Bobby Unser won the Indy 500 three times and his favorite quote was “success is where preparation and opportunity meet” – and that’s 100% true with real estate investing just as it was with auto racing in the 1970s. All key is to figure out what the opportunity will be going forward, and then properly prepare to harness that information. America has a number of megatrends in the future, from the demand for affordable housing to the rise of a “rental nation” and the continued impact and refinement of internet possibilities – you just need to use your creative imagination.
Episode 4: Success Is Where Preparation And Opportunity Meet Transcript
Back in the 1960s and 1970s, one of the top race car drivers in America was a guy named Bobby Unser. Bobby Unser won an Indy series race 35 times. He also won the Indy 500 three times. And a reporter once interviewed him and said, Hey, Bobby, how come you are so good at winning these races? And he said, success is where preparation and opportunity meet. This is Frank Rolfe with the Commercial Real Estate Mastery podcast. We're going to talk about just that. How to get prepared to be a winner, and then how to watch out for the opportunity to use your knowledge to be a winner. So let's start off with preparation. If success is where preparation and opportunity meet, let's start with the preparation part of that. So the first key item to know about commercial real estate mastery is to, you got to think like a person of action and act like a person of thought. Because preparation without action is of no value whatsoever. So you've got to learn the real life ways to win, not just the theoretical. So much of America anymore is just simply based on theory. People go to college and they learn in classes things, but they never apply in real life.
And they find later in their career that nothing they learned in college actually has any bearing at all. That's sadly the fact. So we instead need to look for people who can give you real life tips of how things really, really work in the real world. Because you can't take action on theory. You can only take action on things which are nuts and bolts completely accurate. So we've got to think like a person of action, but taking action without knowing what you're doing only leads to disaster. So preparation means getting yourself in the right spot to take action to win. And Warren Buffett has said many times, you should never get involved in an industry that you don't understand. So what does that mean? It means Warren Buffett, who's America's number one stock investor of all time, never invested in a product or a service that he didn't feel he had a firm understanding of how all the nuts and bolts of the business worked. That's why he never invested in technology. He never bought any technology stock other than Apple, which Apple he would say, well, that was mostly revolving around iPads and iPhones, not that complicated.
But he never was an investor in AI or any of that type of thing. He liked more grassroots basic stuff like C's candies and Clayton's mobile homes and those kinds of industries. Coca-Cola, which is a huge holding of his. And Geico Insurance was a huge holding. But he liked the basics. And so in his concept of preparation for Buffett meant you had to understand the whole picture, how all of the gears got together and worked. And Buffett also said many, many times that the most important investment you can make is in yourself in terms of knowledge because they can take everything away from you materially, but they can't take away your knowledge. You can restart again. So I think when Bobby Unser talks about preparation, what he talks about is good real life knowledge. That's the preparation he needed as a race car driver. He needed to know all the insider secrets and all of the tricks to driving, how the engine works, the transmission, how hard he could push the engine before it might blow, how hard he could shift the gears before the transmission might go out.
That's real preparation. It's the preparation that leads to success. So then what about the opportunity? So if we know that we've got to get prepared to be successful, how do we spot the opportunity to be successful? Well, to me, in the real estate world, it means picking the right niche or sector for you. Because if you look at the people who are some of the great real estate investors of all time, take Sam Zell, for example. Sam Zell was the largest owner of office buildings, largest owner of apartment buildings, and the largest owner of mobile home parks in America. And there was something that drew him to those three niches. Would he have been successful in the retail industry? I don't know. For some reason, he never picked that, nor did he pick the hotels. But yet someone like Conrad Hilton, who became America's number one hotel owner of all time, that's what he chose. That was the niche that he picked. So first, we have to figure out, from an opportunity perspective on the macro side, what should you be in? What niche of real estate is the right one for you? Which one do you feel the strongest, has lots of opportunity, or the ones you think that kind of the time has run out, and they're more on the downward trajectory than the upward trajectory?
