By Dan Tomlin
Tomlin Investments
[This is a condensed article based on a speech presented by Mr. Tomlin to the Wharton School of Business in Philadelphia].
Many members of the real estate industry are into the excitement and romance of making the big deal. This “deal-making” mentality is celebrated and practiced by some industry giants. This attitude, however, has some innate flaws that discredit the real estate industry and can embitter a community.
After 37 years in a real estate investor, I find that a “deal” is just the opposite of investment. Successful real estate investing requires a sustained, thoughtful approach. As a real estate broker you place yourself in a relationship of trust with your investors and with the community.
Donald Trump’s book, The Art of the Deal, glorifies this deal-making mentality – just the opposite of my own philosophy, which I describe as “no dealing, no stealing and no squealing.”
A deal, in today’s language, is a short-term view, the one shot “take the money and move” idea. The deal-maker does not see that he has an ongoing responsibility toward investors. He doesn’t care what happens with the property. He’s made his bundle, and he’s on his way.
The deal-maker will down the other party using any leverage he can. But some of those “really great deals” will fall apart. Then everyone else squeals – the investors who are left holding the bag and the community with the empty project or ruined land.
Investing is not a one-shot deal. To serve the same people over and over you must keep your relationship with investors and others in good repair.
Next, you don’t steal anything. A steal always turns out to cost someone. And in the long run, you pay a price, too. In our company we always want all sides to be happy. We are known in the marketplace as tough but fair.
As a real estate investor in predevelopment land, I have worked through five real estate cycles in Dallas. In the early 70’s about 15 people were dealing with land. A few years later, at the height of one of those cycles, there were probably about 1,500.
Where did they come from? Who knows? What did they know about land? Not much! Did they care? No. They grabbed their commissions and went on to the next deal.
Where are they now? Beats me. Did they care about their clients? What do you think?
Our predevelopment land investment strategy calls for a four-step process: thorough research, careful acquisition, aggressive management, and timed disposition of our investments.
Donald Trump says, “Deal-making is an ability you are born with… it’s about instinct. You can take the smartest kinds at Wharton, the one who gets straight A’s and has 170 IQ, and if he doesn’t have the instincts, he’ll be a successful entrepreneur.”
I believe the successful entrepreneur or real estate broker develops a thorough research program, has strict criteria and the discipline not to be diverted by a quick deal. Most “instincts” can be developed with hard work, experience, and determination.
Research is time-consuming. There’s no way to take short cuts. Research means gathering data: job information, construction starts, utility systems, zoning patterns, traffic corridors, schools, shopping, employment centers, governmental attitudes. On each property you look at road frontage, zoning, utilities, current and historical land values, flood, soils, and topography. Absorption information and the activities of developers are all part of research process.
The second step is careful acquisition. Work to minimize risk first,
then strive to maximize return. When you examine how real estate investments
have worked, it’s usually the other way around. We compete with stocks
and other investments for investors’ dollars, and I have to show them that they
have less risk plus higher returns.
Management is the next strategy. We develop goals, objectives and a timetable for each property prior to acquisition. This is when you try to improve zoning, bring utilities and make other physical improvements. This calls for frequent and constant dealings with local government entities. The better your relationship with these public entities and the community, the more successful you will be. It’s easy to assume that government bodies have complete information and make informed decisions after thoughtful deliberation. Often nothing could be further from the truth!
Local county commissioners, city officials and planning staffs change often and sometimes lack the full background. They are always under pressure, and they usually have limited resources. Share your idea with them, and you will be a trusted ally and an important resource in the progressive and orderly development of a community. Good citizenship is good business.
Disposition is actually begins with research. We do not buy property until we have a plan for selling it. Too many people buy a property because it is a “hot deal” without having any idea how they are going to sell it.
All businesses need a philosophy. “Making money” is not a philosophy. Remember the client always comes first. Think through what you believe and why, how you will behave toward those with whom you have a relationship of trust and for those whom you have a responsibility (your employees, colleagues, investors, family and community and God). Without this philosophy and a set of high standards, you will just be reacting to events of the moment. This is why many business people get into trouble. If you focus only on today, only what is “hot”, you lose sight of these long term goals. Those who only look to today take short cuts and pay the price later.
Doing the right thing is also good for business.
Dan Tomlin
Jr. is the managing partner of Tomlin
Investments, a North Texas based real estate development firm. and
served a six-year appointment on the board of the Real Estate center at
the Wharton School of Business.
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Copyright 2007 Dan Tomlin