Commercial Real Estate Investing From A-Z How to Deal With Major Problems in Real Estate Investing
Closing on a property the same day that the president declares a national emergency? Our friend Loe Hornbuckle checked that off on his real estate investing career last year. How did him and his team solve the problem that was about to arise?
You can read this entire interview here: https://bit.ly/2Mx2xUw
You closed on a property when COVID hit. This can be something that can happen at any point in time in different types of versions. It can be the economy or anything else. How did you guys overcome this problem?
I don’t think I’ll ever forget this, because how many people can claim that they closed a major real estate transaction on the day the President of the United States put the United States in a state of national emergency? Literally, the day we are closing on the deal, the President’s on TV saying we’re entering a state of national emergency and, like a lot of people, you’re in California, you have earthquakes, you have fires, there are all kinds of city and state emergencies, but I’ve never seen a national emergency before. So I didn’t know what that meant, or what was going on. All I know, is that I closed a very large real estate transaction, by some standard, $18 million is pretty large, on the day that the president is on TV, basically saying the sky is falling.
because our construction was being done in phasing, we went ahead and figured out what our three targets were, what we needed at a minimum to close the deal in terms of investor equity. Then the second question was, what do we need to do phases one and two? And the next question was, what do we need to do all three phases? So we broke the project up into a few different metrics When you're doing a raise, people always focus on the ceiling, how much money you're going to raise. The question that we asked ourselves was, what's the minimum amount of money that we can raise in order to not have the project be delayed? And so we came up with those three numbers.
Are there any other tips that you can give our listeners on how to deal with unplanned situations like this one?
If you were to think about all the things that it takes to write a business plan, I think the first thing you have to be is you have to be realistic. When you're realistic, and you're writing a business plan, one of the questions you should ask yourself is, how could this go wrong? What are the problems this deal could have, and then try to be creative and pre plan. So much about people that write business plans, it's all optimism. For example, if we just assumed, that we were going to raise this money, no problem, we hadn't set the floor, then we potentially could have had to rewrite the operating agreement, and that could have caused other investors to be spooked. Instead, we just said, Hey, this is the minimum amount we're going to raise, this is the maximum amount we're going to raise.
Always go through your business plan and just think through things that that could happen, maybe you won't raise all the money, maybe you'll have some price increases. You're going to need to have a healthy contingency, and things like that. A lot of what made us successful on this project, or come to a successful conclusion, really dealt with going in being realistic. And then also asking, Where can we have problems? And if we do have these problems, what's our plan in case we face them? Because having that in your back pocket, and when something does happen, you've already kind of planned for it. It helps a lot in the moment because you don't feel like you're being blindsided by something you couldn't see coming.
Loe Hornbuckle
loe@goodhorncapital.com
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