The Ways You Are Rich

Young people, you want to be rich, but you already are beyond your imagination.

You measure wealth in currencies, cryptocurrencies, investments and things that are interchangeable into such currencies: stock, timberland, bonds, real estate, art, cars, etc.  This is what people typically default to when they think about wealth.

But money is a currency, which is something that can purchase or exchange other stuff.  And there are a lot of things that the older you get, the more money you would spend to exchange into: while young people have these things in abundance.

Time:

The younger you are, the richer in time you are.  And the phrase “time is money” is literally true, as people willingly pay to free up time, whether in the form of time-saving devices, freelancers, gig economy workers, etc.

This is such a trite phrase that I hesitate to start with it, but when you consider that people like billionaire Nike founder Phil Knight, in the closing pages of his autobiography states that he would give everything up to do it over again, or when Warren Buffett, speaking to students, says, “you want to be me, I want to be you,” then you begin to realize to a very rich old man, a young person’s life could be valued in the billions of dollars.

As you grow older, the price you’re willing to pay for time increases exponentially.  Although I’m not as rich as the aforementioned gentlemen, what I would give to go back 10 years.  Even 5 years.  Probably in the tens of thousands, if not hundreds of thousands of dollars.

Out of all the “alternative” sources of wealth I’m about to list in this post, time is the only thing that can’t be purchased or created.  It can only be utilized where it exists, or exchanged into, by money or financial instruments – i.e., spending money to use time that you already have, but are burning every second.  Maybe this makes it the most precious.

Time also has the characteristic that by default, adding time to money causes money to grow.  This is why when you’re young you might hear the phrase “time is on your side”.  Well, it really is.  Someone who’s 27 literally has 10 more years for their investments to compound and grow than I do.

Options:

This is a source of wealth that is often overlooked, because it is really hard to measure, unlike money or time.

Options, or opportunities, are a form of wealth that work in the background, and do not manifest themselves until they’re exercised.  And young people have an almost infinite array of Options at their disposal, as a function of having more time, energy, boldness, less responsibilities/lifestyle drag, than older people.

This is hard to explain, but when I say they do not manifest themselves until they’re exercised, it’s because it’s hard to know how they will create value to you until you actually use them.

But, consider that us older people – well, all people, spend a lot of money to travel, read, learn languages, move to different cities, obtain knowledge, attend educational institutes, physically train, etc. etc., all of which create Options, which at the opportune time or place, can create money or jobs, or be exchanged for time and other higher-level forms of wealth, like relationships, wisdom, love, happiness, and so on.

The younger you are, the easier you can pick up these invisible options.  You can learn things quicker when you’re young.  You have less opportunity costs and responsibilities.  You have more energy.  You likely have a larger social network than someone whose been working for, say 20 years in the same industry and town.  

Many people who appear lucky, are in fact just awash in the wealth of invisible options.  This is not a great example, but say someone buys 80% of the lottery tickets, and wins.  Was he lucky?  Or did he buy a lot of options?  This is kind of a bad example because the cost of buying that much will likely be higher than the payout, but I hope you get the idea.

More thoughts on why options are really hard to quantify and measure, but are still there in the background.  When people say “right place at the right time”, they are ignoring the fact that you can engineer this kind of ‘luck’ by picking up a whole bunch of invisible options.

Two college graduates with the same intelligence level and achievements: one job is in a stable, blue-chip company, the other in a fast-growing startup.  The first job is located in an old, industrial city.  The second is in a coastal, high-priced one.  The two jobs pay the same.

Right now, I would bet that the competition for the second job is higher, despite it being more expensive to live in the coastal city.  I would even wager that possibly, college graduates would accept a slightly lower salary to take the second one.

This is because the value of the myriad options embedded in the second job is enormous, hard to quantify, but still intuitively there.  As you get older, the cost of those options becomes so astronomical that it is hard to justify their potential value.  I would like to think I could take an opportunity like that, given the same scenario.  But I might not.  Ten years ago, I definitely would have.

