What We Can Learn From One Of The Best Real Estate Investors in the World

If you’re in real estate, I’m hoping you’ve heard of Sam Zell. His net worth is estimated to be over $5 billion and he built a significant portion of this wealth as a real estate investor. There is a lot we can learn from studying him!

Zell actually got his start in college. He offered to manage a student rental property for a free apartment. He quickly excelled at property management and ended up starting a property management company with friends. At the time, they primarily managed student rental properties. Zell used his income from property management as a down payment on his first rental property.

His first property was a 3 unit apartment building marketed to college students. He painted the units, installed new furniture and doubled the rent. Next he bought a large single family home near his small apartment building. He converted the single-family home into a 4 unit apartment building and rented these units to college students. This increased his cashflow significantly. These two properties and his property management business gave him the income to lock up an entire block of homes in the same area. Instead of developing the site himself, he sold the contracts to a developer who ended up building a larger apartment building.

This taught Zell the importance of scale. Each additional property he locked up on the block increased the value of the entire opportunity. He learned to think big and be resourceful. He went on to develop a few large properties, but realized the risk was too high: cost overruns, city problems, bank issues, evaporating demand, etc. Instead he looked for under valued properties and properties that weren’t being run properly in high demand areas. He learned to invest into demand and used this strategy countless times in his journey.

More importantly, he would walk away from numerous situations when he saw demand declining. In his biography titled, “Am I Being Too Subtle” he wrote:

“By the early 1970s, my investment thesis, focusing on high growth, small cities, had run its course. The investment community at large had caught on to the idea, and these cities were drawing new competing capital for assets, thereby lowering the cap rates…. By 1973, I was starting to realize that the supply-and-demand equilibrium of commercial real estate was getting way out of whack. There was simply too much supply. Deep discounts on space, and therefore rents, were inevitable, and we were going to suffer along with everyone else. The market was starting to show the impact of a significant amount of new money that had come into the industry earlier that decade.”

He decided to reverse course and stopped buying assets. Instead he began accumulating capital and prepared for the greatest buying opportunity of his career. He realized he could make a fortune buying distressed real estate when the market crashed and this is exactly what he did.

However, when he decided to stop buying assets, everyone thought he was crazy. Occupancy rates at the time were over 90%. Companies were hiring. He didn’t listen and “stepped aside while the music was still playing. It was the biggest risk I had taken to date in my career. What would my investors think If I bowed out and the end didn’t come?” Did you catch that? Not buying assets at the top of the market was the biggest risk he had taken in his career.

To prepare for the upcoming crash, he started a new commercial property management division at his company. He realized that if the market did crash he would be taking on a large number of properties. The success of these properties would be dependent upon management. To ensure management success, he wanted it in-house.

Well, Zell was right. Less than a year later, the market crashed.

He went on a massive buying spree acquiring dozens of properties by restructuring and assuming non-recourse debt. His buying criteria was three-fold. The property must be purchased below replacement cost. The properties had to be good-quality and located in good areas. The properties also had to be structurally sound to prevent large costly repairs. Properties with deferred maintenance were fine because these issues could typically be handled inexpensively.

After the crash, he ended up acquiring $4 billion of apartments, office buildings, shopping centers, hotels and more. All of these properties were then managed by his property management company. His firm ended the decade with an enormous, diverse portfolio of very profitable properties.

He shares many great stories in his biography and it’s definitely worth a read!

Here are a few of the lessons I extracted from my studies:

1. “I remember this event so clearly because it was at this point in my career that I fully understood the value of tenacity. I just had to assume there was a way through ANY obstacle, and then I’d find it. This is perhaps my most fundamental principle of entrepreneurialism, and to success in general.”

2. Buying when everyone else is selling and selling when everyone else is buying requires confidence, optimism, conviction, and a lot of courage.

3. Look for investment opportunities with limited competition. Without competition, you can set the price AND create the market. He wrote: “Frankly, there’s no substitute for limited competition. You can be a genius, but if there’s a lot of competition, it won’t matter. I’ve spent my career trying to avoid competitions destructive consequences.” This lesson obviously applies to business, too.

4. He setup his companies so that everyone participated in the results of their investments. Everyone helped each other and this is because they won and lost together. Plus, everyone was competitive with each other, which improved the results of the entire organization.

5. “The basics of business are straightforward. It’s largely about risk. If you’ve got a big downside and a small upside, run the other way. If you’ve got a big upside and a small downside, do the deal. Always make sure you’re getting paid for the risk you take and NEVER risk what you cannot afford to lose.” He also wrote that he reads risk for a living. He is very focused on understanding the downside.

6. Keep things simple. An investment opportunity requiring four steps instead of one means there are three additional opportunities to fail.

7. “Opportunity is very often embedded in the imbalance between supply and demand. It could be rising demand against a flat or diminishing supply, or flat demand against a shrinking supply.”

8. “I like to invest below replacement cost, thereby creating a competitive advantage.”

9. When asked what he does, Zell answers…“I’m a professional opportunist!” He believes that he is at his best when the scenario around him is at its worst.

10. You cannot allow your emotions to impact your stability. You have to have strategies to keep calm and thinking accurately. To help with bad situations, Zell would make lists and would focus on getting each item tackled without getting overwhelmed with the entire work load. By focusing on one step at a time, they accomplished what they needed to and stayed on track during challenging times.

11. His focus during those challenging times was to: create liquidity by monetizing assets, raising funds for future opportunities, and doing great deals.

I’ll wrap this up with my favorite quote from the first chapter of his book:

My life is about testing my limits – and having fun in the process. I believe that 1+1 can equal 3. Or 4. Or 6. The fun and the gratification are in figuring out how. For me, business is not a battle to be waged – it’s a puzzle to be solved. And the end goal isn’t to accumulate a lot of toys and then kick back. I’ve never understand the traditionally strict boundary between work and fun.  If I’m being intellectually challenged, if I’m doing things I’ve never done before, If I’m using my creativity and resources to solve problems, if I’m constantly learning – that is fun!”

Zell is really a very smart investor who extracted opportunity when others wouldn’t countless times in his career.

He is a true renegade and always operates by his own set of rules.

NOTE: I ended up being so inspired by Sam Zell that I wrote a 15-page content report about him and how he built his wealth. This report is part of my Marketing Pipeline membership where I provide a complete new marketing campaign each month. Each monthly campaign includes an 8 to 12 page content report and a done-for-you lead conversion video designed to automatically convert prospects into clients. In addition to the content report and video, I also provide dozens of lead generation and lead conversion tools you can use to generate and convert high quality leads for your business.  You can test-drive my membership and have access to the entire Sam Zell marketing campaign and content report for just $20 here!

BONUS: When you test-drive my Marketing Pipeline membership with the Sam Zell campaign, you’ll also receive two special bonuses for free: My How to Sell Large Investment Properties Over the Phone Course where I show you exactly how to sell larger investment properties without any showings – all over the phone. You’ll also receive my course on How to Start and Automate Property Management for Attractive Recurring Monthly Income. You’ll get both of these courses and the Zell marketing campaign for just $20 here.

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