In my recent post on BiggerPockets.com I discussed traits you should seek when vetting a potential real estate investing partner. I have a confession. That comment was self serving. 90% of the time I find myself on the other side of the table, being vetted not vetting. I love when potential investors come to the table with well thought out questions and a willingness to delve into difficult topics. Why? Prior to my real estate I wrote a lot of code using a popular technique known as pair programming. I call what we do “pair investing” and it has many of the same benefits.
What is Pair Programming?
Pair programming is what it says on the tin. A pair…programming. Two people sit in front of a computer and cobble together code. One person types and the other watches. It seems wasteful doesn’t it? It requires twice as much manpower as if the person writing the program did it himself, right? Not at all. That second person can add large amounts of value. I’m going to look at the things he might do and how they’re applicable to pair investing.
Pair programming only works if the second person is engaged. Once upon a time, I “paired” with a coworker for 2 hours. He was sound asleep within 15 minutes. Neither of us gained from our experience, except he worked off his sleep debt. Edward, if you’re reading this, sorry for calling you out…by name.
If the second coder is sleeping he doesn’t add much value. That’s obvious, right? I’ve seen my share of investors who are sleeping. They don’t care about the details, they just want to see a return. This might because of a lack of time, interest, or accumen…and there’s nothing wrong with that! Their capital is treated the same way as everyone else’s (including a fair chunk of my own), so it’s not like we’re going to try less. The impact is that our operation isn’t improved as much as it otherwise could be.
Asking “Stupid” Questions
One mantra I’m prone to spout is that you don’t understand a topic until you explain it to someone else. In programming it might be obvious to me that we should be using an abstract factory pattern, but having to prove that to my partner forces me to justify it. You can’t teach what you don’t understand.
The same concept holds for pair investing. Until a few months ago I thought that our approach to depreciation was a solid one. A question from a potential investor forced me to dig further into the topic and I found that we were leaving money on the table. Now we’re doing a better job of taking advantage of the short term, interest free, government loan that is depreciation.
Forcing decision doubting
When pair programming, the threat of a challenge forces you to reevaluate the line of code you’re about to write. Nobody likes to be wrong. If someone is breathing down your neck, literally in this case, you can be certain you’ll take a few extra seconds to ponder that “if statement” before it makes it’s way onto the screen.
Pair investing operates the same way. Every day we’re presented with both opportunities, problems, and solutions. I’ve been known to be impatient from time to time, but if I push through a half baked decision I’m going to get called out. This will not hurt my ego, but also returns and our reputation. I’m forced to do a proper analysis to see if my intuition is born out by the data.
Provide New Information
I am smart enough to realize my understanding is limited. When two people pair program, more experience is brought to bear. I might be stumped by a problem, but the person sitting next to me might have solved it twenty times in the past. I’m saved the frustration of wasting hours or days on a flawed approach.
Our investors come from all walks of life and we’re blessed to have great minds helping to overcome our daily hurdles. They’re amazing sources of information and unique experience. Here’s a prime example. I was doing an initial phone screen with a potential investor last week and we were discussing how we would handle capital gains when we sell a property (Like Kind Exchange versus paying the depreciation recapture and capital gains). I made a comment that we want to avoid the 15% long term capital gains tax as much as possible. This particular person is a financial advisor for high net worth individuals and was quick to point out the maximum long term capital gains rate has been 20% since the beginning of 2013, not 15%. I was mortified, but was grateful we avoided making decisions based on out of date facts.
Wrap It Up: Pair investing is great
I’m a computer geek (nerd) at heart and my investing approach will forever be tethered to my background. When it comes to real estate, I want take full advantage of pair investing whenever possible. I want the silly questions, I want the fear of being proven wrong, I want the gobs of experience. I can’t improve in a vacuum.
The part I love about pair investing is that I get all the advantages for free! Yes, I’m selfish like that. Our current and potential investors have the same incentive I do: maximizing returns. I’d be a fool to not take push for pair investing with anyone willing to donate their time to our worthy cause.
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