23 Lessons Learned from 23 Years of Investing in Real Estate
A weekly publication on investing in real estate
23 years ago I made my first investment into real estate. It was in a hotel that my friend was buying. It was both exciting and scary. Although I understood concepts like cap rate and IRR, I had no real sense of my goals other than “to make money”.
Since then, I have personally made 59 additional investments into real estate. They have varied in size and scope:
Amount per deal: $5K to $200K+.
General partner (GP) vs limited partner (LP): both. [Note: A GP puts the deal together and runs the day to day. An LP is more of a passive partner.]
Individual deal vs a fund: both.
Asset Type: industrial, apartments, office, retail, and hotels.
Target Hold Period: 1-3 years all the way to “hold forever”.
Loan to Value: 0% to 80%+.
Risk Profile: value add all the way to core (ie high to low risk).
Goal: long term income, shorter term equity multiples, and many deals in between.
Some deals have gone very well. For others I have lost some of my investment.
Here are the key lessons I have learned so far. Use or modify the ones you want. Discard the rest. In the weeks and months to come, I will dive deeper into many of these topics in individual newsletters. My goal is to share information I wish I knew when I got started as a real estate investor.
THE FUNDAMENTALS
#1 - Investing in real estate is an excellent (and tax efficient) way to (a) provide passive income aka mailbox money and/or (b) grow your net worth. Seeing money come into your bank account on a regular basis from investments you have made feels incredible. Once you have a multitude of individual investments, “chunks” of money come in fairly regularly from refinances and sales.
#2 - Being a real estate investor has given me a sense of engagement and agency that I have been unable to find in stock investing. Even as an LP, I have been able to craft a portfolio that meets my goals.
#3 - Real estate investing is not a quick path to wealth. I didn't make my first investment until I was 30. It takes time. Patience is a super power.
#4 - The power of compounding is magical. This applies to all types of investing and almost everything else in life, including learning. Stay consistent. Trust the process. The money will come. Just don’t put yourself in a situation where you may lose all your money and knock yourself “out of the game”.
THE NUMBERS
#5 - The math you learned in Algebra I is effectively all you need. Understand the concept of return on cost (aka cap rate): NOI / Price. I will be doing a newsletter on this subject very soon.
#6 - There are more tax advantages than I originally thought (depreciation, long-term capital gains, refinance proceeds, 1031 exchanges, step up in basis).
#7 - It is easy to distinguish the good deals from the bad. The “home runs” from the just “OK” deals. But you can only do this after the deal is done. As much as you can try to only pick the winners, I have found this to be nearly impossible. Of the deals I have done that have come full cycle (ie been sold already), roughly 25% have been home runs, 40% have been good, and 35% I have lost around 20% of my equity. Going in to these deals at time of acquisition, I thought they would all be good or great deals. There are just too many things outside your control. Here’s the important part: This batting average is normal and acceptable - you don’t need to hit 100% to build wealth and achieve your goals.
ASSET TYPES & DEAL STRUCTURE
#8 - Asset types have different characteristics. Multifamily tends to have the most consistent cash flow. Office is a “capital pig”…tenant and building improvements can be huge making it very challenging to achieve cash flow. I will write a more extensive newsletter on my take on each of the asset classes.
#9 - Debt can be a wonderful tool and your worst enemy. There is a reason they call it “leverage”. It can turn a good deal into a great deal and a bad deal into a train wreck.
#10 - There is a place for both GP and LP investing. I have done both. LP investing will take little to none of your time. The cost you pay is in fees and promote. GP investing will take a ton of your time (running the property, working with investors), but the upside can be significant.
MINDSET & STRATEGY
#11 - Be clear on your goals. Many people want to invest in real estate, but only some of these people know what they want: recurring cash flow vs quick flip to double (or more) your equity vs something in between. Understand the goals of the GP and make sure they align with your goals. If you want long term recurring cash flow but the GP wants to sell the property in two years, that may not be the right fit for you - even if it is a “great” deal.
#12 - Your goals may change over time. For the first 15 years, I was focused on turning $1 into $2 as fast as possible. I didn’t have much equity, so I needed to grow that equity. Once I did, then I focused more on investing for passive, tax efficient income in “hold forever” assets to reduce my dependence on my salary.
