What was your biggest challenge/struggle in 2015?

Question

2015 is over and the books are closed! Hurray!

For us 2015 was a great year, but also a year filled with challenges (who didn't have them?).

Every year I like to look back and review what we did well, and where we fell short so that we can do more of what we are good at and less at those things we were not good at in the comming year.

The biggest challenge/setback/mistake from 2015 was in regards to raising money from investors. Unfortunately we did not raise all the money we were committed to for one of our new construction projects. It was our fault for not making sure everything was done well in advance of the closing date. In a world of trust, that does not work. Neither for our joint venture partner nor for us.

What I took away from this experience is the importance of a clear plan. A plan that includes when and where we travel to meet our investors (a minimum of 2-3 times per year), how much we are raising from each investor, a document for the investor to sign that they commit a certain amount of money when we find them a new deal, and who is in charge to make all of this happen.

It was an expensive lesson, and a lesson I don't want to repeat any time soon.

But, I want to know. What was your biggest challenge or struggle in 2015?

Chris Field · Answer

My biggest challenge in 2015 was all the new people coming into the market and overpaying for the deals I typically buy. A whole new crop of HGTV people want to be "flippers" or whatever they call themselves, so all the crap I saw in 2007 is starting again. So until they lose their shirts in the next down swing I have to live with them, again.

For 2016 I'm going back to my roots in regards to finding deals, stuff I have not had to do since 2007/08 when the market was hot.

Daria B. · Answer

My biggest challenge and struggle was applying what I was learning (daily) to what I knew I wanted to do. Knowing what you want to do and actually applying it, I found were vastly different if components are missing. There is no rush in this business and care should be taken to ensure (before) making a leap means there is a safety net. I am conservative and cautious by nature with everything I do. And rightly so, otherwise, mistakes would have cost me dearly.

I knew I wanted to buy another SFR and also get into MF (1-4) investing and do to that I needed to figure out a way to get "out of the box" of the typical financing. I really didn't want to do the same "conventional financing" so I learned about HELOCs and how I could best use them (ie cash buy, flip and/or rehab). A lot of calling and talking to local banks and finally I was able to secure one to set myself up to achieve some of my goals.

Although I did not buy any property in 2015, I realized I was better for it as I was able to achieve other things that will help me to buy in the future.

Kathryn Marchetti · Answer

My biggest challenge is still finding money.  Its hard to believe sometimes that this is the hang up but it is.  My husband and I have completed a bunch of rehabs working with an investor but he wants to slow down and we want to ramp up. I have contacted banks and have not been successful yet and hard $ is incredibly expensive.  I have decided that 2016 is the year that this is going to change.  We have set goals and are going to get over this small hurdle which sometimes feels like a mountain.  I agree with Christian Brodin that a clear plan is so important.

Julie Greene · Answer

@Christian Brodin

Definitely my biggest challenge in 2015 was networking, like

@Kathy Stewart.

We finally closed on a 4 unit in Buffalo NY in late summer after signing the contract in October '14 (at least we probably saved quite a bit of cash since we signed at the early part of the upswing). We inherited a great tenant who we still have, plus three vacant units.  We've only renovated one other apartment fully and secured a quality tenant with mucho screening.  We are 90% completed on apartment #3 and only about 50% complete on #4.  We're doing all the work ourselves (fortunately we're not carrying a mortgage).  I think it's time to get out to network to find some quality subcontractors that we can utilize that won't break the bank but that might enable us to get our last two units online much quicker.

I'm not exactly sure what my problem is with this networking stuff - probably fear.  I seem to be holding this project close to the vest - maybe I'm embarrassed it's taking too long?!   Part of me just wants to complete this whole project by ourselves so that we have a good understanding of the start to finish process of getting everything online, but I'm not sure that this process holds as much value as I'm placing on it.  Additionally, we want to find other deals - but I don't seem to be in contact with the right people in order to hear about those deals before they come on the market (and I know others are).  I think the networking thing is way out of my comfort zone (not that I don't enjoy speaking with people - but I do not excel about talking about myself, what my husband and I are doing - and finding out how people can help me).  But clearly, I need to challenge myself here.  We need good subcontractors who won't break the bank.  We need to find a channel to hear about any deals.  We need to get out there in 2016.

I would GREATLY appreciate if you would share how you rose to your networking challenge @Kathy (and anyone else who is better at this networking thing than I am!).

Christian Brodin · Answer

Kathy, Great work! Building a network is probably equally important to investing in deals. Would you mind sharing 1 or 2 actions you took to boost your network? It might help some of the other readers.

Thank you. C

Christian Brodin · Answer

Thanks for sharing Chris. I absolutely can understand where you are coming from. There is a lot of money chasing deals, and it really is about going back to the roots. I am certain you will be even more successful following that strategy, and not overpaying for deals. Deep value is the place to be :)

C

Christian Brodin · Answer

Thanks Brian. You are making some great points.

To us it is a chicken and egg kind of discussion. We have quite a network of investors to draw upon when finding deals, but in this instance we didn't put down enough time and resources to fulfill on our commitment. You can say in way we had become complacent.

We also have a situation now where we have a 1031 investor with committed funds, but that are rejecting some of the properties we are showing them, despite our underwriting showing what a great opportunity it is... (here is another dilemma, being on the ground+proven success we are very confident about our abilities in finding great deals , but non-professional real estate investors have more reservations)

I agree that having the money committed first is the best way to go, but I haven't met that many people who are willing to sign a drawdown/pre-commitment agreement. This is defiantely one of the areas that we are working on in 2016 as our goal is to have a drawdown fund, or what some people call a war chest.

Brian Adams · Answer

@Christian Brodin, there are some real estate experts who say if you have a good deal money will follow. I partially agree - you might have a good deal but if you don't have any investors in your database you can't share it with anyone. At one time this was 100% me - finding deals and finding the money after.

The exercise of finding good deals where I couldn't close was very frustrating.

Now I have more money than I can use as I changed my thinking. My philosophy now is to develop the investor relationships and connections before I actually need them to write a check. Simply I get the investors in line before the deal.

As we start 2016 and we boil down the core of real estate investing, at the end of the day in my opinion it is 2 things - Deals and Dollars. You need the right Deal for your investors and you need the Dollars (investors) to do the deal.

I carve out time each week to work and focus on Deals and Dollars.

Joel Owens · Answer

Kathryn your investing partner where you see more opportunity in larger growth they might see more risk.

Market cycles can change for varying asset strategies and classes. If too many projects ongoing you can get overexposed if the bottom falls out. With rehab or development you want to stay fluid so you can get out if things change. If you have projects that turn every 3 months the exposure isn't as bad as ramping up on projects that take 8 to 10 months to exit or years.

If your track record is good you should have no problem lining up capital unless this was a local investor giving you way below market rates.

What was your biggest challenge/struggle in 2015?

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