very similar in both. 🙂

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