The Philosophy of Real Estate Investment
In my last article I considered my grandfather’s legacy and its impact within me. I wonder what influences guided his behavior, principles and actions. In that era (1950’s), and in that place (Taipei), traditional Chinese culture remained firmly rooted in the minds of that generation, specifically the teachings of Confucius and Taoist philosophy from Lao Tzu.
During my time in Asia, I’ve been exposed to these teachings myself and it continues to have a strong hold on the outlook of the living generations of Chinese. I myself have leaned on Eastern philosophy in times of need, to help guide me in the right path, and this brings a unique perspective in our approach to real estate investing. Here are some of the teachings that resonate most with me, and which we have put into practice at our firm.
Wisdom, Learning and Growth.
“If I am walking with two other men, each of them will serve as my teacher. I will pick out the good points of the one and imitate them, and the bad points of the other and correct them in myself.” - Confucius
Confucius teaches us that everyone has wisdom to share. No matter age, success, background, gender, status, origin, temperament or education, every single person can be our guide, teacher and source of learning and growth. The corollary to this is that you prematurely judge and ignore others at your own peril. Anytime we feel ourselves “writing someone off”, we’ve prematurely cut ourselves off from a growth and learning opportunity. Only following those that share our world view necessarily restricts us to that world view. In the world of real estate, and particularly real estate investing, this means death, or at best, stagnation. Real estate serves a real world purpose, as a functioning, utilitarian and, at times, aesthetic vessel for the people that build it, utilize it, and occupy it. Operating without consideration to the human element of real estate, and failing to treat it as a complement to real world, living organisms, is akin to painting a mural for the blind.
Learn openly and deeply with all of your senses. Understand how real estate is like the rock in a river directing, or blocking, the stream of life. Understand how any structure you build, invest, or tear down will affect the people, the communities, the neighborhood, and the city. Understand how changes impact a system, and what side effects it may have. The people around you, and in your community, are your teachers. All of them. These philosophical questions have real world impact and if you can internalize them, and feel them, you can make wiser real estate decisions than any analytical model.
Trust only when Trust is Earned
“Never give a sword to a man who can't dance.” – Confucius
This is a good one. Too often we place misplaced trust in friends who are not experts in a field. This is especially true in the world of international real estate, where simply being in a location makes someone an expert. Too often, people rely on a local resource to “sign off” on a potential transaction. The issue is, also too often, because such resources tend to be limited, there is an outsized weight placed on their judgment, simply because there is an absence of other sources of information. If you wanted to undergo an operation, would you place your fate in anyone besides a surgeon?
Ultimately, what we’ve learned from these words are that if you intend to place the tools to guide your destiny in the hands of another, ensure they are capable of wielding it. In our case, these are demonstrated first through principles, particularly integrity, and second through historical record, particularly experience. Identifying the right partner in any project is the most crucial step towards success.
Understand Your Strengths And Weaknesses
“To know what you know and what you do not know, that is true knowledge.” - Confucius
This one will hit close to home for any real estate investor. Too often, we believe we can know everything. Too often, we believe we know best. Too often, we believe we have selected the best friends, who can couple as the best advisors. And too often, we are burned by our irrational exuberance. Trust is critical in the formation of human societies, which is also why misplaced trust takes such a heavy toll. I have a thousand stories with a thousand separate people, that goes something like this:
“When I was young, I invested heavily in the stock market, real estate and things that I thought I knew about. I got burned. I turned to the advice of my inner circle, my friends and my relatives and invested with them. I got burned again. In some cases it was because the friend wasn’t such a good friend. In other cases, its simply because we all didn’t know any better. So now I hold cash, or bonds, or some insurance product that sucks fees, but at least I’m not losing my principal.”
Sound familiar? This is the voice of an entire generation. Our parents generation. This generation is currently undergoing some part of this cycle, but the end result is the same: fear. There is a famous study about loss aversion. When presented with the opportunity to win or lose $20 with equal chances, nobody is willing to take the bet. People are only willing to take the bet when the amount won is twice as much as the amount lost. Put another way, people tend to fear losing two times more then they like winning. Multiply this feeling throughout an entire lifetime of investment and you end up in some version of the above.
The irony here is that with each mistake and each loss, we are actually better equipped to make the next investment decision. But the ever-mounting surfeit of fear prevents us from realizing our potential. Knowing what you know, and more importantly, knowing what you do not know, is gained through experience. The difficult part is overcoming the fear holding you back.
Be Practical and Ambitious
“Ambition has one heel nailed in well, though she stretch her fingers to touch the heavens.” – Lao Tzu
How true these words resonate with a real estate investor! The greatness of anything you build depends entirely on the strength of its foundation. If you wish to construct a skyscraper, you start by pouring tons of concrete. If you hope to invest in a real estate portfolio, you start with the fundamentals. Too often we lose sight of this and focus only on the possibility posed to us – the IRR. The Return Number. The Fancy Photo. The “Guarantees”. None of that can happen without having one heel planted firmly on the ground. If you want to stretch for the heavens, make sure you are also grounded in reality.