#13 - Be emotionally (and financially) OK losing money on a deal. Investments are unpredictable. Real estate goes through cycles. The unexpected happens. Being a real estate investor requires mental fortitude (true for most types of investments). Fear is real, especially if it is your first deal and feels like a lot of money to you. Use this fear as a way to develop better self awareness and an understanding of the types of investments that are the right fit for you - not only your financial goals but also for your ability to sleep well at night. Don’t ignore the importance of peace of mind.
#14 - You have to get comfortable with a lack of liquidity. If you own public stock, you can convert it to cash in 24 hours. Not true for real estate. The lack of liquidity can be a real downside. Need the money to pay for your kids college now? Too bad. You have to wait. But…there is a positive side to the lack of liquidity - you can’t panic and sell at the market bottom. Your only choice is typically to ride it out.
#15 - Never do a deal with someone you don’t trust, no matter how good the deal looks. If you don’t know them, ask around and find someone you trust who can vouch for them. See lesson #14 regarding liquidity - there is no quick exit.
PRACTICAL REALITIES
#16 - You will likely need to extend your tax returns. Unless you are buying deals yourself without a partner, you will be issued a “K-1” reflecting your percentage of ownership of the deal. These take a lot of time to prepare and often show up at or after the April 15th tax deadline.
#17 - Budget more money for paying your tax accountant. Long gone are the days of my tax return consisting only of a W-2 (salary) and a 1099 statement (interest, stocks). I have 25 active investments that each issue a K-1. It is logistically complicated for both me and my tax accountant. Want to keep your tax return simple? Stick to public stocks.
SHOULD I QUIT MY DAY JOB?
#18 - It takes a LOT of money to replace W-2 income. Let’s say you make a salary plus bonus of $100,000 per year before tax. If you want to replace this with a real estate investment that yields 5% cash on cash, you would need $2,000,000 ($2M x 5% = $100K). Even a 10% cash on cash deal would require a $1,000,000 investment. The path that has worked for me is to find a place where I can meaningfully contribute AND earn a salary AND get my healthcare paid for AND invest on the GP side AND invest outside of the company as an LP. It would have been much harder to have made the investments I made without a salary/bonus. My family and I would have had to make more financial sacrifices along the way.
#19 - Working as part of a team at a company can be a ton of fun and a fantastic place to learn. You get much more exposure than you would on your own. Your learning curve is measured more by deals per time than almost anything else. You want this ratio to be high. As I read somewhere, think of a salary as a trust fund that pays you to learn.
#20 - Understand your own skills, interests, and weaknesses. Put yourself in a situation that leverages your skills and interests. Build your own team around your weaknesses and areas of little interest.
#21 - No one will (nor should) pay as much attention to your money as you will. Talk to lawyers, consultants, tax advisor, and others but know that you should be the one who makes the final decision for your money.
THE ULTIMATE GOAL
#22 - Size matters more than percentages. A 10% return on $10,000 is $1,000 per year. A 5% return on $500,000 is $25,000. It is easy to get caught up in percentages. I have found it is more important to pay attention to the total dollars.
#23 - Owning an asset without a partner and debt-free is the ultimate form of freedom. You call the shots. Combine this with having enough passive income to cover your expenses and you have achieved financial independence. This doesn’t mean you have to retire to play golf. It just means that you call the shots in how you spend your only non-renewable resource: your time. Life is short. Being able to do what you want to do when you want to do it is the ultimate freedom.
Professor Bateman
Next week: I will explain cap rates and return on cost - the foundational math every investor needs to understand.
What other topics would you like me to cover? Email me at bateman@creprofessor.org with the subject header “Newsletter Idea”.
About Me: I'm a real estate investor, educator, and executive with a passion for making complex concepts clear. Over 20+ years, I've personally invested in 50+ commercial real estate deals across industrial, multifamily, office, retail, and hotel properties. Professionally, I've managed $7+ billion in assets and been actively involved in $10+ billion in acquisitions and dispositions as COO of a national industrial company. I teach in the Master of Real Estate program at University of San Diego and lead seminars on personal real estate investing.
Disclaimer: The insights shared here are for educational purposes only and reflect my personal experience—not financial, legal, or tax advice. Real estate investing carries inherent risks, and every situation is unique. Always consult with your own qualified advisors before making investment decisions.
Thank you for sharing professor Bateman🙏