I’ve Had Accidental Success!

[Don Konipol]

Looking back over my LONG real estate investing career (40 + years!) I've come to realize that my best ROI investments were accidental! By that I mean that I purchased expecting say an annualized 5 year 12% return, but unexpectedly something positive happened, i.e., someone putting together a development who needed my property, the marginal area I invested in becoming "hot", or buying a note at a huge discount expecting 15 years of payments and instead being paid in full in 3 months. While the majority of my investments turned out to return within expected parameters, I've had a few that were very disappointing, but many more that produced "windfall" profits. And I guess that's the beauty of being in the game long term, plenty of time for good things to happen.

So here’s the conclusions I’ve drawn from my experience

1. You have to have staying power.  If you don’t have sufficient reserves you’re at the mercy of short term trends.  With staying power you can ride out the recessions and panics and hold for when prices escalate.

2. Buying only residential property restricts your profit potential.  Most of the best returns are obtained investing in commercial property, from land “in the path of development” to small commercial structures with long term business tenants.

3. Constantly evaluate your portfolio, both to run numbers on existing holdings to see if upgrading or repositioning or adding technology can increase profitability, and to analyze whether you should sell and invest in a higher yielding asset.

4. Way too much emphasis is placed on cash flow.  For an average investment financed using 50-65% leverage cash flow makes up less than 50% of the return.  For investments that return superior results, cash flow makes up less than 25% of the return, with capital appreciation making up the bulk.  Yet we spend 98% of our time analyzing CF, and little analyzing data that can give us clues as to future appreciation probabilities.  (  I’m guilty of this also).

Let me know your experience, and what you think.