Article written by Andre Bueno – courtesy of Forbes.com
A lot of people ask me what it’s like, bootstrapping a real estate investment fund. After all my day ones, I believe Ben Horowitz said it best: “As a startup CEO, I slept like a baby. I woke up every two hours and cried.”
Building a fund is hard, and the emotional roller coaster of bootstrapping has its highs and lows. We are fighting against the social norm and will face push-back from the first step. The people closest to us will not understand and might even voice their opinions in non-constructive ways. It’s normal. They care about us so much, and it’s challenging for them to accept that we are going out of our comfort zones. They might not approve our decisions, or they might project their limitations onto us — this is all part of the natural response of someone who cares about our safety and wellbeing. (In my case, being an impact investor, my parents were worried knowing the road ahead meant more encounters with drug traffickers, gang members, and other sketchy situations.)
The people we care about aren’t wrong to worry when we forge ahead with real estate entrepreneurship. That’s why laying a strong foundation before we forge on is so important. These six steps are key to that foundation:
- Have clarity of intent.
Be mindful about your ultimate intentions and check in often on whether your actions are aligned. Stay focused, work hard and seek to deliver the best work you can, every single day, under any circumstances.
- Be long-term oriented.
My biggest competitive advantage is that I’ve just been around long enough. While most people view entrepreneurship through the lens of short-term strategies (get rich quick or lottery mentalities), the reality is that this is a sport of endurance. Long term is the only strategy that works. As they say, time cures all in the world of real estate.
An overwhelming number of small businesses fail within the first five years. Are you ready to bear that risk? If you view it as risk, then maybe it’s not for you — because being an entrepreneur means you commit to excellence in whatever you take on. You become healthily obsessed with winning, and that means setting extremely high personal goals for whatever you pursue. There is a caveat: This is not an open invitation to feed your ego.
This journey is about building your own confidence and humility, all the while having a strong bias towards action. You play to win, and not to not lose, expecting to come out victorious with the humility to learn from anyone. My closest friends are also my closest critics/mentors, and I learn so much from them.
- Accept that everything will be more difficult than you think.
Long-term plans work only as long as the entrepreneur accepts the reality that the journey is going to be difficult. Over the years I’ve learned that any large-scale project I tackle will probably take more effort than I assume, longer than I project and I will likely encounter immense challenges along the way. Author Stephen Pressfield describes this creative challenge as Resistance, and one can overcome this by studying their peers and meticulously emulating their best practices.
- Scale lean.
In a world of political and economic uncertainty, it is imperative that we are more productive and efficient than our peers. We must strategically respond by building competitive moats. In our business, we vertically integrated our team to streamline operational execution and, as a by-product, we are able to successfully collapse supply chain redundancies. This re-engineering allowed us to remain nimble in order to promptly react to changing market dynamics.
- Fully commit to the process.
Being an entrepreneur means you have to embrace the fact we are blessed/cursed with ambition and that will manifest itself in a variety of constructive and destructive ways. It is up to us to train that dragon as we progress from early stage to maturation.
In 2015, we purchased a government subsidized building from a sizable institutional private equity fund. We identified an underserved market and we set out to serve that population. After closing on the transaction we failed a routine compliance audit and had our head of operations resign while we were restructuring our organization.
I spent the following year intimately involved in deep compliance related discussions with:
- The state housing and finance commission (who sought to get government approval to relieve me of my day-to-day responsibilities),
- The law firm the state appointed to act as its external counsel (to build the case for the local government), and
- A series of expensive consultants across the nation (who eventually took over my day-to-day responsibilities).
This was all the while installing and training a new head of operations at our Midwest headquarters. By being committed to the process I was able to navigate those murky waters — and let’s just say I built a lot of character along the way.
- Risk-adjust your returns.
The big R-word can creep into your transaction from a variety of angles. To estimate the probability of certain scenarios materializing, it is important to be aware of some of the major category risk:
- Sponsor risk: Does the operator know what they are doing?
- Economic risk: What needs to happen for your business plan to work and what is the probability of successful execution?
- Structural/seismic risk: This includes soft story retrofitting
- Mechanical risk: This includes electrical and HVAC
- Vintage risk: Older assets can have higher operational costs (unless newly renovated); has this been priced into the model?
Risk is subjective, so it is imperative to adjust your returns based on your knowledge base to better position yourself for the future.
When I first launched my business, I had those closest to me scrutinize every decision I made. Once I committed to my goal, I then executed. It is really that easy. Commit to the process of innovation, execution and expansion.
Click here to read the original article on Forbes.com