How did I mentally know I was ready to manage outside capital?
@moseskagan mentioned something about this a few days ago and I wanted to share, but life got in the way.
The days can be long, but the years fly by, etc. etc. anyway. Here goes.
@moseskagan mentioned something about this a few days ago and I wanted to share, but life got in the way.
The days can be long, but the years fly by, etc. etc. anyway. Here goes.
First, I hate to call this advice, because I don’t know you, and you shouldn’t take advice from a rubber mallet.
Unless you’re late on rent and the mallet is advising you to pay. Then, obviously, listen to the mallet.
Unless you’re late on rent and the mallet is advising you to pay. Then, obviously, listen to the mallet.
Second, this is what has worked for me. While it’s probably applicable to lots of investments, I only know my path.
With the CYA stuff out of the way, time to listen up, mf’ers.
With the CYA stuff out of the way, time to listen up, mf’ers.
When I first started investing in real estate, I would conflate good property/asset management with an investment thesis. Which, and this part you should listen to, is f’ing stupid and wrong.
I’d look at a deal and think “I can increase carport revenue by $10 per month…
I’d look at a deal and think “I can increase carport revenue by $10 per month…
Cut landscaping from 60k to 55k, and market better.”
Those things are all correct, and part of running a deal well, but they are not compelling reasons to invest. It was a game of trimming a bunch of shit around the margins until the returns worked. In Excel.
Suboptimal.
Those things are all correct, and part of running a deal well, but they are not compelling reasons to invest. It was a game of trimming a bunch of shit around the margins until the returns worked. In Excel.
Suboptimal.
I’d find 10-12 of those things and think “this is now a good investment,” but it wasn’t. It was good asset management, but not compelling. It was fluff, and my equity partners would point that out in a pretty vicious manner.
I got embarrassed, a lot. And felt dumb, often.
I got embarrassed, a lot. And felt dumb, often.
I eventually learned that a good investment has a simple thesis. 2-3 levers you can pull that will drive 95% of your returns. Nothing more. Finding those takes time and reps, and most deals don’t have them.
- I love this location because of X
- we will increase revenue by doing Y
- we can decrease opex/CapEx because of Z.
XYZ need to be concrete, tethered to reality, and something the team has conviction in, and can execute on.
Rare.
- we will increase revenue by doing Y
- we can decrease opex/CapEx because of Z.
XYZ need to be concrete, tethered to reality, and something the team has conviction in, and can execute on.
Rare.
Once I started to be able to screen deals for levers, pass on ones that didn’t have any, and ruthlessly execute on the ones that did, I knew I was ready to take on outside capital.
It took a while to get there, and the road was humbling and painful at times.
It took a while to get there, and the road was humbling and painful at times.
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