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Friday, September 21, 2012

Going (for) Broke

4:08 PM
For almost thirty years, I worked as a government arts funder, executive director, and political appointee in four different municipalities, overseeing more than a dozen staff members and distributing millions of dollars in grant funds in highly visible and political positions.

 Investing in real estate is much harder.

 An investor never knows when she is going to get paid vs. my government jobs where I could count on a weekly paycheck, a dependable income, and could qualify for a mortgage. Money management becomes extremely critical for an entrepreneur, and being cautious, conservative and living as if you will not get paid for six months are essential skills.

 Investing can be a lonely business. Sure, you join investment associations and put together a team to help make deals happen, but compared to a political position in a large municipality, the number of people with whom I interact daily is greatly reduced. There are many hours spent working alone at my computer.

Most investors start out as sole entrepreneurs. There is not a big staff to help you deal with the details. Every decision is up to you, and everything that must be done (at least in the beginning) is done by you. Or it doesn’t get done. I sure miss my executive secretaries!

 Real estate investing is not perceived as glamorous. Until recently, investors ranked right up there with car dealers, scam artists or other “bottom feeders.” Slowly, the feds are beginning to recognize that investors are needed to purge the glut of foreclosed inventory, repair neglected or unsafe housing stock, and revitalize neighborhoods.

Quick cash goes both ways, up and down. And it goes quickly in either direction. Gurus tout the quick and easy windfalls, but mostly keep mum about the downturns. One “guru” I know bragged that in thirty years of investing, he had never lost money. This is not true. In fact, today he has lost virtually every piece of property he owned.

Ron LeGrand practically brags about having lost three million dollars in one day. I recently met with a local real estate developer who was over-leveraged when the market crashed (how many investors weren’t?), and lost all six condo conversions he was doing in prime downtown Seattle locations. His story was not even news; it was so common at the time.

Some of the most prominent local investors in our local REIA membership have lost millions of dollars as well and been close to bankruptcy. Perhaps more have actually filed for bankruptcy.

 I made more money as an investor than I made in my best-paid year as a government employee. For one year. The other years have not been so kind, and it has been a challenge to grow this business over time. Property-rich and cash-poor is a more common phenomenon among investors than the national speakers might have you believe.

And the risks, whether your own money or someone else’s, are always there. It can be quite stressful. I am always apprehensive when a new investor quits a good-paying job to become a full-time investor. Most are not prepared for the perils along the way.

This is certainly not to suggest that real estate investing is a bad thing. Just not easy. For all the challenges, there are the opportunities for rewards. BIG rewards. The greater the tolerance for risk, the greater the opportunity for rewards – and the bigger those rewards will be.

You will be your own boss and master of your own destiny.

There are many successful investors in Seattle. Learn from them. Education and experience will mitigate the risks.

Attitude and perseverance (along with good planning and a compelling “why”) will sustain an investor through the bad times.

Never, never, never give up is a good motto to adopt. Close the door to failure and excuse, and move on. Donald Trump has filed for bankruptcy four times – but he never quit. You decide how successful he has been in life….and make your own decisions wisely….

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