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“The only real mistake is the one from which we learn nothing.”

— Henry Ford

I have a confession to make.

2023 was a tough year for me.

We had some things go phenomenally well, but also some real challenges.

Multifamily has taken a hit.

Today, I want to be vulnerable.

I’m going to share some defeats and the lessons I learned.

Multifamily in general has been very challenging, particularly for value-add and bridge debt properties.

When facing those challenges, I always come back to is this mantra:

Life is 10% what happens to you and 90% what you do with it.

The best investment you make is in yourself.

It’s in your own education; it’s how you learn.

Mistakes and challenges are an important part of that process.

In fact, growth-minded individuals are proven to perform better in their tasks than those who are stuck in their ways.

According to this study, their growth happens through intelligence and conscious effort.1

So, let’s talk about our challenges and learn from them together!

1. Unexpected Market Shifts

Some unexpected market shifts happened in 2023.

We saw the fastest interest rate increase in over 40 years.

A lot of challenges sprung from that.

Valuations went down.

There are areas in large multifamily down 20% to 30%.

In some areas, it’s over 40%.

If you put 20% down and your property value is down 40%, your equity rate will be negative.

We’ve also seen some operational issues with property managers.

Costs have increased up to 5x, particularly insurance in the Southeast and Florida.

Those are just a handful of the issues we’ve come across.

Markets will shift.

It’s inevitable.

You should always be prepared to face these types of challenges.

Real progress happens when you learn from them.

2. Learning from Challenges

I’ve been a real estate investor for nearly 20 years.

In that time, I invested in many different asset classes.

One of the lessons I learned is to be cautious when going into partnerships.

This is true whether you are a passive investor or a general partner.

I have a theory that you don’t know somebody until you invest in a deal with them.

You don’t know their values or who they are.

Then, when challenges come up, you get to see how they do under pressure.

Are they accusatory?

Are they supportive?

Are they helpful?

It’s important to know these things about people, especially business partners.

In fact, the best traits for a successful partnership, according to this article in Strategic Management Journal are:

·       Commitment

·       Coordination

·       Trust

·       Communication quality

·       Participation

·       Joint problem solving2

At Bronson Equity, we’re very cautious about getting into deal partnerships, even as passive investors.

I also look into new assets regularly.

But I’m also cautious because rates can always rise and pose new challenges.

When these situations come up, I tend to blame other people.

The problem with that is I don’t learn anything.

If I place the blame on someone else, I don’t take responsibility.

I also chose to invest in that asset.

Instead of pointing the finger at someone else, I need to learn so I don’t repeat the same mistakes.

That kind of introspection has been very valuable.

I’ve realized recently that I often need to go through some situations a few times to learn my lesson.

One of those lessons was about bridge deals in multifamily.

My cousin, has a large multifamily portfolio.

He has only ever done fixed-rate debt in the last 30 years.

That strategy has served him very well; he hasn’t had a lot of setbacks.

This is due to him being more conservative in his investments and being more cautious to expand.

Wes’s experience has made me want to only do fixed-rate deals going forward.

Specifically, I want to use them in multifamily.

In general, they’re a much safer route for those deals.

3. Moving Forward

How do you move forward from there?

I think right now is a great time for commercial real estate, particularly multifamily.

You should be greedy when others are fearful.

There’s a lot of fear out in the market.

If the valuation is down 20% to 40%, it’s a great time to buy.

Rates can be adjusted later.

We can change them when there’s talk of rates coming down.

You can’t change the buying price.

I think in the next couple of years, people will look back and say right now was a great time to buy.

We’re looking at cash-flowing assets: ATM machines, carwashes, businesses, oil and gas.

In real estate, there hasn’t been a lot of cash flow recently.

That’s why we’re so excited about these other assets.

You should have a diverse portfolio for this reason.

But don’t invest in too many things!

Warren Buffett says wide diversification is foolish if you don’t know what you’re doing.

If you do know what you’re doing, you should still be wary.

Diversifying will limit your losses, but it will also limit your gains.

Now I want to hear from you!

What are some investments that didn’t go well for you in 2023 or 2022?

Let us know in the comments.

Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.

If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.

Check out my bestselling book on Amazon!

Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.

Works Cited

1.     J. Moser, Hans S. Schroder, C. Heeter, Tim P. Moran and Yu-Hao Lee. “Mind Your Errors.” Psychological Science, 22 (2011): 1484 – 1489. https://doi.org/10.1177/0956797611419520.

2.     Jakki J. Mohr and Robert E. Spekman. “Characteristics of partnership success: Partnership attributes, communication behavior, and conflict resolution techniques.” Southern Medical Journal, 15 (1994): 135-152. https://doi.org/10.1002/SMJ.4250150205

Bronson Hill

Bronson used to work as a consultant for a medical device company but switched to investing in apartment buildings to make his money work for him. He started with a single rental property that made good money and, after some advice from a family member, moved into bigger real estate projects. Now, he's all about helping others get into this kind of investment to earn money without having to work all the time. When he's not dealing with investments, Bronson loves to travel, write songs, stay active, and help fight modern slavery through his work with Dressember. He believes in working smarter, not harder, and wants to share how that's possible with everyone.

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