I Bought $1.2M of Real Estate Right Before the Pandemic Hit. Here’s How I Navigated A Crisis.
(For context, I acquired the $1.2M of properties alongside my partners and investors. It wasn’t me alone.)
When I bought my first property in 2015, I jumped into the real estate game without any formal education or mentors. I had a burning desire to provide for my family and to apply the knowledge I gathered from months of reading articles, studying forum discussions and attending meetups.
I spent the next 4 years getting a difficult firsthand experience into what it takes to build a portfolio — acquiring properties, doing rehab projects, refinancing, evicting tenants and stabilizing my operation. I worked every weekend, invested 70% of my liquid net worth and trained my mind to focus on the long term upside rather than the losses I was taking on a day to day. It turns out that no article can prepare you for the things you deal with as a real estate investor. Go figure.
It wasn’t until 2019 that I was finally in a position to scale. That year, I hired a property manager to manage my portfolio, raised $250k for future acquisitions and expanded my investment zone from the NYC Metro to Philadelphia.
In Philadelphia, my partners and I launched Tioga Park, a minority-owned real estate investment group focused on the equitable revitalization of North Philly. We believed that by developing better housing product, commercial spaces and community infrastructure, we could raise the profile of the neighborhood and make it an equitable place to live and work.
Our vision gained momentum pretty quickly. Within months, we deployed hundreds of thousands of dollars of investor capital to acquire multiple buildings and vacant lots, many of which had been abandoned for decades. Our investment thesis was focused around taking vacant single family buildings and rezoning them into multi family properties for best use. These development projects that would take time, capital and a laser focus to execute. Since we wanted to change the usage to create more affordable housing options, these projects would require getting community approval, petitioning a zoning board, obtaining permits and more before we could even pick up a hammer.
This was new territory for me but I knew that creating “forced appreciation” through rezoning would help accelerate the returns for our investors. We also knew that we had to be meticulous with our execution — if any one our projects didn’t get approved or got drastically delayed it could prove catastrophic. To put it simply, we took on a lot of risk in order to unlock a lot of reward.
As 2020 rolled in, I was navigating the transition from being a part-time real estate investor to a partner at a development company. I had a lot to learn. I was no longer budgeting materials for renovation projects, but rather studying student housing trends in Philly, analyzing pro-formas and creating a 10 year plan to redevelop an entire neighborhood. As I was just finding my footing, the coronavirus blindsided the U.S.
At first, I was slow to understand what type of impact the pandemic would have on the real estate industry. It didn’t take me long to find out. Within a matter of days, tenants stopped paying rent, banks stopped loaning money and contractors stopped working. I lost $80k in a cash out refinance deal in Newark when my lender decided to pull out at the last minute. This was going to get ugly.
The stoppages and shut downs threatened our entire operation in Philadelphia. Since we had taken out high interest construction loans, we had to make monthly interest payments regardless of if any progress had been made on the rehab. In the industry, these are known as “holding costs” — and when you’re developing multiple projects at once, these costs become monstrous. As for those rezoning meetings I mentioned? Once the city decided to shut down indefinitely, all of those were rescheduled to “TBD” with no additional information. Without timely zoning board approval, our properties would have no way to appreciate, leaving us and our investors with massive paper losses.
Our entire investment thesis was gutted within weeks and our survival was on the ropes.
As the losses mounted up, my partners and I scrambled to stop the bleeding. We had to accept that our previous plans meant little in this new environment. We needed to restructure, recapitalize and reassure our investors and lenders that we were going to make it through.
It’s been twelve months of navigating this nightmare and though we’re still working through it, we were able to survive and retain all of our projects and even acquiring some new ones. I’ve been taking mental notes along the way and finally made the time to put them on paper. Whether you’re working on your first property or looking to scale, I’m hoping there’s something here that helps you avoid the mistakes that I did.
Here are my takeaways from navigating a crisis as a real estate investor and developer:
- Always Prioritize Your Operations
It’s easy to rip and run when things are going well. In 2019, the markets were roaring, money was cheap and investor confidence was at a high. We focused a lot of time and energy on attracting capital and building our brand and not as much time on our operational capacity.
