I got out of the stock market in 2009 after taking a $300k loss. Ironically, I had made about the same amount by actually predicting the crash and shorting the market at the top. I thought I could predict the upturn as well; wrongly as it turned out.
On the bright side, while most people were moaning about the end of real estate, I knew without a shadow of a doubt that if there was a time to buy real estate, this was it.
Instead of focusing on single family houses like a lot of my fellow investors, I decided to focus on buying the largest multi-family value-add property I could find. Networking like crazy landed me some leads but nothing materialized for another 4 months. Then I ran into an investor (lets call him CN), who had a lead on an 80+ door apartment deal he was chasing about 10 minutes from my residence.
By the time CN was able to finalize the deal in 2010, I had done my homework and knew that this was a winner! Now the problem was how to invest the maximum amount I could, while preventing the tax man from taking away a big chunk of the capital gains my back of the envelope calculations were predicting.
Most of my money (about $250k) was locked up in a 401k. But Fidelity would not let me invest in a real estate partnership. And there was no way I was going to withdraw and pay the tax penalty. So I did a bit of research and found this trick called the self-directed IRA. OK, so that would take care of the investing in a real estate partnership problem.
The next thing was taxes. More research and talking to accountants... Ended up converting the 401k into a Roth. And pulled the trigger! We paid all cash and bought the complex for $1.2 million.
Two years later, after roughly $400k in repairs and operational expenses, and bringing the property to full occupancy, we refinanced the property and pulled about $1.8 million out.
Today the apartments are still fully occupied, rents have gone up and it is currently valued at between $5-6 million. And my Roth account is now at $1.25 million. I did have a scare a couple years ago about UDFI, but since the purchase was in cash (no debt was used for acquisition) all income and capital gains will remain completely tax free.
Since that deal, I have done many other highly profitable deals and currently I am in the middle of launching my own real estate crowdfunding platform (RehabDaddy.com).
Here are the lessons I have learnt from this experience:
1. Believe in yourself and your ideas, regardless of what the whole world is saying
2. At the same time, listen and learn from experts and experienced colleagues
3. Work really hard on research and understanding a hypothesis to "de risk" it before taking action
4. When you finally form a conviction, act quickly
5. Learn from your mistakes but don't dwell on the consequences. I never would have done this deal if I had focused on my losses in the stock market instead of focusing on the real estate opportunities before me.
