Simplify The Work You Choose
Albert Einstein said “Make things as simple as possible, but no simpler.”
It’s human nature to be drawn to the complex: complicated work makes us feel smarter and more valuable. But if you analyze efficient and effective people, you will find they consistently simplify tasks.
We can choose to complicate or simplify projects regardless of profession. Consider the following comparison of a complex and simple project.
Example 1 – Large Commercial Mixed-Use Project
- Regulatory agencies – A 20-acre parcel spanning two counties with separate comprehensive plans and separate sets of zoning codes and requirements for density, parking, traffic, water, and sewer
- Preliminary work - Raw land with no preliminary work or analysis
- Property type – Mix of retail and office
- Timeline – Five years to completion
- Potential Profit – $22M
Example 2 – Straightforward Mini-Storage Project
- Regulatory agency – The parcel is in one county with one governing entity
- Preliminary work – The site is already entitled and “shovel ready,” meaning you are ready to build
- Property type – 561 unit Mini-Storage
- Timeline – Three years to completion
- Potential Profit – $4M
It would be a mistake to choose one of the above projects based solely on potential profit. In the first example, the project having a higher profit potential is just one component to consider. Things that complicate the deal are:
- Having to analyze two different property types (retail & office)
- Much larger financing exposure
- Beginning with raw land and taking on regulatory risk in two counties
- Require leasing agents that specialize in both retail and office leases
The second example is a much more streamlined choice:
- High unit count provides diversification from market risk
- Tenant leases are shorter and less complicated
- The project is already approved by the agencies
- Excellent property management experts manage this property type
- Construction is a fraction of what a larger mixed use project would cost
Doesn’t the second project seem less overwhelming?
Avoid Investments That Can’t be Simplified
If the project seems too complicated, it probably is. If there are too many questions that you can’t answer, move on to what’s next. Remember, there is an opportunity cost to every project. If you work on a project that takes 15 years to complete, what else are you missing? Warren Buffet says, “The difference between a good business and a bad one is that a good business throws up one easy decision after another and a bad gives you horrible choices.” The same applies to commercial real estate projects. If you begin feeling the work is like climbing Everest without oxygen, then come down off the mountain.
It Should be Simple Enough to Be Passive
With anything, you must plan for the worst case scenario. In the world of commercial real estate, if you were planning to stabilize a project and sell it, then the worst case scenario would be that the market turns and it operates as a buy and hold property. So, at the very beginning of your analysis, you must think about exit strategies. If you had to choose a backup option, could you still make it a passive investment? Remember, you are protecting your time here.
If you buy a restaurant or an auto repair shop and things don’t work out as planned, those are very difficult businesses to make passive. On the flip side, if you have a mini-storage complex with a solid property management company to run it, then you are leveraging your time. All you have to do is know the numbers (go over them with your CPA) and manage the property managers. In one of these you will be working 60+ hours a week and be very active in the business, and in the other you will work a few hours a month because all of your time is spent at the beginning of the project, not the end.
All projects – whether simple or complicated – can eventually be brought to a successful close. The question is: at what cost? Why not choose simplicity and win every time?