When the city of Philadelphia shut down, we took the downtime to audit our internal operation to identify how we could work better. Turns out, there were a lot more gaps than we expected.
Our primary focus on improving our communication, developing accountability and creating railings for project management. One thing we noticed is we had a bad habit of letting small things fall through the cracks. These small items would snowball into bigger issues and then we’d spend hours and days unravelling that mess. We solved this by creating a Slack channel dedicated to track the progress of these “small items” and held each other to be accountable for their tasks.
Regardless of your experience level in real estate, take a few hours to audit your operations: Is your bookkeeping on point? Do you have a way to track the progress of your contractors? How are you creating accountability within your team? A little thought can go a long way.
2. Leverage Your Relationships Without Guilt
Like any industry, relationships are crucial for any type of success in the real estate world. Specifically, the relationships you have with your investors, lenders, contractors, suppliers and mentors are often the difference between life and death.
In our case, we were able to negotiate with our lenders to give us enough wiggle room to keep our heads above water. This meant extending our construction loans, providing capital for purchase orders and keeping the fees to a minimum. We knew that both parties were incentivized by getting these projects to completion, and weren’t shy about asking for what we needed.
I also learned a valuable lesson about communicating with our investors. Since tangible updates on the developments were limited during the peak of the pandemic, I made the mistake of not regularly communicating with them. I would let 3–4 months pass before checking in with a status update. Then, one of our investors brought to our attention that consistent updates, even if they aren’t substantial, are necessary for clarity and reassurance. He also mentioned that by being transparent about our needs in our investor emails, we could use our network to crowdsource solutions.
Since that day, we’ve sent out monthly updates regardless of the material progress and included a section for “Our Current Needs”. It turns out Ray Dalio was right, radical transparency is the right way to go.
Don’t want until you need something to test the weight of your relationships. Communicate consistently, be transparent and always have something to offer when trying to get your way.
3. Having Access to Capital is the Difference
What do Airbnb, Robinhood and AMC Theaters have in common over the pandemic? They were all able to avoid catastrophic events for their companies by having quick access to large amounts of capital (albeit for different reasons).
We went through a similar situation at a much (much) smaller scale. During the 3rd quarter of 2020, we came to the realization that we would need to raise additional capital to get us to the finish line. We had simply lost too much in holding costs and delays. The toughest thing to accept was that in exchange for this fresh infusion of capital, we would have to dilute our own ownership percentages in certain projects. Though none of my partners hesitated with this decision, accepting that a black swan event had affected our long term financial plans was still difficult to stomach.
Over the next 90 days, I raised six-figures of additional capital to give us the cushion and confidence to finish what was in front of us. Within 30 days of receiving the capital infusion, we negotiated with our lenders, activated our contractors and resumed progress at multiple construction sites.
The key to raising money is to always be telling your story as a company and individual. In the process of that constant storytelling, you create touch points for the people watching and they start to buy in on an emotional level. Whether it’s because they come from a similar background or have similar aspirations, those touch points open them up to investing their hard earned money with you. Whether you’re raising money for the first time or in a jam, make sure that you’ve created enough context on yourself and your company so that your pitch sells itself.
Even this article is an example of my “constant storytelling” approach — it’s a brutally transparent assessment of the past 12 months which can either highlight my inexperience or my resilience. Either way, it’s honest and provides people with another touch point long my journey.
It’s been almost exactly 365 days since the U.S. shut down and I feel like I’ve been at war ever since. As the pandemic cools off, I’m excited to see our projects heating back up. In the recent weeks, we’ve resumed construction and permitting at all of our sites and hoping to complete multiple projects this year. There’s a reason why a lot of people avoid real estate investing and it’s because it takes more than money, it takes guts. It takes a lot to be an operator and even more to do it while the world is on fire.
Questions about real estate? Send me a DM at @anihustles.
Like what you just read? Clap it up to help others see this post and apply it in their own lives.