Have you been through a recession or unpredictable market change and economic environment? In this episode, Steven talks about the importance of understanding the past, understanding the experiences of some of the operators that you're investing with, and why having a track record for 20 years isn't always necessary.
Have you been through a recession or unpredictable market change and economic environment? In this episode, Steven talks about the importance of understanding the past, understanding the experiences of some of the operators that you're investing with, and why having a track record for 20 years isn't always necessary.
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Steven Pesavento 00:00
Welcome back to another episode of the Investor Mindset podcast. I'm your host, Steven Pesavento. And each week, we share mindset tips and real estate investing strategies to help you take your business and your investing portfolio to a whole nother level. And today I'm going to talk about the importance of understanding the past, of understanding the experiences of some of the operators that you're investing with. And why having a track record for 20 years or going through a pastor session isn't always necessary. We're talking about that in more in this episode, so let's get right to it.
Steven Pesavento 00:41
This is the Investor Mindset podcast and I'm Steven Pesavento. For as long as I can remember, I've been obsessed with understanding how we can think better, how we can be better, and how we can do better. And each episode we explore lessons on motivation and mindset for the most successful real estate investors and entrepreneurs in the nation.
Steven Pesavento 01:09
If you're just joining us, I remind you hit that subscribe button. And if you've been listening for any amount of time, we love seeing all these reviews that come in go write a written review. We read every single one of them. And they make the biggest difference because they help us reach more people with this message, be able to share the investor mindset be able to inspire and incentivize people to go and take action to create more freedom, flexibility and fun in their life. So we're gonna get right into this episode. So today's episode is brought to you by Von Finch capital. If you're interested in investing in the same type of private placement real estate opportunities that some of the richest 1% some of the richest point 000 1% invest in that I encourage you to head over to vonfinch.com/network to get involved in our investor network to have an opportunity to invest alongside ultra rich investors, people have a ton of experience, picking the right kind of opportunities and be able to invest with great operators in phenomenal markets. Because that is what we do at Von Finch we go out we find phenomenal properties in some of the best markets, we end up putting together the ideal management teams locally on the ground, and we pull all of the capital together so that together, we can create phenomenal returns for you. And for everyone who's involved. So head over to vonfinch.com/network to learn about getting involved today.
Steven Pesavento 02:37
So as we dive in, one of the important questions that ends up coming up in many of the intro calls or due diligence calls that we have with some of our sophisticated investors is, have you been through the 2008? Recession? Where are you operating and owning properties during the 2008 recession? And the answer to that question is Vaughn Finch was not bond finish was started in 2016. However, I think the intent of that question is even more important. The intent is have you been through a difficult experience? Have you been through a difficult time? Have you been through a change in an economic environment? Have you been through a moment where things did not go as planned? And it's important to understand this when you're interviewing, and you're working with the sponsors that you're going to be making these investments in? So what do you want to look for, you want to look for an operator, a team that has been through market changes where the market dynamics shifted differently than what was expected in the moment. There's been many of those experiences that happened since 2008. It's not a situation where you needed to have been investing over 11 or 12 years ago, what's most important is that the operators that you're working with have gone through those experiences, that they've navigated them well, and that they've been able to take those lessons and bring them forward.
Steven Pesavento 04:02
And here's an example a little story about exactly how Von Finch has done that exactly what I did when I was first getting started in real estate way back in the day. In the mid 20 2015 2016, one of my first business partners, phenomenal developer had a lot of experience in the area. And I've always been a big believer of learning from other people's experience. And I went in with the intent to interview this person to understand what was it like going through a major recession? What was it like when properties were selling, extremely slow, where prices were dropping, where people were chasing the price of property down, and frankly, where the market crashed? Well, this partner of mine was able to share his experience he had developed hundreds of homes had eventually lost 10s of millions of dollars, but because of some decisions he made, he was able to prevent himself from losing at all. And part of those decisions ended up leading to some strategies that we've used that Von Finch to put us in a In a phenomenal position to preserve capital. But in that experience through this opportunity, I was able to emotionally connect to that experience, I was able to feel those same emotions as he had felt them with the same level of intensity with the same level of fear with the same level of emotion that ends up being very useful to move you in the future. That is what you want to be connected with. It's not necessarily a timing issue, it's did the person go through experience, or were they able to learn from someone else's experience. So fast forward in 2018, when interest rates went up, for the very first time in a very long time, in November of 2018, we had between seven to 12, maybe even 14 houses at the time that we had on the market, or in ownership. And some of these were very large, and many of them had interest that was due on a monthly basis, that was significant, over $60,000 a month in interest charges. And our business was over $100,000 a month, in operating. So we had a very high overhead, when property stops selling and you're relying on those closes to continue to operate your business. And people stopped buying those properties, then you're in a position where things could really fall apart. And so in that moment, I went to my partner, because I said to myself, This feels like another one of those Ray Dalio talks about this. And it's about being able to reconnect to those past experiences, being able to study history and apply it moving forward. And why it's so important to be able to connect to that past experiences. Because as a result of doing so, we were able to identify that the market had stopped, nothing was moving. And the only option in that position was to wait and see, to drop the price, or to sit back and be in fear. And in that position. I'm not a big believer in sitting back and being in fear. So what we decided to do was preserve capital.
Steven Pesavento 07:03
One of the things that was learned back in 2008 was that people had chased the market down, they had market moved down 5%, they move their price down 5% Had they move the price down 7%, or even six, the houses would have sold. But instead they chased it all the way down until there was no profit left. And so in this situation, what we did was, we decided to cut the prices, we sold these properties, we gave up maybe five to 10% of the potential profit on those assets, and we got them off our books. What did that do for us, it put us in a cash position, it reduced our risk and have the market continued on that trajectory for many, many months, we would have been in a very, very smart position to make that move in that in that moment. Now, granted, after about three months, the market turned right back on everyone remember, the beginning of the year of 2019 things were back up and running. So in that situation, we gave up a little bit of our personal profit in order to put ourselves in a more conservative position. That is what you want to hear from an operator, you want to understand what have they done in the past. Now in 2020, during the COVID pandemic, we ended up doing the exact same thing, we had a big shift, there is a large belief that things were not going to get better. And so what the decision that I made in that position was to sell off some assets to go into a cash position. Because when you have the ability to pay your debts, you can never lose in real estate, because you're in a position to be able to wait out any kind of challenge or anything that comes up. So with that said, sold off some assets, we can now look back and see that those assets are worth much more. But the most important thing is preservation of capital and then create a phenomenal return. As a result with that money, we're able to invest it into other assets after selling and create great returns. But how do we hold on to those we'd be in a really good position, but had the market not gone in that direction. We would feel like the smartest people in the room. So one of the beliefs at Von Finch is being conservative underwriting conservative, looking at things through the lens of what is possible, but also building enough buffer so that we are in a position to be able to protect our investors and protect those potential returns that we're going to be looking for.
Steven Pesavento 09:11
So when it comes down to answering the question, have you been through recession? The answer is absolutely we have. We've been through a few market changes. We haven't been through 2008. And I don't personally think it's that important. Let me know what you think I'd love to hear in the comments or shoot me a DM on your favorite social media at Steven Pesavento. And let me know what you think if you think it's absolutely important, I'd love to hear from you. And thanks for listening. And as a reminder, if you're interested in getting involved in the same type of deals that we do, head over to vonfinch.com/network. We'd love to get to know you and get you involved. Take care. We'll see you on the next episode.
Steven Pesavento 09:52
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