How failing taught me what success looks like
This is the last article in my series on how to (not) fail in real estate and serves to recap the high level lessons I’ve learned along this journey.
Lesson 1: People matter more than capital
This is something I started to lose sight of in the last year or two of running my business. I wasn’t as proactive in communication and I took shortcuts that ended up being very painful for all involved when they didn’t work out. It is entirely possible that I would have successfully weathered the COVID-19 meltdown if I had built better relationships with my lenders, contractors, and tenants. There are many people I feel embarrassed to reach out to because I lost their money and the basis of the relationship was rooted in making money. In hindsight, I wish I had done a better job of building close relationships with the people I worked with. That way, when things went sideways, there would have been a real rapport to fall back on to weather whatever difficulty had emerged.
Lesson 2: Ownership matters
Making sure everyone is happy (tenants, lenders, regulatory bodies, the IRS, and every other stakeholder) is largely dependent on your ability to take ownership and lead in these situations. I was the most successful at taking ownership for my decisions and responsibilities the moment I accepted I was losing all of the properties. Working with very upset people who are losing money is not a fun experience. It’s in these moments that good communication along with good lawyers and accountants, are imperative. In retrospect, there are so many times I realized I could have sent an email or text message to communicate more proactively. This would have helped build trust in the relationship and I failed to do that when it was easy… So I struggled to do it when it was hard.
Lesson 3: Slow and steady wins the race in regulated industries
The move fast and break things paradigm only makes sense when the consequences of failure are relatively harmless. If I had had less leverage and no unsecured lenders, I would have weathered the storm of COVID-19 with more grey hairs but my business fully intact. The 1% of time that extra liquidity prevents bankruptcy is all that matters even though 99% of the time it doesn’t.
Lesson 4: Get good legal and financial counsel
This isn’t as important in the absolute beginning (depending on the regulatory framework of the industry) but a $1M+ revenue per year business needs solid legal and financial advice whenever you are looking to make a change or encountering a new situation. The reason that this is so important is because without proper guidance mistakes can be made without realizing it and they can be incredibly costly. As much as paying $100/hr sounds expensive, having a $25K project go sideways with a lawsuit is worse than setting up a solid, fair contract in the first place. When I didn’t do this, I got lucky and I would change this approach because no one knows when the next black swan event will turn the world upside down.
Lesson 5: Failure can be when you learn the most and get one step closer to success
I was one refinance away from surviving COVID-19. Sometimes you get unlucky, however I have faith that what I’ve experienced will guide me in being a more successful and capable contributor than I was before. I got to see firsthand how moving fast and breaking things can run afoul with the law and I got to see how people’s personalities change between good and bad times. I can’t say I’ve learned all of these lessons perfectly, but I can say that I’m grateful for the lessons learned and how blessed I am to have had the opportunities I’ve had. I know that my next adventure may not be a home run either (although that’s what I’m aiming for), but I do know that applying these lessons will increase the odds of success.
