Warren Buffett and Mark Cuban focused on one thing and made their fortunes in one area of expertise. Warren’s expertise was in his company Berkshire Hathaway and Mark’s was in software. I’m going to humbly group myself with them because my area of expertise is investing in commercial real estate. This approach differs from the average investor who tries to diversify by creating multiple streams of income and building on them. This is what they call diversification, and they never become an expert in anything. They dabble in different things and try to grow their income that way. Let me explain why diversification is investor ignorance…
Focused Investing Produces Exceptional Results
Mark Cuban and Warren Buffet are famous because they produce exceptional results with their investments. You may be reading this blog because of my success with commercial real estate. When we concentrate on one thing, we become experts in a particular area producing exceptional results.
In contrast, the average investor wants to have various streams of income and it leads to frustration because there is no discipline. I can identify with this. I had too many things on my plate in the first few years after leaving my corporate job to do commercial real estate. It was discouraging because I wasn’t an expert in any area and I couldn’t get anything done. It wasn’t producing the results I wanted and I wasn’t accomplishing my goals. Now that I am disciplined and focused like Mark Cuban and Warren Buffet, I can produce exceptional results. This strategy for investing is summed up with this acronym for FOCUS:
Follow One Course Until Successful
Focused Investing Produces the Wealth to Diversify
Since we are highly focused and successful in an area of expertise, when other opportunities appear, we invest in them. That is called diversification. We were able to cash in on these opportunities because our focused investing produces excess cashflow and capital. I anticipated these opportunities and was able to invest in other people and companies, syndications, and other specialized funds because I had the money and capital built up.
In comparison, the average investor who isn’t focused and diversifies their investments in the early stages can’t take advantage of any opportunities that arise because they have no excess cashflow. They don’t have the equity built up to profit from these opportunities because they’re spread too thin. Having an area of expertise and being focused in the beginning provides the opportunity for diversification later.
Focused Investing Empowers You to Build a Team
Now that we have been successful in our area of expertise and been able to diversify by taking advantage of investment opportunities, we need to build a team to manage everything. Building a team creates momentum and it’s amazing the leverage that can be gained in commercial real estate by assembling the right team. That’s what we teach our students, gather the right team and have things build upon each other. The average investor struggles to do everything themselves because they don’t have a team.
Do you now see the difference between the average investor and Mark Cuban, Warren Buffet and myself? We are increasing in capital and the typical investor is still struggling to get results. Which one do you identify with?
Tips on How to Diversify Within Commercial Real Estate:
Choose Commercial Real Estate
I know no other asset type that can create wealth like commercial real estate.
- Study it like crazy.
- Focus on making money. The properties will start to produce excess cashflow and equity buildup that will allow you to diversify to other things.
- Start small. Starting with a $10 million property is too risky. You can make money by starting small and then grow and make more money.
Focus on These Types of Commercial Property
- Cash flowing properties; don’t speculate, everything is conservative, and concentrate on the statistics.
- Favorable demographics; for example, the employment rate in the city. You must have jobs where you invest. If there are no jobs, then there are no tenants.
- Deal upside; this is where we increase the NOI in a property, through rent increases, by charging back utilities, redoing the leases, or reducing expenses. When NOI goes up, so does the property value.
- Only invest in B and C class properties; A class is too expensive and D class is too risky.
- Find motivated sellers; this is vital and it’s called lead generation and that is what we are good at.
Your Time on Earth is Limited
This is from me to you personally. You have a limited time on earth, especially if you’re in your late 30’s or your 40’s and upward. You don’t have energy or time to become an expert in four different things. It makes sense for you to have an area of expertise and be focused in the beginning, building equity and creating cash flow, and then diversify. That’s what Warren Buffett does, that’s what Mark Cuban does, and that’s what I do.
