EVERY CRISIS IS AN OPPORTUNITY

There is a life principle that I have found to be true and helpful. It is probably not one you have heard before. 

All crises are opportunities.

I learned this lesson the hard way. 

Just to avoid confusion- crises is the plural version of the word crisis. 

I’m going to tell you a story from my life in hopes to teach you this principle and show you how to apply it in your life.

I wanted to get out of the daily grind of the real estate rental business. Real estate investing had been a very good method to build wealth but it can be a trap requiring around the clock, 365 days a year availability. I remember one five-degree Christmas Eve night spent at a building with no heat. I was there until the boiler was fixed early Christmas morning. There had to be another way. After fifteen years of actively managing my rental business I found a way out. There are large properties which are marketed to real estate investors as a way to continue to own real estate, not have a large capital gains event, and make just as much money while doing none of the work. Me and twenty-nine others invested large amounts of cash to purchase a gorgeous gated property with a swimming pool, fitness center, club house, and fully staffed with management and maintenance persons. For me and my new co-owners this was the way out we had dreamed of. The man, who I will call Lester, we purchased it from would then rent the entire property from us with the promise that we would make 7% annually in cash payments direct deposited into our accounts along with receiving appreciation for a total conservatively projected return on investment of 13% per year. Here is how is was to work. Lester would rent the entire property from us and then rent the apartments out to tenants. He would pay all of the bills including rent to us owners and then keep what was left over. Lester played many roles. He purchased the property, obtained financing, marketed it to investors, created a management company, rented the property out to tenants, signed a master lease with us the investors, and he retained 10% of the property as his own. Everything played out as planned until September of 2009. In 2009 a couple of crises developed. The first crisis was economic. Vacancy went up a bit, rent rates stagnated and expenses were higher than projected. The second crisis was that many of the buildings developed a costly structural defect. I became aware of these crises on a conference call where Lester said he was no longer going to pay rent because there just wasn’t enough money and he told us of the structural defect. His contract with us obligated him to take care of the structural issue but he informed us that resolving it would take too much of his staff’s time which would cost a lot so he wasn’t going to pursue correcting the issue. The owners responded with questions and statements about how and when the situations could be fixed so that rent could resume being paid and the structural defect repaired in a simple manner.

This is the setup to the story so let me summarize it with a little bit of hindsight inserted.

1. Life was going along blissfully
2. Crises occurred
3. There were two responses to the crises
   1. The owners’ response was to desire life to get back to normal as quickly as possible.
   1. Lester’s response was to shirk his contractual obligations.

Doesn’t this sound so familiar in some area of your life? Something bad happens and you rely on someone else to act responsibly to make the bad thing go away. This somebody could be the government including all of the parts of your local city services, your doctor, your employer, your employees, your insurance company, your car mechanic, your home repair man, your church, your spouse, or your parents. Sometimes the people we rely on do not fix the problem. Perhaps it is due to incompetence or a conflict of interest and sometimes it because the people we rely upon turn out to be very selfish. Perhaps even very selfish with no moral compass.

The owners didn’t know it but they were dealing with a very charismatic man who was also selfish and had no moral compass. He had a history of using crises to make a lot of money. We also didn’t know that it was likely that we would lose every bit of money invested in this property. 

Who were these owners? Most of them were retired people who had owned rental property in California and made a lot of money when they sold their properties in a hot real estate market. This money was going to allow them to retire in comfort. They had fought many battles in life and they were ready to be done fighting. They also didn’t know anything about each other except for the names of their co-owners.

When the conference call ended informing me of problems at the property, I realized that Lester would provide a solution that was in his best interest and the owners would have to accept it because we had no other choice. There is another life principle which is not the topic today but I will mention it. Stress is caused by lack of options. I did not know what my other options were but I was very concerned about the one option of accepting whatever Lester was going to do to us. I embarked on a research project and thanks to there being very little privacy on the internet, I found the addresses of almost all the owners. I sent them a letter stating our issues and requesting that we join together in search of a solution. The other owners responded and we realized that we had no idea what to do. We agreed to hire a law firm to research the issue and present our options to us. This report, yes just the report, cost us twenty-five thousand dollars. It told us that we had to be very careful because if we did anything that the lender could deem as a threat to the stability of the management or financial health of the property the lender could immediately foreclose and take the property from us. We were also made aware that in the foreclosure process Lester could buy the entire property from the lender for the amount of the debt and we would lose everything. We also found out that if there were any losses to the lender or to Lester, the general partner of the investment, we could all be held personally liable. We found that there was another property which was extensively damaged and Lester collected money from the owners of that property to repair the damage and then kept all of the insurance money for himself. What we found is that we were facing a mine field set for us by Lester’s very smart attorney and the lender who represented a group of bond holders not interested in taking any risks and willing to take a nice property if the opportunity arose.

There did turn out to be one option. It would cost us hundreds of thousands in legal fees and thousands of hours of our personal lives but it was the only viable option we had. The end of a very long story is that it worked. We got Lester into a strangle hold which he badly wanted out of. I traveled to sit down with him and we negotiated a resolution. We paid him to give us his ten-percent ownership and to walk away from and give us control of every entity that connected us to him. As you all know the real estate market of 2009 turned around and got very hot in some areas of the country. This was one of those places and the owners sold the property for a tremendous return on their investment.

What we have here is a story of a crisis. There was opportunity in the crises. Unfortunately, it was the bad guy who jumped in first to use the crisis for his benefit. Fortunately I was able to turn the crisis that Lester created upside down and use it as an opportunity for all of the other owners to retain their retirement nest egg, their peace of mind, and their trust that there are still people in this world who do what they say they will do. It costs me thousands of hours of time which were taken from my family. Justice is a core value of mine and I believe it was worth the cost to be able to see good prevail.

How can you use this?

1. When there is a crisis, opportunities are available. This could be relationship, financial, career, or personal growth opportunities. Just a couple of quick examples. When there is a crisis, people have needs. People need other people to comfort and protect them, people need things, people need people to solve the crisis. There is lots of opportunity if you can be the person to provide what others need.
2. You must think differently about the crisis than almost everyone else. We are at an informational disadvantage. There are bad operators who are experienced in taking advantage of crises. There are organizations with agendas opposed to your wellbeing which jump on crisis opportunities and turn things to their advantage. The media makes money by sharing stories that get our attention. The media thrives on crisis. People become divided in crises and political groups thrive on dividing people. The question to ask yourself in a crisis is- what if this isn’t true. Those who take advantage of us do so by presenting their version of the story and then giving us their solution to that story. What if the story is false? If you do nothing other than refusing to identify and act as a victim, you are taking a huge first step in thinking differently.
3. You must prepare in advance. Make sure you have margin in every area of life so that you have resources which enable you to choose an alternative. You need to have time available, you need extra money, you need food, you need to be in good health so that you have extra energy, you need skills. You cannot take advantage of opportunity if you have nothing to give. The opportunity is that people need things. You need to have things to give.

Read this as many times as necessary-

Crisis is a catalyst for change. Change is an opportunity for growth. Growth is what we are expected to do with all that we are stewards over. All that we are stewards of has been entrusted to us for the purpose of loving God and His creation. Love destroys fear. Fear causes us to not take advantage of opportunities. If we love we will not be afraid in times of crisis.

That’s all for now.

Peace and love fellow traveler,

Jim