Energy:

This is the raw stuff from which both options and money/financial instruments are created.  Energy is costly to obtain and generate, but as with all of the aforementioned, way more abundant when you’re young.

Without energy, one cannot create or have created, money or financial instruments.  Even in the case of generational wealth, someone in the distant past had to have exerted such energies to create a fortune.

Energy diminishes over time, both within a lifetime as well as within the span of a day.  But similarly to time and options, its value increases as a person ages.  Younger people are awash in it.  In the case of my young daughter and others her age (4), it is perpetually pumping through their veins, requires no warm-up, and is converted without any entropic loss into sheer joy and full speed runs at the crack of dawn.  Again, what I would give to have that kind of energy again: tens of thousands, maybe even hundreds of thousands of dollars.

Look at the number of ultra wealthy people buying blood transplants or other fountain of youth-type stuff.  Energy is undoubtedly a form of wealth, and young people are awash in it.

Summary:

The thing about these forms of wealth, is that they are all interchangeable with each other.  When money is exchangeable into time, options, and energy, then the obsession that people have with accumulating only money at the expense of energy, time, and options is probably a little misguided.

You can cultivate energy and knowledge to create other forms of wealth.  You can use money to purchase options in the form of more options, energy, knowledge, to create other forms of wealth. 

And above all, time must be utilized wisely as this is the only thing that can’t be created or purchased.  

In this way are young people bestowed with wealth beyond their measurement or imagination.  And lacking knowledge or wisdom, so are they also dismissive of them.

Of course, there are higher-levels of wealth that cannot be strictly exchanged into or purchased using money, time, options, or energy.  The previous sources of wealth are necessary, but not sufficient to gain things like relationships, love, wisdom, happiness.  But I’m concentrating only on those sources of wealth that act almost as interchangeable currencies with each other.

At the end of it, I would wager that both Warren Buffett and Phil Knight would consider me a young(er) man.  And that’s why I’m writing this down, so as not to forget..

What I Learned in the Jungle

 

Last week, a client called me to join him for a site visit in the jungles of Southeast Asia.  It was the first time I had ever been sent a packing list that included things like: emergency rations, waterproof boots, first aid kit, and “materials for showering in the river”.

One thing I learned was that unlike later models, iPhone 5’s are not waterproof, especially when your kayak tips over in a tributary to the Mekong River.

Another thing I learned was that fire ants blend in really well to tree branches, and that ignoring the packing list’s suggestion for “hiking gloves” was not a good idea.  And that no matter how many times you dunk your hands in the river, fire ants do not wash off.

Now, one cool thing I learned was that inside caves, you can be surrounded by total darkness, and if there’s a hole at the top of the cave, the sun really does shine like a light beam through the blackness, in almost a straight line.  Kind of like a movie effect, Indiana Jones-style.

One last thing.  We toured a number of rice paddies with other members of the team, who were Malaysian farmers.

What I had assumed about agricultural practices in not only Southeast Asia, but around the world, was that if generations of farmers had been farming rice for about 10,000 years, it must be pretty optimized, right?

But no.  The consultants pointed out seed spacing problems.  They pointed out the use of inferior fertilizers.  They pointed out the fact that despite an abundance of water, many of the fields were not irrigated properly, if at all.  They basically said that yields could be increased by 50% to 300%, easily.

In many places in Southeast Asia, farmers often ‘forget’ the practices of their grandparents.  Exacerbating this is that use of GMO crops make them indebted and dependent on large companies for their livelihood, as GMO crops do not seed.

It strikes me that something so fundamental and as ancient a technology as farming can be forgotten in just a few decades.

I don’t have any profound realizations related to this except just a reminder that life, on all fronts, is subject to entropy and decay: what things in my own life, and what practices or values in our society are we forgetting?

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Elements: Osmanthus

Cherry blossoms get all the attention, while this one is a nondescript, sturdy green bush.  It’s easy to just walk by it.

