Learning how to navigate business relationships with excellence is essential to sustaining success. Hear how Dave Van Horn dealt with some tough business relationships and used the losses and lessons to push forward to investing success.
Dave Van Horn serves as President of PPR Note Company, managing several funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience. Among his accomplishments he has been a contractor, licensed realtor and a previously licensed life and annuity insurance agent, before he moved on to raising capital for commercial real estate deals. He is an avid investor in notes and mortgages, as well as a long-term holder of multiple investment properties. In addition to being a board member and facilitating the Purposeful Planning Group Strategic Investor Alliance, Dave also travels to many real estate meetings and conferences as a national speaker on delinquent notes. His website is PPRNoteCo.com if you would like to learn more about his rapidly growing business.
GREEN FLAG: MOBILE HOME PARKS & A GOOD CAUSE
In 2004 I already owned a variety of 40 some buildings and some of us decided to start a Real Estate investor networking group. It started with just 12 people at a luncheon, and over the next 6 yrs. it grew to 8000 people in 5 states. We liked to bring deals to each other and have dinner together and talk over opportunities or listen to speakers. Since I was one of the founders of the group I would often interview the speakers beforehand.
In one of these meetings 3 guys from NJ came to present an investment opportunity in mobile home parks. They raised private equity for these parks and even had a noble cause: they were trying to raise capital to build a Christian academy. We liked the good cause and the numbers were very good on these mobile home parks. Even today I am not opposed to this type of investment if it is done right.
I was originally hired to assist in raising capital and raised about $8 million. We then purchased $32 million in mobile home parks. I later became an investor as well.
RED FLAG: THREE’S A CROWD
After a couple of years had gone by, I started to notice that the 3 partners didn’t have much experience in this field. They had gotten a very good team together to take care of issues with the mobile home parks, but were mostly trying to manage things from a distance. I don’t think they had really thought through the management part of the business and over time some problems between the 3 of them developed.
The three partners lived in the same community but two of the partners were having problems with the 3rd partner. They started to ignore the 3rd guy and began cutting him out of several important deals. Most of these issues seemed to be personal and personality related problems between the 3 of them. The 3rd partner felt left out and complained that he was the only one not making money. He seemed to have decided that if he wasn’t going to make money, then no one was!
All of that created big problems between them and deals began to fail one after another, ending in a big lawsuit. What it really boiled down to was ego. Both sides wanted to be right, instead of doing right!
BLACK FLAG: BIG EGO = BANKRUPTCY
It was very frustrating because now the partners were suing each other to see who had the biggest ego. The problem really was not the investments or the mobile home parks, it was the partners! Everyone was fighting and I was getting notified about the litigation. I represented a large group of investors who were not getting paid, and they were also very unhappy.
There were 8 mobile home parks all together. 4 were owner financed and 4 were loans through GE Capital, which shows how good they really were since most banks would not lend on mobile homes. The problem was the people…..who finally had to file bankruptcy.
WHITE FLAG: MONEY, TIME & REPUTATION
The 3 original partners pretty much retreated and stopped communicating. It was hard to get information. The president of the company moved to Texas and obviously it’s harder to chase someone down if they’re in a different state. The investors tried at one point to team up with the 3rd partner to save the parks, but it was too little, too late.
Things had gone awry and were not coming back. There was no way to save the thing in its entirety, although I do still own one of the parks today. I probably lost around $250.000, which was a huge amount. But equally bad was the time I wasted, and the risks to my reputation.
CHECKERED FLAG: COMMUNICATION & INTEGRITY
I learned a great deal through that experience. I stayed in close communication with my investors and we paid the legal fees out of our own pockets. Had we not valued our investors, communication and our own reputation it would have been much worse. The worst thing you can do when you have made mistakes or are involved in a failure is to run and hide and stop communicating.
We faced things honestly and up front with our investors and did as much damage repair as possible. We still lost some investors over it, but some are still working with us in new deals even now. Yes, that was a bad situation, but with the lessons learned through that period I was able to successfully move on to other investments and opportunities such as our current company that is 10 yrs. old, owns over 100 properties and is growing like crazy.
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?
I was in love with the vehicle and everything about it. I still like a lot about it. We just didn’t have enough experience and I did not vet the partners near as much as I should have. They should have brought much more to the table in the way of experience.
- What’s the single most important lesson you’ve learned from this?
The ability to raise capital and the do’s and don’ts of that. A lot of it is communication related. It’s also about track records, transparency, making your investors comfortable and confident in you knowing they come first.
This experience launched my career as far as raising private equity capital and I have to say that I would not be anywhere near as successful without the things I learned from it. It was totally worth it.
- How do you protect yourself from failing in this way again?
Having better control of the investments and of the management team. Leadership is definitely important.
I also value reputation more highly and try to avoid reputational risk. I am not as quick now to jump into partnerships and spend more time vetting opportunities and people. No more shiny object syndrome.
- Who do you turn to when you need help?
It depends on the type of help I need. We have over 30 law firms of different specialties. You need to have the right expert for the right thing. Pick the right doctor for the illness so to speak. I also have several mentors and coaches.
I am always moving up and reaching higher. I outgrow my groups and move onward to newer and better ones. I try to surround myself with smart, experienced, successful people. I want to be the dumbest guy in the room.
- What advice would you give to someone in a similar position to yours?
Don’t overstay, know when to cut loose. Don’t remain in denial when it is time to let go. Negotiate a settlement instead of letting a deal suck the life out of you. Emotions get involved and don’t always make sense, and you need a clear head about when it’s time to stop and when to pursue things further. Sometimes these things can take all the life out of you. Don’t waste your life and your time on the ones that aren’t worth it.
This episode is based on an interview with Dave Van Horn from PPR Note Company. 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.