limited partner horror stories

[Scott Holland]

As of right now, I'm hearing and seeing a lot around do your due diligence, but do you all have any bad experiences to speak of? I'm not talking about "oh I was expecting monthly dividends and it turned out to be quarterly". You learn the most from your mistakes...tell me about bad situations, that you learned a life lesson from.

Thanks,
Scott

[Jim Pfeifer]

When I was first starting out, I did not have a good way (and I didn't understand how important it was) to find quality operators for my syndication investments.  I ended up investing in a few deals that I would never invest in knowing what I know now.  One of the things several of those investments have in common is I was investing in an operator who had excelled at one thing and was now doing something new.  One operator was a single family home operator and made a pivot to office.  Another was a turnkey advisory company who started lending to cannabis operators.  These investments did not end well for me and are the only ones I lost money on.  What did I do wrong? First, I didn't have a way to find quality operators so I wasn't investing with the best in class operators.  Second, I was a guinea pig - they were doing something new and thought that their other real estate experience would transfer.  It didn't and I lost money.

What I learned was I needed a better way to vet operators.  My first few investments I made with people I met at a conference - I just assumed because they were there, they must be good.  Bad assumption.  When I realized this wasn't the best way to find operators, I started reading books and listening to podcasts to find operators to invest with.  This was a much better approach than throwing money around at conferences, but I still had no idea if someone is a great podcaster and great marketer or if they were a quality asset manager.  I had better results with this new approach but it was still not the best way to find quality operators.  Then I started working with my Community to effectively crowd source operators.  We would share information and compare notes.  Today, I don't invest with a new operators unless they are introduced to me by someone in my Community who I know, like and trust AND that person has invested with the sponsor.  I still do all of the same due diligence on the sponsor but because I trust the person referring me and they have experience with the operators, I am starting the process many steps ahead.  Trust transfers.  This is the same way I find a new attorney, CPA, plumber or any other professional I hire for something.  I don't go to the yellow pages - I go to my Community and ask them.  The difference in my investing results has been clear - I find better operators this way.  Will every deal work out - nope.  That will never happen, but at least I am working with quality operators and that makes all the difference!