Comperio Investments Strategies For Passive Investing

Passive Real Estate Mistakes to Avoid as an investor.

Most mistakes will seem obvious to you.  You may even read this and say, no one would make those investment mistakes.  I wish this were a fact.

In reality, regardless of how many years experience an investor has, I’ve seen these mistakes made by most people in my circle. Call it complacency or over confidence, seasoned or rookie investors overlook or consciously decide to invest in-spite of some very harmful mistakes.

Mistake #1. Understanding the investment thoroughly.

In real estate the people who lose the most money are frequently the ones investing in deals they don’t fully understand.

If you don’t understand a development (residential or commercial) how can you know what questions to ask?  For me, I’ve made these mistakes in both real estate (buying land in Coast Rica) and in the stock market (investing in mining companies).

In my experience, it seems the types of investments that lose the most money are the most complicated.  Creating value and making money in real estate shouldn’t be overly complicated.  Adding value and generating good returns is hard work, which is why many investments, in my opinion fail to deliver what they set out to.

I do my best sticking to my guns and investing only in opportunities that I fully understand.

Side Note- as an active investor, this is a bit easier for me because I typically only invest in deals that I am involved in.  There are times when I will invest in private mortgages having been a mortgage broker and commercial banker I understand these investments very well.

Mistake #2. Taking Advice (read- being sold) From Someone Who’s Motivations Are Not In Alignment With You.

Take this example.  A guy you know calls you up and tells you he is now working with XYW Investments Inc.  He is a great guy, very energetic, loves his new job in sales and is now inviting in people he knows that would really benefit from this new investment opportunity.

Problem is, Sales guy has never working in real estate investing before.

It’s a more common problem in our industry than one would imagine.  Some of the best sales people are not trained to analyze or evaluate the risk inherent in real estate investing.

The other common trait these sales people posses (or lack)- is the knowledge to ask the right questions and truly dig deep on a deal.   I’ve been approached so many times by enthusiastic sales people calling me up to sell me on the newest investment opportunity.  I say no and then watch what happens.  Interesting, many of the deals do not pan out, the investors lose their money and sales guy is driving a new car and working at a different company.

The syndicators and sales people of a such deals mindset (I can only imagine) the Ignorance is Bliss concept. Hopefully the market keeps moving up and everyone looks smart.

Here is what I would recommend you ask before putting any money into a passive real estate deal:

• Ask the promoter what their experience is? Get references and proof.  What failures have they had (anyone investing long enough will have at least 1 deal go sideways).
• Ask who the actual GP’s are and what experience they have?
• How much money is the sales person putting in.  If it is a low amount or no amount I would never invest.
• How is the promoter compensated on the back-end I like investments that keep the promoters and GP’s feet to the fire.
• Who else is in the deal? I like to see very successful investors putting their money in the deal next to mine and having their money treated the same as mine. TIP- don’t be fooled by big name investors who lend their name and no money into a deal.  It happens so be aware.

To summarize while sales guy presenting the new opportunity to you may be an honest and trustworthy person, he may not have any relevant experience in the type of investment being sold to you.  Compound this with the fact that his compensation is usually directly tied to raising the money- NOT delivering results to you.  Also called “Front End Loaded”.

I see this a recipe for losing money in real estate.

When a sales person or promoter is compensated on the initial raise of money and no or very little motivation to deliver results, I walk away.

There is nothing wrong with making money on the front-end, finding good deals is hard work and one should be compensated well.  But, I like the comfort of knowing that whoever is putting the deal together is going to be there if things go south.

I don’t expect every deal to go as planned.  What I do expect is the people who brought me the deal and have my money are going to work it as hard as they can to get me back my money and hopefully a return.

The best way I know how to keep a promoter motivated, is – Skin in the game (promoter/GP’s/sales people with their own money in the deal).  With meaningful skin in the game, it always a  good start.  Gives me some level of confidence that the opportunity is a potential investment.  Without skin in the game- could be the best deal in the world, but it’s not for me.

I expect this post to create some questions or comments.  I invite you to ask questions or challenge my thoughts.  I don’t have all the answers- these are just my observations as an active real estate promoter/sales person and passive investor.

Comperio Investments is designed to help Passive Investors determine the level of risk in a real estate deal.

Sounds simple, yet it has been my experience that many investors who are approached with investment opportunities have no way of strategically analyzing a deal.

The decision to invest is usually based primarily on emotion.  I know this first hand- I’ve made some very poor investment choices in the past that were based primarily on greed and fear (of losing out on the deal).

The challenge I see today, is the many of the opportunities to invest in real estate are being sold by very savvy and sophisticated sales people.  Not that there is anything wrong with that, but it is my opinion the sales person should have a very good working knowledge of the product they are pitching.

In reality, if you ask these fabulous sales people, you may often find they do not have the relevant experience to provide you with the proper information you need to make an educated decision.

That is why I decided to create this website.  Spending the last 9 years as an investor, in all facets of real estate I have learned first hand the common scams and honest mistakes that can happen when investing in real estate.

Now, even with all your due diligence and having your risk properly assessed, it is possible that you will lose money on a deal.  Let’s face it, when the market turns and your in the game, you can lose. The best in the business lose their own money- look at what has happened to Trump.

What I focus on in all of my investments is who are the proponents behind a deal.  If the management (usually directors or GP’s, General Partners) are seasoned and have been through the tough times and come out the other-side, I like that.  Real estate investing is not easy and is not for the faint of heart.

It takes time, energy, persistence and courage- hence the reason why it is much easier to sell an opportunity than it is to actually create real value (in my opinion).

The real work happens after the deal is closed.  When the people responsible for the deal have to get their hands dirty and add the value they suggested they would.

My goal for this website is simple; to point out the potential pit falls that may not be evident to prospective investors without extensive experience or knowledge on how to evaluate such real estate opportunities.

It should be stated: I am NOT Selling any real estate opportunities here.

I have a very good base of close investors that come into the deals I manage.  The sole purpose of this website is to educate and help passive investors.  When I look at the market, I have not found anyone on the inside willing to share their experiences or knowledge on how to navigate through which deals are worth looking at and which ones should I stay away from.

The reason why there is a lack of information on this (I think) is because the successful guys are too friggen busy to be bothered to write it out.  They love to share their knowledge, but they don’t have time to sit down and write it out or blog about it.

I hope you will take away even 1 or 2 rules I follow into the next sales pitch you get.  Ask the questions and find out if the person selling you the opportunity is someone you want to do business with.

Take away Investment Rule: Does the GP or sales person have ‘Skin in the Game’.

Skin in the game, is  term used to describe whether or not the promoters or GP’s actually have their own money in the deal.  This is a great question to ask.

I would also point out, that I like to see the GP’s have more money in the deal than they stand to make on the acquisition fee. That means- that when a deal is put together, the GP will get some fee for doing so.  This is to be expected.  What can happen in some cases is the deal will be front-end loaded.

Front end loaded means the GP’s get compensated at the start of the deal, regardless of whether or not they add value.  I always want to see the GP’s in alignment with my needs- so performance based compensation and skin in the game.