From the Desk of Juan Diaz

Lesson of failure: “No human ever became interesting by not failing. The more you fail and recover, the better you are.”

This isn’t an amusing story but the most pivotal in my career.  Back in 2007 we bought 1772 8th St in Oakland California just 12 minutes from San Francisco. This house was built in 1902. We had purchased the property at a trustee sale. I spent a lot of time in the beginning of my career at trustee sales. We had an office of 6 people. Of those 6 people we had 2 guys Sam and Vincent that were responsible for going out and inspecting properties.

Sam came back to us and reported “Looks like it is remodeled, it has new windows,” that sentence right there was the biggest mistake of my career. Not so much as that sentence, but the fact that I took Sam’s word and assumed it had been remodeled. I was in a hurry and I forgot to stop and question. Always question everything. A house is never remodeled because it has new windows. A house is not an opportunity because the facade looks nice. You need to look under the hood. You need to look in the crawl space and behind the walls. A house is an opportunity if the bones are intact.

Here, we were in a hurry. We were trying to get to the trustee sale, we were buying in mass volumes and we got caught with a problem, a huge problem. The problem was that the house had buckled in the middle considering it was built in 1902. Houses built in 1902 in the Bay Area did not have any of the standards we have today. The damaged drainage had caused the soil to become very soft causing the brick foundation to completely give in. The four joists were essentially sitting on the dirt. You came into the house and the floor was moving beneath your feet.

We brought in a ton of contractors, we brainstormed and no matter how we cut it, the property was doomed to be a loss. We decided to sell it, sold in a week at a complete loss, a couple hundred thousand dollars down the drain. It was not in vain; in the next few weeks, we had tremendous success.

The lesson learned here is to face a problem head on. Don’t let failure consume you. You don’t learn anything in life running away, you have to face fear and be ok with failing because failing is not a bad thing, it is the motivation and fire that catapults you forward. If you spend too much time looking at a closed door, you won’t see the door that has just opened. If we had wasted time dejected and in doubt we would have had a bigger loss. Not only for keeping a problem but for the missed opportunities that were around the corner. The lesson was one of character and additionally, taught me to slow down when acquiring properties. From that moment on we took the time to understand what we were buying. A comprehensive understanding of the numbers is so important. You can often be blinded by the potential profit but fail to accurately estimate the construction cost and account for the unknown.

Our acquisition officers have a huge responsibility, running comps, doing their research, calling realtors to get a temperature of property, going out and inspecting the property (again our team writes about this in our blogs) and most importantly working to come up with a realistic budget and projection. In my career learning to slow down and make realistic, accurate projections and budgets has led me to success. You need to take the time to understand the construction cost and the market.

Golden rule:  Do your research. Choose the people around you wisely. Your circle can either inspire you or bring you down, spend more time on investigating. Check in with your circle, take inventory and make sure you have the right people. Also, do not buy something built in 1902. In the Bay Area we have a lot of old homes so you have to do your due diligence. Make sure the foundation has been replaced, back then they weren’t using rebar, perimeter foundation, strapping and metals, none of that we use today in order to sustain an earthquake. Before you get into this business, if you don’t have a construction background, get one, otherwise you will be in for a rude awakening. I am giving this advice and in no way think I have mastered it yet but am constantly working on slowing down. And lastly, as my grandfather would say: “you are who you hang out with” choose your people wisely.