And next, beyond picking the macro niche, you've got to find the right deal within that niche. Now, how do you assess that? How do you know what's an opportunity from what's not an opportunity within that niche? Well, if you understand the real-life knowledge of how it all works, that helps. But here are some other ways you can kind of discern the deals that are good from the ones that are bad. Number one is a rule I call best case, worst case, realistic case. Here's how it works. You look at any deal, and you say, if I got that thing running perfectly, 100% occupied at full market rents, how much money would it make, and how impressed am I with that? And then you look at the worst case, which would be that your vacancy grows, you lose tenants, your rents drop because there's a giant recession somehow. If all these terrible things happened, where would I be? Could I cover the mortgage, or would I go bankrupt? And then finally, you pick the middle between those, which we call the realistic case, because often in life, things don't hit exactly like you want it, but yet they're better than the worst case.
And where do you end up then? If you hit the realistic case, which is the middle of that, is that a winner for you or is that a loser? And if you say, well, I can survive the worst case, I'd be thrilled with the best case, and I'd be happy with the realistic case, then that deal might well work for you. That might be a good opportunity. But if you said, I can't survive the worst case, I'll go broke, and the best case really isn't that exciting, and the realistic case doesn't turn me on at all, then you probably should not do that deal.
You should also look at every deal based on the parameters of risk versus reward. Now, what the heck does that mean? Well, Sam Zell was one of the big disciples of risk versus reward in real estate. And what it means is that if you look at a deal, it has a certain amount of risk and a certain amount of gain, and they have to be in equal measure.
On Sam Zell's business card, in the back of it, it used to say, for all of his employees, if a deal has low risk and high reward, you should always buy it. If it has high risk and low reward, you should never buy it. If it has high risk and high reward, those are the only ones you need to ask me about. And it's kind of true. And you can take any deal in any real estate niche, and you can apply risk versus reward, and you can quickly see which ones make sense and which ones don't. How risky is it? Let's say you're looking at a property, has very, very low occupancy, and you're going to have to fill it up to make it work like some half-abandoned retail center. That's quite a bit of risk. So if you're going to take that kind of risk, you have to get a huge reward versus some other opportunity where it's pretty much full long-term leases, but you can push the rents up a little. That's a lot less risky. That does not require as much reward. Where a lot of people get in trouble is when they get involved in things that have high risk and low reward.
They can never rationalize or justify to anyone later. When people say, why in the world did you do that? They really can't come up with a good answer. So don't put yourself in that position. Make sure that your risk versus reward is healthy. And then finally, if you've made the preparation, if you've really learned everything about the niche and you see the deal and you classify that as an opportunity, you're never going to get anywhere unless you trust yourself. You have to not listen to others, only listen to yourself. That does not mean you should not seek input from people on deals. You should get as much input as you can. You should have as many people who are qualified look at the numbers and tell you whether that deal makes sense or not. If you get a bank loan, you'll get an appraisal, you'll have a banker. Sure, get their input. That's not what I'm talking about. But at the end of the day, the person who pulls the trigger, the one that makes the decision is 100% you. It's 100% your money. And you have to make the right decision. And you will never feel like you can make that decision until you are fully prepared.
So I'm sure every time Bobby Unser went into the final turn of the Indy 500, his car at 6,000 RPM, should he floor it? Should he go for it? Should we try and get to first? He could only do that if he really knew how hard he could push the engine, if he knew how to drive the car at those excessive rates of speed. And that's where it all comes together is trusting in yourself. When you look at the deal, you look at all the parameters, the risk versus reward, best case, worst case, realistic case, you love that niche, you feel strongly about it, you've looked at lots of deals, this is the best one you've seen. When you decide, yep, this works for me, then you have to go forward and trust yourself. Some people call that gut instinct, but that's definitely also a winning instinct. This is Frank Rolfe with the Commercial Real Estate Mastery Podcast. Hope you enjoyed this. Talk to you again soon.