Immersion Investing

Immersion Investing

Immersion is a technique I use in my investing. It works for me and it may work for you. Actually I am a total immersion guy. I immerse myself in any task that I deem worthy of total and complete knowledge. (Perhaps  “Immersion” is a polite way of saying obsessive compulsive – but read on:)

I will get to my definition of immersion in a moment. But since I am talking about real estate investing, let me first establish credibility. I have been investing in, selling and or brokering real estate for over 30 years I am a landlord, a developer, a speculator and a buy and holder and a broker.  I am not a “guru” or a publisher. The only thing I may want to sell you is some real estate.

I have read many of the Guru’s  – the good the bad, the scammers and the pros. In fact, when I was studying real estate I absolutely immersed myself in the field. I bought my first property weeks after my first course.

Now let’s talk about the definition of immersion. To immerse yourself into a project means to totally surround yourself with the facts, the fiction, the numbers, the smells, the attitude, the long way around, the short cuts, and the people, and the opinions of others. I do not stop until I know everything there is to know about the seller, the property, the neighborhood, the tenants, the furnace, the color paint in the closet, the bank, etc. etc.  I will go at different times of the day, different days of the week. I will walk to the property. I will talk to anyone associated with the property. When I am satisfied, I will know more about that property or project than most people involved in the transaction.

Most of us love real life examples. Let me give you one. Many years ago I stopped at my daughter’s office to pick her up for lunch. She had a new job at an office complex at the south side of town. (At that time I had 23 residential rental properties, two commercial properties, and some land deals.) There was a for sale sign on complex.  I knew the realtor that had it listed and in fact had purchased two other properties through him.

The complex consisted of three buildings and seventy suites. It was a wreck. The building smelled bad, looked bad, and I was told it was 60% occupied with angry tenants. I was told by the broker that the complex was out of foreclosure and owned by the bank. The ask price was $1,100,000.   Three days later I offered the bank $1,000,000. We settled on: $1,050,000 on the following terms:  Due diligence was 45 days. Bank held the note at 6%, with .05 increases every year for five years, and then the loan ballooned. The key to my offer was that there would be no payments or interest for four months after closing.  The bank accepted my offer.  I IMMEDIATELY moved in and immersed myself in the building. I lived with the manager. I talked to every tenant. I met with every contractor that ever worked there. I talked to ex-tenants. I went at night. I came on Sundays.  I made sure that when my due diligence was up that I still wanted to buy the place.

When I went to closing there wasn’t anything that could surprise me about this building. I knew so much more than the owner. You see, by the end of due diligence I knew that the building was more like 75% occupied and would cash flow very well.  The management was so bad it was not collecting all the rents. Tenants were not paying and the bank just assumed occupancy was low based on rent receipts. I also knew that the building, while in bad shape, could be made to shine.  Three years later, the building was 90 % occupied and at 9% cap rate was worth $1,900,000. ( I love this country!)

Immersion Investing is knowledge to me. Knowledge is absolute king. If I do not have the expertise, I will not have the confidence. In negotiating, confidence rules. This is true whether we are talking real estate or automobiles. Immersion investing will get you knowledge, knowledge will make you deals. Deals will make you money.

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