Maui Millionaires

I want to talk about these two words in the context of your investing, whether your investing be in stocks, bonds, real estate, or rare coins.

I often hear people talk about missed investment opportunities saying things like, “I could have bought Google at $84 dollars.” Or, “I wish I’d bought land in Silicon Valley or Arizona in the path of growth.”

Most people chalk up missed opportunities with expressions like: “It’s too late now” and “there’s nothing I can do about it.” But these people are missing out on the real value of hindsight.

To be clear, you can’t go back in time and change what’s already happened, but you can use hindsight as a priceless tool to teach you lessons to help you more profitably navigate your future decisions.

So my friend I have a very important question to ask you: what has hindsight with your investments taught you?

Here are some of the key lessons my “hindsight” has taught me in my chosen wealth vehicle—real estate.

Hindsight Lesson One: Use Forced Appreciation to Build Wealth.

First, the best investments all boil down to value—and your ability to used forced appreciation to dramatically increase the value of an investment.

Take the example of one Bill Shopoff, a friend and in an important way, one of my real estate mentors. Bill’s company, The Shopoff Group, invests in commercial real estate, with a specialization in land development projects. Over the past decade, Bill’s company has done over 50 commercial real estate and development projects.

Bill and I were having dinner a few weeks ago in Atlanta and got to talking about what makes some investments smarter and more successful, especially in today’s current market conditions.

We both agreed that the key to investing is buying right, and buying right means knowing that when you buy a property you are going to be able to force the value of that property higher.

Bill’s done that for years. For him, in his land development business, this typically means spotting great land opportunities to develop in what is called, “The Path of Progress”.

The Path of Progress is the term used to describe buying land that is just out in front of the direction of growth. When you buy this type of land correctly, develop it intelligently, and manage the process professionally, it can generate very high returns on your investment.

That’s exactly what Bill and his company have done over the past decade. In fact, over one three year period, The Shopoff Group generated over $81 million of profits! Yes you heard me right--$81 million.

(I’ll let you calculate the returns considering Bill and his investors had less than $25 million of cash invested in those land and entitlement projects. I may not be a math genius but even I can see that if you have $25 million growing to over $81 million that is a fairly healthy return on investment.)

Another example of forced appreciation is buying at a very low price relative to the actual, current market value.

This could be you buying a foreclosure property for 61 cents on the dollar. Or this could be you buying a poorly managed 156-unit apartment complex knowing that once you finish the turn-around on the management that the complex will go up in value over 50 percent.

This second example of forced appreciation is one that has got me and Bill most excited. We’ve both discussed at length what we see as a special opportunity to buy over the next 36 months a lot of real estate assets for bargain prices. In Bill’s case, he’s currently raising $200 million for a brand new REIT (Real Estate Investment Trust) that he formed to do invest in land opportunities (to the best of my knowledge it’s actually the only REIT ever formed in the United States with the express purpose of doing land investment deals, and considering Bill’s incredible track record I’m sure it will be very successful and provide high returns for his investors.)

For me, I’m looking to both buy commercial real estate assets that are priced very attractively and to invest with other people that I trust and know have the skills and teams in place to get my money working for me as a passive investor in other people’s deals.

Hindsight Lesson Twp: Character Matters

This brings me to my second key “hindsight lesson”: Character matters more than the money.

When you’re considering whether or not to invest in a company or project the first question you must ask yourself is do you trust the people in charge of your money.

For me, this is one of the reasons why I like investing passively in commercial real estate—because I have long-term relationships with several smart and ethical investors who’ve I’ve invested with over time, and who I have built up a high degree of trust with.

You can’t put a price on this trust. Here me now on this—the character of the people you invest with mean as much if not more than their competence. Obviously you want both, you want great skills AND you want high integrity.

Does that sound like a lot of work, to have to check out the integrity and character of the person you are investing with? It is a lot of work.

But, and here is a very important but, once you find a few of these people you are able to invest with them over time and across multiple projects.

Again I’ll use Bill as an example. At our Commercial Real Estate Super Conference a month ago I met one of Bill’s investors Nolan, a doctor from the central coast of California. Nolan had invested with Bill over many years and over multiple projects. While he also invested in his own projects, Nolan leveraged his relation with Bill over multiple deals to generate a healthy return.

That’s the value of these relationships—you do your due diligence deeply up front, and you get to leverage those relationships over time. This same lesson has made a big difference for me in my investing.

Hindsight Lesson Three: Timing Is Everything

The final “hindsight lesson” I want to share with you is this: Timing is everything.

There is a time in every market cycle to buy aggressively, and a time in every market cycle to sell or stabilize for the long term.

The thing that excites me about the next 36 months is that I see this as a great time to buy (provided you do it intelligently and with skill.)

I already shared my conversation with Bill about this very subject.

Now you’re faced with two choices in the market we are entering.

Choice one is to do nothing. To let fear and uncertainty keep you one the sideline. The end result of this choice is just “missing the boat”, but the real result is actually that you will fall far behind.

Choice two is to take advantage of the current market condition to buy valuable assets on sale. The end result of this choice, done intelligently and with skill, is financial freedom and massive investment returns.

Now is the time to position yourself to reap the rich rewards of this immense buying opportunity. You can do this by mastering the skill of actively investing yourself in whatever niche wealth vehicle you most believe in (for me this is real estate). Or you can do this by investing the time and energy to find other people to invest with, people of high integrity and competence, and leverage your investing through them.

Or best of all, you can do both. Both educate yourself as an investor AND cultivate relationships with other experienced investors who you can passively invest with.