In 2007 Andrew left his corporate position at a large food corporation to start a business in real estate investment. Starting off with single family properties, Andrew completed 24 single family transactions (purchase, rehab, sell), all of which earned significant returns for both his business and investors. In 2010 Andrew transitioned to multifamily acquisitions and has successfully syndicated and re-positioned 1,546 multifamily units that are providing investors with strong returns. He says his secret is a relentless drive, not giving up and his wife who is also his business partner.
Andrew lives in Southern CA and outside the business world he enjoys surfing, back-country skiing and spending time with his wife and 2 children. Hear how he overcame a horrific real estate deal and rebounded to success in today’s podcast.
GREEN FLAG: ALMOST PERFECT
In 2012 and 2013 I had been involved in the purchase of several properties that were in rough shape and gotten them turned around for a profit. I felt I had found my groove and was doing well, when this great looking apartment deal was introduced to us. The architecture was beautiful even though it was in need of repair; it was located on a busy street; the current manager lived in another state and the broker lived a fair distance away; the last buyer had fallen through making the sellers more anxious…..it looked like a great opportunity with a lot of potential.
We realized it needed a lot of work, but it was structurally sound and we thought most of the problems were ones we could fix. We knew it was in a very bad part of the town, but when we decided to purchase the property, we had no idea how truly horrible it was.
RED FLAG: HORRIBLE NEIGHBORHOOD
We closed on a Friday and afterwards went to the apartment office where we found the whole place smelled absolutely terrible. It turned out that the sewer lines in the basement had broken and flooded the basement with sewage. We got that taken care of, but our problems were just beginning.
Later that same weekend a huge fight broke out at the convenience store next to our apartment complex. Our community was gated, but because of the nature of the fight it spilled across the walls and onto our property and enveloped several of our residents. It was a nightmare and it ended with 2 murder/homicides, 2 attempted murders and 7 stabbings! Needless to say this was a bit of a shocker to us even though we had been aware that this was a lower income area.
What we did not fully realize at this point was that you can fix your property up all you want to, but you cannot change the area around your property. The immediate community was low-income, high unemployment and a very high crime rate. But at the time we were hopeful about moving forward with these apartments in spite of all that. We hired security people, cleaned up the resident profile, made repairs, beautified the grounds, put in flood lights and video cameras and made a lot of progress.
Things were not all bad. We filled the empty apartments with good renters, rents were being paid on-time and the tenants were thankful for the positive changes. We kept telling ourselves that we could make this work…..and things did calm down some for a while. But when you are 30 feet away from a hub of turmoil at the nearby convenience store, trouble is bound to follow.
BLACK FLAG: CRIMINAL ELEMENT
As the months went by a scenario began to repeat itself. It would be calm for a while and seem as if the great progress we had made would last. But without fail after a while something would happen in our complex or the surrounding area to set us back: a robbery, a bad fight or even a shooting. We had worked as hard as we could but we finally had to admit that you cannot take a property much above the community it is in. The criminal element around us would always hold back our development. We had improved the place a great deal, but it had plateaued at a point that was just not good enough to warrant our continued investment.
WHITE FLAG: CUT LOSSES
After it became clear that we were not going to be able to improve the development beyond a certain point, we decided to cut our losses and sell while things were going well. We decided not to pour any more money or effort into it, but to sell and invest in something new and better.
Although the total damages were hard to determine exactly, we had bought the property for $2 million and sold it for a little over $3 million two years later. If you take into account the repairs and renovations, marketing and security, improvements and operating costs, we took a significant loss.
CHECKERED FLAG: NEW STANDARDS
We did sell the property and recovered some of our equity. We took that and put it towards another investment in Georgia that was going to make something of itself. We now look at every possible check point before investing and we also have a much stricter screening procedure. There are a lot of things to investigate before you even consider buying a property: median income of the neighborhood, poverty and crime rates, flood zones, population growth, job growth just to a few.
In each episode of How to Lose Money, we ask our guests to answer a few questions about failure. Here’s what came out of this episode:
Why did this failure experience happen to you?
The main reason is that we did not have a fully developed due diligence system. The other reason was just pride and hubris…. We told ourselves we could do this, we could handle anything.
What’s the single most important lesson you’ve learned from this?
Doing your due diligence would be the obvious answer, because it is important. But after that I would say the most important lesson is that you have to be able to pivot and change once you are given new information. Cut your losses and don’t let a bad choice become like a cancer that drains you. You are going to make mistakes no matter how diligent you are. Once you realize something is not going to be successful, don’t hold onto the illusion……be able to pivot.
How do you protect yourself from failing in this way again?
The due diligence we have in place and the careful screening we do now, would prevent property like that from ever even crossing my radar. But if I had that property today I would go ahead and clean the place out, do the repairs necessary, and sell it to someone who likes to deal in those kinds of areas.
Who do you turn to when you need help?
My wife has a very instrumental role in keeping me on track and she doesn’t get as much credit as she deserves. There is also my Gobundance group and a large number of successful real estate people for me to reach out to. I go to conferences and seminars where I try to meet successful people who do what I do. I feel it is crucial to find others in my market space who are successful and then learn from them, duplicate what they’re doing and use them as mentors.
What advice would you give to someone in a similar position to yours?
Don’t panic or freak out! Breathe, give yourself 5 minutes to grieve/vent…. then Pivot! Turn your eyes toward figuring out how to move forward from where you are. Be realistic, get input from others and incorporate it.
Use the failure to motivate you to do better. Remember it’s only truly a failure if you let it take you out of the game!
This episode is based on an interview with Andrew Cushman. To hear this episode, and many more like it, you can subscribe to How to Lose Money. If you don’t use iTunes, you can listen to every episode here.