Stewart Hsu

Real estate investing can be a lonely activity, you spend a fair amount of time on the internet, on the phone, in the car, etc. — and you’ve probably had a thought, is this how it is really done?

So I started a meetup group in San Francisco to pull together other apartment owners, operators and investors to share ideas and best practices with each other. I’m an idealist. I believe if I can help make other owners better at what they do… many groups of people can benefit, a) the owners make more money and feel better about themselves, and therefore b) the people that work for those owners feel better, and therefore c) all the residents that live in all those apartment units/homes also feel better. It’s the “trickle down” effect.

Yet, it’s also “trickle up”. When we discover ways to do things better at a property, and share that with multiple owners, many of those changes are implemented at the property-level, which therefore let’s the residents know someone does ultimately care. The better you take care of the units, the grounds, the environment — the happier your residents will be, and that translates to how they interact with your property management staff, and therefore that translates into better job performance, and therefore more owners are more pleased. See, it goes two ways.

Context

I am big on context. The perspective, you choose to hold, counts for a lot. What might not make sense today for example, after some time has passed then becomes clear. As I was driving the other night to the meetup group, I reflected on my own experiences to date. I found by both observing myself and others, a lot of emphasis tends to be placed on the number crunching aspects of analyzing real estate. It’s easy (seductive?) to get caught up in the numbers. Many times I’ll wake up early in the morning and start crunching and reviewing numbers, hours go by in a flash. ‘It’s already 2:10pm?! I better eat some lunch soon,’ I’ve thought to myself on many occassions.

Disclaimer, context for me as the author. I have two apartments, a 60-unit and a 68-unit, and have been actively working on acquiring a 3rd apartment 81-units for many months now (not surprisingly, it’s been a very challenging lending environment so far this year). I’ve been to real estate events where most of the folks invest in single family homes, so anything over 10 units sounds like a lot. I’ve also been to a conference, where at my table, the next smallest operator/owner had 1,400 units.

According to 2000 U.S. Census Bureau data I pulled off of the NAA Website (National Apartment Association) there are 17,282,900 units in the United States. In the state I invest in, Texas, there are 1,458,800 units. In the Dallas region where I am focused, there are over 411,641 units according to MPF Yieldstar. So by many measures, you could say of all the knowledge there is to know about apartments, I know close to nothing.

Is this a truism for life?

“No matter how much you learn, there will *always* be more that you don’t know than you do know.”

The interesting thing however, is that “something” is a LOT more than nothing; mathematically, I believe it’s infinity. (Wow, so I know close to nothing and close to infinity at the same time! Sounds like a zen puzzle to ponder.) So, to give context to your real estate investing, from my bit of “something” experience, this is what I shared with my meetup group that evening. Keep this awareness of context in mind as you go about your investing.

Rule of Thirds

There are 3 things which will determine the success of your real estate investments. All of them are equally important, and without doing well in all 3 areas you will not be optimizing the performance of your real estate investment(s).

1. Analysis
Probably the most obvious of the 3, but the numbers have to make sense from the start. If you don’t have this, you’re behind the eight-ball from the get-go and you will be scrambling. The next 2 items, if excellent, may carry you, but you really want to ensure you perform a thorough analysis. How to do this… come join us at the meetup if you’re ever in the Bay Area, otherwise you’ll have to look forward to a future in-depth post on this topic.

2. Location
An agent friend of mine, Randall, likes to remind me, it’s all about “Location, location, location.” It’s sort of like Warren Buffett’s 2 rules of investing. #1, don’t lose money. #2, remember rule #1. Another way of thinking about this is, typically it doesn’t make investment sense to buy the nicest property on the block… a better strategy is to buy the *worst* property in the neighborhood and then fix it up. Yes?

Caution, I’ve heard many investment “gurus” talk about how they buy all their property without ever visiting it — personally, I think that’s insane. Just look around your own neighborhood/town, I’m willing to bet there are probably some good areas and some not-so-good areas, and often times you can see a big difference within just a few blocks. An agent or property manager can only explain so much over the phone, or even only take so many photos… driving around first hand, at different times of day, to me is priceless for getting a good feel of the area. (Not saying you personally have to do this, but you can have someone do this whom you trust and who doesn’t have any bias to advise you one way or the other.)

Remember, you can fix the property, but you can’t fix the neighborhood.

3. People
It’s all about people (and the quality of those relationships). This, I believe, is a truism for all businesses…. and much of life for that matter. Nothing gets done without people, without residents or customers you have no one to serve. It’s all about the connections we have with one another, and how we utilize them for everyone’s benefit. You need to have the right people on your team as well, otherwise your property will not be performing at it’s best. For example, I can imagine you could take a Property Manager that works in an A-Class property and they would struggle in a C-Class property and visa-versa. You need the right people in the property’s office sitting at the desk that fits your property-type and fits the types of residents you are trying to attract.

Find the right people, encourage them and take care of them, and they will take care of your property.

Analysis, Location and People — all 3, in my opinion, are equally important for achieving the best possible results in your real estate investing.

Post a comment below. Would love to hear your thoughts if you agree, disagree, or have other related ideas to share. Appreciate your thoughtful comments!