- On August 29, 2017
What do you do at the first sign of failure? Are you the type of person who will quit if your best effort did not yield success? Or, are you the type of person who gets back up ready for round 2?
There is a misconstrued belief that success is the complete absence of failure. This belief has since spawned what we at the Commercial Academy call the “Quitting Epidemic” where investors will try to walk away from an asset at the first sign that their initial strategy does not yield the result they wanted.
History tells a different story. The brilliant minds that we celebrate and idealize were all beautiful failures at one point or another. This is a tangible truth which you can see every time that you turn on your computer, watch television, or review at the list of companies with the highest earning reports.
The fact is that we all fail. What we do and where we go from this point is what defines our success.
Investing in commercial real estate is no different. You will slip up, there will be deals that promised to be that one property that launched your investment career into the stratosphere before tethering you to the ground.
But how do you pick yourself back up? First and foremost, you ensure that you take the proper precautions to ensure that even if your “Once In A Life Time Deal” falls through, you will not fall with it.
The first step is to evaluate the deal based on multiple scenarios. You will have your best case scenarios, also known as Proforma, but you should also create a worst case scenario. Your worst case scenario is a way to evaluate not just how much you could lose, but a road map for the actions you will need to take when something does not go as planned.
As an example, say you are evaluating a property which has two tenants up for renewal within the next year. As a precaution, you should create a scenario which removes them from the rent roll. If after completing this, the property no longer cash flows enough to cover necessary ratios then there is the potential for a real problem.
This practice will allow you to balance your optimism with reality ensuring that you take the correct steps toward establishing proper business and debt structures so that you survive potential failure.
If you pursue the proper methods, your failures in commercial investing will not cripple you from pursuing your next deal. In fact, it will give you something that you would not gain otherwise… a good lesson.
No one ever jumped into the world of commercial real estate as a complete success and no one ever will, so it is extremely important that you be able to use your setbacks to drive you forward in your goal of obtaining financial freedom.