HOW TO prosper in a challenging market with commercial real estate
- April 17, 2019
COMMERCIAL REAL ESTATE (CRE) INVESTING CAN CREATE THE OPPORTUNITY TO BECOME FINANCIALLY INDEPENDENT FASTER THAN MANY OTHER INVESTMENT ASSET CLASSES. I’VE ALSO SAID THAT REAL ESTATE INVESTING IN GENERAL IS THE BEST GET RICH SLOW SCHEME THAT THERE IS.
I’ve been an investor since 1970. Five decades. I was told in the beginning that it was very risky and that prices had gone up so much in the prior decades that they couldn’t imagine that they could go up much more. My wife’s hand was shaking when she signed the closing docs for a $30,200 home in San Jose, CA that rented for $300. 1%/month, the magic ratio that makes a rental house profitable with 20% down. In CRE parlance, this is about an 8.3 gross rent multiplier (GRM).
Over the following decades, I progressed from buying rental homes in my backyard (Silicon Valley), to 1-4 unit rentals in a higher cash flow market (Dallas), to multifamily and condo conversions, to providing several hundred turnkey rental homes to other investors, to commercial properties, to commercial and multifamily syndications for investors as well as for myself (I always invest in everything that I offer to others). I’ll give you a bottom line: If I had known in the beginning what I know today, I would have started off with commercial and multifamily properties and investing in syndications. At the time, I was not aware that I could own properties in multiple asset classes across multiple markets for the cost of the down payment of a single rental house, or about $50,000 for each syndicated commercial property.
Now, I’d like to share that I wasn’t always hooked on real estate. In the mix, I have invested in the stock picks, ETFs, retail franchises, dairy LLCs, exploratory oil drilling, and pork bellies (yes, even pork bellies), and much more. And bottom line, commercial real estate over the long haul has performed the best.
I have had some failures in many investment asset classes, including CRE, which emphasizes that in any investing, selecting the right source, partners, products, submarkets, and timing are all critical. These factors can make it or break it with any investment asset class.
Tom's Top Takeaways
1. The market is thousands of submarkets
2. All markets and asset classes have different cycles
3. Do not reinvent the wheel. Ride on the coattails of other successful experts
4. Your source and partners are more important than the product or market
5. Highly vet your sources and partners
7. What worked the best yesterday may not be what works best today. Change your investment model with time and the markets. One of the best things that I did was to change my investing model periodically. The biggest mistake I made was not doing it faster.