090: Why We’ve Turned Down $250,000,000 in Real Estate, AND Feel Great About It
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Do you ever second guess yourself? 🤔🤔
We know we do all the time. It could be anything from: do these shoes go with this outfit, should I have worn heels on a travel day, to wondering where to invest next and which deal is the right deal. All of which are important questions, by the way.
Think about what that might look like when you get invited to an apartment syndication deal right after turning another one down. And then another deal or potential deal arises and then another. It can be so overwhelming, confusing, and sometimes even scary. 😌
What goes through our minds? For starters, winning deals, closing them, operating them, and achieving. Sometimes on top of that, even exceeding our overall projections.
We will fully admit, there are times where we wonder: did we just make a mistake?
Was it stupid to turn down such an awesome deal?
We’re in business to make people a lot of money…aren’t we?
What are we doing?
We’re going to share with you how in the last 3 months we’ve turned down $250,000,000 in real estate. That’s right, just a quarter of a billion!!! And it was one of the best things we’ve ever done, so we are going to share why other investors (that’s you!) should be doing the same thing. 🤩🤩
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John C. Maxwell said it best – “say no to the good so you can say yes to the best”. Believe it or not, we often share this with our investors because we are firm believers that “our time is limited and we are called to be good stewards of it” – wise words from Kevin Machado.
Remember, seemingly good things will appear good…at first….but they will eventually lead to feelings of exhaustion, frustration, hurt, disappointment, discouragement and depletion. Why? Because it can cause major distractions from your goal. 😇
What do your goals really look like? You have to zoom out 🧐 and focus on the big picture; don’t celebrate the acquisition, celebrate the disposition of a property, when you’ve actually got your passive investors’ real results!
Celebrate 🥳️ even more when you hit that rent growth income, higher occupancy, or more tax benefits. And remember that helping your investors make money while they snooze is what brings you the biggest joy.
Apartment investing is a team sport; we team up with our brokers, lenders, lawyers, property management company, construction teams, and co-GPs to execute a deal.
The right partnership can create a beautiful experience for both the general partnership team as well as passive investors. Do you know what FOMO is? The fear of missing out? Well, we know it well, but we have decided to replace it with JOMO, the joy of missing out.
The truth is, over the last 3 months alone, we have resisted many FOMO temptations and even turned down a $250M partnership. This wasn’t because they are bad operators or something, but because we absolutely care about making a promise and keeping our promise to our investors, so this obligation made us focus on great deals only.
While saying yes is easy and making other people happy is our joy (we feel good about it) but we know saying yes also comes at a price.
Saying no is an uncomfortable, yet necessary part of maintaining priorities and making meaningful progress toward our goals. It’s the magical power we all have for making magic happen. This applies to every area of life, not just investing. 😉😉
Here are some different approaches that we personally use to get more comfortable with saying no good and only saying yes to great.
Assess the true cost of saying “yes.”
✔️ Be honest with yourself about what saying yes really means.
✔️ It can be incredibly difficult to turn down a good partnership, but we’re here to remind you to evaluate the true cost of it.
✔️ Think about the mental energy and time you spend not focusing because you’re focusing on things that don’t really move the needle?
✔️ The true cost of saying yes is the total time and energy it takes away from other investment opportunities.
✔️ Even though we started out owning C Class assets, we realized early on that the true cost of saying “yes” to see again is a terrible idea. The best way to help ensure our investors’ investment successes (in our opinion) is to buy newer asset classes, like Class A/B.
Why? 🤔🤔
We wanted to leave all the rough neighborhoods, deferred maintenance, rent collection, and affordability issues far behind in the rearview mirror.
Set your internal investment criteria ahead of time
✔️ Part of what makes saying no so difficult for us is we too have that FOMO feeling. So often we are surrounded by successful peers and sometimes not having investment opportunities back to back to back make us question ourselves, “Are we not eager to hit our goal?” “Are we dropping the ball?” “Are we thinking we made it?” “Are we taking life lightly?”
✔️ We must operated from a place of logic, not one of emotion. As general partners, we have responsibilities to pre-vet and hand select investment opportunities that we deem most conservative and possible for our passive investors.
✔️ You can overcome this by establishing your internal investment criteria for investment opportunities ahead of time.
✔️ Instead of thinking that you will make the most profit when purchasing a property at the right price, we like to say that you make the best profit when you operate the property best. We are laser focused on our buying criteria –we are laser focused on our buying criteria – buying apartment complexes (at least 65+ units and up), with a friendly landlord, above average population growth, above average job growth, above average affordability, and above average cap rate. Any deals that fit our internal investment criteria will be a no-brainer for us to invest in.
✔️ Just because it’s in the right market, and the numbers pencil out like passive investing, we must also know-like-and trust our partners. If we don’t there’s no point in the partnership.
Rely on data not emotion
✔️ As a responsible and ethical general partner, you should always put your investor’s best interests before your own.
✔️ Getting into a bad deal because you want to get the “bag” is 100% unacceptable and borderline malfeasance.
✔️ You absolutely can’t risk other people’s money for your advancement – period! We will never partner with people who are so solely in the business to be deal chasers or who put their own personal gains before their investors. We already talked about what happens to people like this and the dump of an asset it turns out to be.
✔️ Pull industry data so you get more confidence to execute at a higher level.
✔️ Dive into analytical reports of the markets and submarkets – pull a comprehensive report containing everything you will ever need to know about a property, including comparables, market information, construction pipeline, forecasts and more.
✔️ Analyze commercial real estate market and submarket performance, forecast rents and growth, then leverage data to make a well informed decisions.
✔️ Make sure you are comfortable with underwriting assumptions. When it comes to multifamily apartments underwriting, we scrutinize every last detail, we come up with all the possible best case scenario and of course and more importantly the worst case scenarios, then we run financial sensitivity or stress tests to vet our our mathematical assumptions.
✔️ Based on the data, we can determine if a deal sponsor or general partner is taking too much liberty with underwriting assumptions, aka their rent growth projections being too aggressive, they have a business plan that is too complicated, or we simply don’t trust their ability to execute. We want to provide a conservative and realistic projected cash flow and returns to our investors. Overdelivering is always our desired outcome.
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