It’s the Risk You Don’t See Coming That Takes You Out
The Amplified Impact Podcast
December 23rd, 2023
Ever had an investment go south unexpectedly?
I came across a story shared by Noah Kagan about a real estate investment that took a wrong turn.
It got me thinking about how we perceive success and failure in our ventures.
Sometimes, success isn’t all skill, and failure isn’t just stupidity. I’ve found it helpful to do an annual ‘risk audit’ to prepare for unforeseen events.
As we head into the new year, maybe consider what could go wrong in your plans and how you’d tackle it. It might make you a more resilient investor.
TWEETABLE QUOTE:
“I think you just have to be humble. You got to do your best, and you have to give everybody else the benefit of the doubt, because tomorrow it could be you.”
– Anthony Vicino
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Episode Transcript:
So a couple of days ago, a fellow named Noah Kagan, who has an awesome YouTube channel, he posted something on Twitter about how he had a private, private place. He had invested in a private placement as a limited partner. So in a syndicated piece of real estate, and that is what my group at Invictus does. He did not invest in our deal, but he invested into a deal, and he found out that that deal was going to be foreclosed on, which means he lost his hundred thousand dollars. And not only that, but because of the way that the tax laws work, you get all the tax benefits of these investments front loaded, but that all gets recouped upon a sale or some kind of exit event. And so not only did he lose his 100,000, but he also lost another $30,000 of tax benefits. And so that has to come out of somewhere. And that all sucks.
When you hear a lot of people talk about real estate, myself included, we talk about it through the lens of, it’s a great investment vehicle, it’s fantastic. It’s made more millionaires than any other vehicle. And that can paint a rosy picture that it only ever goes well. But the truth is, there’s a lot of ways real estate can go wrong and you can lose money. And you might look at that situation. He shared some of the details of the deal itself, and you could look at it and make all sorts of judgments. And a lot of people did on Twitter, they looked at the details of the deal and they’re like, this was a bad deal to begin with. Why did you ever do this? There was a bunch of red flags in there that you can easily point out in hindsight, and maybe even in the moment, you would have pointed them out, too.
But it created this pylon effect on Twitter where a lot of people in the real estate Twitter space, they all kind of started to jump in and say, kind of bag on the GP, the operators, who, for their side, they have about a billion dollars of assets under management. So this is not a small operation. Ostensibly, they know what they’re doing. They’ve been doing it for a while. And so you look at it and say, well, why would you ever do this type of a deal? And I was thinking hard about this this morning and journaling about it, because I think often when we succeed personally, we chalk it up to luck or we talk it up to skill. We say, oh, I succeeded because I’m skillful. And when we personally fail, we say things like, oh, I got unlucky, or it was a bad market. So when we succeed, we call it luck.
I’m sorry. When we succeed, we call it skill. When we fail, we call it luck. Whereas when we watch other people succeed, we tend to call that luck, like, oh, he just got lucky. And when they fail, we’re quick to point out that it was due to stupidity. And so it’s this interesting blend because we give ourselves the benefit of the doubt that when we succeed, it’s skill, and when we fail, it’s luck. But when somebody else succeeds, they got lucky. And when they fail, it’s because they’re stupid.
And I think a lot about this, because just because you haven’t failed yet, especially in this business of real estate, doesn’t make you better than those who have. Like, you can do everything right and still lose. That’s not weakness. That’s just life. That’s how it goes. And the flip side of that is also true, which is that you can do everything wrong and still win. That’s not genius. That’s just luck.
So I think you just have to be humble. You got to do your best, and you have to give everybody else the benefit of the doubt, because tomorrow it could be you. And I think that’s the takeaway, whether you’re in real estate or you’re just an entrepreneur in general, is it’s very easy to look at the people who failed and say, oh, you shouldn’t have done this, this and this, and call them stupid. And of course, you would never have made those same mistakes. But then, who knows? You might find yourself in a similar position tomorrow. Some tables might turn and some unforeseen events that you couldn’t have seen. But maybe somebody else will say that they could have seen it. And so you just need to be really cognizant that we’re not ever getting too high on our own supply and thinking, oh, that could never happen to me.
Whenever I see something like this, like another group having struggles like this, I just ask myself, what could happen to make that be me, right? What am I not seeing right now about what we’re doing? That is a complete blind spot that could be opening us up to that type of catastrophic failure. Because surely they didn’t see the risk in the same way, right? Otherwise they wouldn’t have taken it or they would have done something different. So it’s very rare that you get killed by the thing that you saw coming. It’s very rarely that. It’s usually the thing that you just didn’t expect to see. And as a result, because you didn’t expect to see it right now because you are successful, quote unquote, the thing that could derail you is something that you’re not even considering. And so spending the time to assess that, what would be those things that might throw me off for my business, for my real estate, for whatever the best investors are, the best ones at hedging against the risk. The downside, and the only way to do that is to have as full of a picture as possible of the potential downside.
That’s why I’m a big fan of doing an annual risk audit of your life where you look and say, okay, where are my weak points? Where am I vulnerable? What are the things that could go wrong? And just start putting this powerful problem solving machine to work. That’s your brain, and asking yourself, what could go wrong? And then what would you do right now if you knew that was going to happen in six months? What would you do right now to make sure that that didn’t happen or to mitigate the effects of that? And I think by doing that regularly, you just become a more conscientious, more well prepared investor and an operator. So maybe do your risk audit. We’re entering into the new year. It’s very fun to set forward projected goals and think about all the great things that are going to happen. Then maybe spend an afternoon and just think about what could all go wrong and what am I going to do to mitigate those potential points of failure. Do that and you’ll just be that much more robust, that much more resilient, and you’ll sleep a little bit better at night. So that’s going to do it for me, guys, I hope this brings you a little bit of value.
As always, thanks for tuning in. I’ll catch you back around these parts tomorrow. But until then, stay hyper focused, my friends.
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