So what are my insights after almost 20 years of real estate
# Entrepreneur of the Week Eyal Hasson # Post 2
A lot of acquaintances, investors and entrepreneurs I meet ask, ask for tips, intentions and any information or knowledge that can help.
Of course, there is no absolute right / wrong in real estate and a one-on-one way will not necessarily suit everyone.
When I first started investing in real estate in the USA I was sure that... I had discovered America! A new and magical world that came my way, slogans about financial freedom, financial security, no dependence on salary and all the other phrases that I assume most of us have experienced. From "rich father poor father" and north..?
Over time, and quite quickly, I realized that this is a process, and a long process that there are no shortcuts and over the years I have accumulated for myself (apart from assets, successes, failures, disappointments and more ..) quite a few insights.
Before I dive into the following posts on specific topics, I thought it would be a good idea to start the week by sharing some of the same general insights I have gained.
The first transaction is a very important basis:
If, and only if, we succeed in learning from it. And it's not always easy,
• If we succeeded - we are seemingly on the wave, even if mistakes were made along the way, the result sometimes masks the mistakes.?
• If we have failed - does it sometimes loosen our hands?
• And if it is not completely clear whether we succeeded or failed - then what does this actually tell us???
The insight is simple - accept it as your tuition, examine the way and not just the result. In real estate not everything is under our control, and sometimes circumstances unrelated to what you have done will have a decisive effect on the outcome, even though you have acted properly.
Analyze retrospectively according to the information you had when you entered the investment - do not judge according to the information today. Unless you understand that you did not properly analyze the information you had before making the investment decision.
Therefore, it is usually advisable to make an initial investment in a new area / field as much as possible on the basis of our equity and to bring in investors only in follow-on investments.
Remote control limited:
You can perfect the remote management tools and the supervision and control tools through which we manage the subcontractors (who will not normally be your employees), you can develop a long-term relationship with them, you can connect them to our perception and our business strategy, you can and should visit them as often as possible. Given - everything is true and even desirable.
But at the end of the day - when we are not in the field every day, all day, our control is limited. We will often know about the problems and difficulties not in real time, we will not always be able to make a decision based on the information and we will eventually have to rely on our team there. As long as things are going well - that's fine, but since we usually work with subcontractors, they too make their decisions and not always their interests overlap with ours at a given time.
When our management company or contractor or supervisor is not part of our deal, it is very possible that changes in them - from cash flow difficulties, through unforeseen unforeseen costs to even one day their decision to change their line of business / move to another area - will surprise us in time Most inappropriate.
The conclusion from this - a full partner has a clear interest in our deal and therefore, today I would rather enter into deals with an operative partner and rely less on subcontractors.
Make decisions with discretion and less according to the momentary pressures:
If you have a defined long-term path, examine any material decision of buying / selling, etc. Does it advance you to this goal - it sounds logical right? Well, anyone who deals in real estate knows that it is not easy to take care of it. I remember a case where a property I bought was rented at a good yield for two years, and then, when a tenant left, the management company carried out the regular protocol of renovation in preparation for the next tenant, put the property up for rent and .. nothing happened for two months. Since I was at the beginning of my journey, less experienced, I asked myself (and them) why, maybe the price is not good, maybe something in the property is not suitable for tenants and when I pressed the management company, their answer surprised me, something in the style of "The property is excellent, the price we asked is suitable for the environment You better wait for the right tenant. But, if you do not want to wait, maybe you can put it up for sale? ” And I - immediately say to myself, maybe really? Asks for prices and is surprised to find that the price has jumped over 50% since I bought it (just two years ago, yes?). Immediately says - come on realize. And indeed that is what happened.
But - after the realization (and the tax payment on the beautiful capital gain), I had money left and I tried to find a good deal, I did not really succeed, prices around rose, rents less, the ability to get a mortgage on purchase was less easy and in fact the decision, which was financially good, in retrospect Delayed my moves to increase the asset portfolio by about two years (we entered the subprime crisis period after half a year and everything changed).
What is my insight you ask? Guess if I had been exploring at that point in time the alternative to continued investment and its realization capability, I might well have chosen to wait another month or two and move on with the lease.
Over the years I have learned (about my meat ..) and I try to make decisions that fit my strategy and always explore the alternatives as much as possible.
Understand what suits you and what suits your investors:
With experience and time, it usually becomes clear to us what we like and prefer to do.
At the end of the day entrepreneurship and investor management are two different avenues that need to be connected.
It is quite clear that if we do not like the preoccupation with many details that involves accompanying investors (mostly inexperienced), even if many of the investors are looking for lenders, at the end of the day it is probably better to choose another channel that suits us and we come to it passionately. And on the other hand - if we are less comfortable in risk management of large investments (and according to multi-group), no matter how good the deal, it is better not to put investors in deals that we less want / like to manage.
It is better to choose the way that suits us and not be dragged and be driven by reality. This is true in almost every field, and in my opinion - very important in real estate.
Perform an objective sensitivity analysis for each transaction:
Sometimes it is better to ask for an opinion from a colleague who is not "emotionally involved" in the transaction (since it took you a while to locate it, you may have visited the property / area, you were enthusiastic about the potential).
Sensitivity analysis says yes, even if you feel very confident in demand in the area, check what will happen if prices fall below the forecast, no matter if for sale or rent. Examine how an interest rate environment affects, how an underestimation affects the maintenance of the structure. Remember? Not everything is under our control.
I can tell you that we often do not proceed - in any transaction involving improvement / construction / land development - if the sensitivity analysis to the parameters of sale price and / or the cost of execution shows a decrease in gross profit below 9% when there is a downward deviation of 10% from discounts The base. Of course it depends on the type of transaction, but as a rule this finger is for the most part true for us in risk management.
And if you have stayed this far - one last insight: make room for your first intuitions as well. For me at least this is usually true - even if I chose for informed reasons, to act differently.
what do you think? I would love feedback on my insights.
In the photo - my first property, where it all started. And also - I'm tasting Riesling wines in the discounted area on the banks of the Rhine River in Germany
Meet tomorrow..
Responses