NREI Online: Two CRE Investing Rules You Can’t Ignore

by Robert Kantor, written for and originally published on National Real Estate Investor Online

It is possible to invest with confidence, peace of mind and stable return on investment by following two rules.

Have you ever lost money on a stock or limited partnership investment that your broker hyped as a “hard to come by” portion of a “you can’t lose” deal? It is possible to invest with confidence, peace of mind and stable return on investment by following two bedrock commercial real estate investing rules:

1) First, invest only with the most experienced and successful individuals.

By experience, I mean that an individual has been intimately involved in a particular commercial real estate sector on a full-time basis for an extended period, at least five to 10 years. Length of tenure is important because it demonstrates an aptitude and willingness to manage through various economic environments. Strong performance in a bull market is a poor indicator of overall competence.

Interview all the major players in the deal to determine whether they have the requisite experience. Ask about the following:

  • successes and failures in the past and what they learned from their failures
  • most recent activities and the results
  • substantial investment of their own in the investment you are contemplating
  • plans and expectations for the investment.
  • who you could contact regarding their prior performance.

Even before experience comes the need for your investment partner to possess three characteristics: integrity, intuition and instinct.

  • Integrity. Even before experience comes the need for your investment partner to possess integrity—honesty and strong moral principles. It is quality of character that is not easily identified through credentials or transaction histories, and often reveals its presence or absence in subtle ways. Always scrutinize your potential investment partner’s behavior and be sure that it is consistent with your value system. If the investment partner’s behavior doesn’t adhere to your sense of integrity, then find another investment.
  • Intuition is not innate, but rather learned after extensive long-term training. It is the ability to understand something immediately, without the need for conscious reasoning. Intuition is the product of both wins and losses, and reflects an individual’s capacity to apply knowledge gained from prior experience in new or different contexts. While there are a few exceptions, it is highly improbable that anyone in the business world will have developed sufficient intuition in less than five to seven years. Ask the management group with whom you may invest if they have intuition that will guide them in their decisions, and ask for examples.

2) Before making any investment decision, conduct exhaustive due diligence. Read the complete article at National Real Estate Investor Online.

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To learn more about the possibility of earning long-term, reliable cash flow with Headwater Capital, contact me at RAKantor@HeadwaterCapital.com.