My Personal Investment Nightmare, Part 3 of 3

MY PERSONAL INVESTMENT NIGHTMARE, Part 3 of 3

I was the investor, once. I had done my due diligence ““ except for trusting in the competence of a man based upon his character. Character and competence are two very different things.

I had given Ed a month to give me a concrete transition plan. I needed names, dates, costs, and other details. I created a radio campaign that sent him 19 qualified leads. My patience was wearing thin. Ed’s time was running out.

A month later, Ed had converted four of the nineteen leads I sent him. I thought it seemed a bit low. If someone needed low cost housing, the deal we had structured was hard to beat. It would be nearly impossible to live less expensively than what we charging without just staying with friends or going to a shelter.

I asked about specific examples of people he talked to that didn’t come live there. That’s when I found out that Ed had been turning people away if he didn’t like them. “That’s not the kind of element we need here,” he tried to explain. He didn’t have anything concrete. I reminded him that we needed eight more people to keep the property.

At least if we got the transition starting, we could bride the gap soon. Except, not unexpectedly, he still didn’t have a concrete plan.

GAME OVER: TIME TO SELL

So I told him I would sell the property and shut down the residential facility. He could keep it going until I found a buyer. If he could get the property profitable before then, I would keep the property and keep the business open. He expressed that he was sure he could do that, and that with a little patience, that I would see that we would be blessed through this deal.

Frank Aledam and I have known one another for years and worked several commercial transactions together. We partnered on getting the property sold. It was a unique property that would need a unique buyer. I knew that if I did it alone it might take me six months or a year to find a buyer. Working with Frank, we found a buyer in less than two months.

So we shut down the residential facility and gave everyone 30 days to move out as per our agreement with them. We had a 60-day escrow so we could make sure everyone had moved out. They did.

Ed stayed on the property to get things ready for the new owner. The list of things that had to be done was fairly simple and straightforward, so I assumed something this easy he could handle.

Once more I was disappointed. In three weeks, he had the work done that I would have expected should have been completed in seven to ten days. Worse, he had no plan on how he would finish in one more week.

Again I called on my own team to come take care of things. Twenty-four hours later I had everything done. Ed was gone. Escrow closed. The new owners took over.

By the time the whole investment ordeal was over, I had lost a property to a short sale and had to pay taxes on the difference between what I owed and what the property sold for (tax law for such a situation has since been changed). That loss would plague my credit rating for a decade.

I had lost over $150,000 on the deal with Ed. If I hadn’t been able to recoup some of my losses on the sale of the property, it could have been a quarter-million dollars.

I could not afford to take that kind of loss and stay in the business investment game. That was the last time I invested in a business proposition with someone.

IT LOOKED GOOD UP FRONT

Note that when I got in, we had a great team and a solid plan.

We had the last profitable owner of the facility as the consultant and trainer. This was a man who knew how to get the place to generate $180,000 a year in profit after all expenses were paid.

The financials all made sense. The projections weren’t pie-in-the-sky. They were based upon the last three years of operations when the former owner was in charge.

I had someone whose character I could count on.

The business plan was good. The team was good. The investment made sense.

And then everything started falling apart.

Character does not equal competence. I could trust his character. He didn’t lie, but he was often mistaken. He didn’t cheat or steal, but he dawdled and no idea of the time-cost of money. While he was doing work himself to save hundreds of dollars, his delayed cost me thousands.

We lost the consultant to some personality clash that boiled over. It was something so nasty that neither man would talk to the other. No one would tell me what happened. The consultant left town and was no longer available.

The plan got changed without consulting me.

I had to step in with my own people to handle problems Ed was supposed to have already taken care of twice! (Investors HATE that!) I had to step in personally to handle two other situations that he should have had under control.

I liked Ed. I still do, actually. I’m still friends with him, his wife and his kids. I would never do business with him again. I don’t think I could afford to!

My own experience as an investor may help illustrate why experienced investors will take so few deals. I was lucky that I only lost $150,000. It could have been worse.

SEE YOUR DEAL WITH INVESTOR’S EYES

If you think about being the investor with your own money at stake, it’s easier for you to think through what you might need to be true before you gamble with your own money.

Think about how good my deal looked at the beginning. Then consider how bad it went. That was good deal that went bad.

First, you need a good plan. If you don’t have a good plan, then you have nothing to pitch.

Second, you need to clearly and specifically be ready to answer questions. You need to have a system in place to solve problems and resolve crises.

Third, you need to understand that the investor might want the power to show up and step in. After all, it’s the investor’s money ““ just like it was my money in this investment. Had I not stepped in, I would have had two foreclosures and a quarter million dollar loss to deal with.

If you see things from the investor’s point of view, you’ll be ten times more likely to get an investor.