Ethan Conrad

The Mistake:

I’ve been very successful at investing in commercial real estate because I’ve stuck with what I know. Unfortunately, there was a time when I didn’t listen to my own advice.

When real estate pricing really heated up in 2006 and 2007, I was not buying as much because I knew it was overpriced. I was smart about that. But when looking for other opportunities to invest in, I was talked into making some hard-money loans to people who were buying residential properties. I knew better than to invest in areas that I knew little about, but I did it anyway because of my success with commercial real estate.

In terms of the loans, I was the lender and I secured the loans by deeds of trust. That’s a pretty standard concept. But I could have done a better job by recognizing that although the loans were personally guaranteed, I needed to look harder at the borrowers’ financials. Also, if I’d known more about the residential market, I might have had an inkling that we were in for a major decline in real estate value. In general, we knew a slowdown was coming, but no one had really predicted how hard it was going to hit.

I ended up losing a good amount of money. It could have been worse: If I invested the same amount in residential as I usually do in commercial real estate, I would have lost four times as much.

In the end, it all came down to simply not sticking with what you know.

The Lesson:

Often, when people are successful in one thing, they think they will have the same success with something else. That might turn out to be true, but the odds are greatly diminished. In commercial real estate in Sacramento, I’ve done well on 99 percent of my investments. But on other investments, such as hard-money loans or hedge funds, I’m only batting about 60 percent.

People will say to me, “Hey, you should buy this real estate – it’s out of the area.” Well, I’ve stretched my market a little further, but I really don’t want to go more than a two-hour drive to the north or south. I don’t want to head out into the Central Valley, or to Tahoe, or to the Bay Area, or further east to Reno. The reason is because I know that my odds of success when buying out there are far lower, because all the knowledge I have on commercial real estate here in Sacramento goes out the window.

The same concept applies to any business. If you roll it in a slightly different direction, you’re just evolving a little bit. That should mean pretty high odds of success. But when the company says, “We’re doing well, so we can do anything,” and it adds a component that’s totally different from what it does best, there’s a much lower chance of success.

If you really want to try something different, be very, very cautious. Don’t go all in. Just put a feeler out first to make sure it’s really going to work for you.

Otherwise, stick with what you know. It sounds so simple, but it really is good advice.