But stand anywhere in its vicinity with the lightest of breezes, and suddenly you’ll catch a whiff of something that smells like what a plant bearing fruits of Hi-Chew would smell like, unbelievably sweet, almost fantastical.  It smells like what the inside of a cartoon would smell like.  It is hard to describe.  It is hard to believe that a plant would have this scent.

And their scent is agonizingly faint, because even in full bloom its flowers are sparse and tiny.  Walk amidst a grove of them, and its fragrance flits in and out like a nostalgic memory.  Tenuous to the grasp, but evocative of something unbridled – joy?

These trees – osmanthus, sweet olive, being some of its names – are everywhere in Asia, but again, cherry blossoms get all the attention.

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You can barely even see the flowers, can you?

Elements: Hakone, Japan

Before Hakone, we were in Ginza.  Ginza is the quietest retail high street you’ll ever encounter in the world.  This is the 5th Ave/Rodeo Drive of Tokyo but you can carry on conversations at a whisper.  And the lights, all muted.  True class.

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A centuries-old ryokan.  It practically looks like the building has grown out of the same soil as the trees around it, the way it’s blended in so well.

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The ryokan where we stayed.  Simple wood, polished by decades (centuries?) of guests walking over it.  The wood creaked and bent – almost bounced – under your step.  I’d never had that feeling of walking on wood before, with so much give.

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The warm lighting in the hallway across this garden really makes this scene.  This was in the dead of winter, and it looks like the building promises warm hearths and fresh, hot tea for a traveler that’s come a long way.

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It’s hard to describe why the below scene affected me so much.  To the right of here is a shrine, and that red torii gate is the threshold to the sacred space.

As you stand here, the sun bursts through the crack in the trees in just the right way to light the moss verdantly.  The wind rustles the leaves gently and they sound like palms rubbing together, some sort of reverential gesture.  You have the sense that this space, which if you were in a hurry and passed by it looks completely ordinary – what with the street signs and electric wires – was hallowed.

And why was it hallowed?  Because of the torii gate?  The way the sun hit the trees?

Or maybe because the combination of all these things made you just stop.  Stop, and recognize the sacred or hallowed in the ordinary, which is the whole point of shinto and a core part of the Japanese aesthetic.

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There were very few things in the courtyard/garden of this temple.  But for some reason they looked artfully arranged.  I don’t know why the whole scene was so beautiful.  It just is.  The fact that the grounds were completely silent helped.

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But maybe the point of the space, with very few things in it, is precisely that there is space.

The space brings into greater relief the objects that are in the courtyard, like the bell and the beautiful trees.

Also, the space seems meaningful.  The space allows for things to grow, like the moss.  It provides space for the steps to the shrine.  It provides space for you to move through it.  The space is deliberately there, without space things cannot grow or develop or move.

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Elsewhere in Hakone, this was a restaurant.  And after eating there, you pass through this portal on your way out to the real world again.  The way this dark entryway framed the winter scene outside was astounding.  It wouldn’t have worked, I think, if the distance of this passage were any longer or shorter.

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I just love how these trees are gnarled with character.  Although the branches ended up growing in one general direction, they twisted and took corkscrew paths to get there.  It’s about the journey.

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A Real Estate Career: Lessons Learned (2012-2015)

It’s weird the things that stick with you.  For the next few years, I worked three full-time jobs at a time.  I was in full execution mode as a property tax agent, international theme park consultant, and commercial property agent – and I don’t remember much about the period.

When I look back, I think it’s because I wasn’t growing.

There was little new to the jobs.  I was just executing on processes I had put in place years earlier.  I had become proficient, an ‘expert’.  And so the result was that financially, they were some of my peak earning years, but overall I’m not sure it was that fulfilling.

If you can find jobs where you get paid handsomely for personal growth, now that’s the holy grail.

But there were a few things that stuck with me.

I had a client who was an ex-Drexel Burnham Lambert banker.  He predated Michael Milken give/take by a decade, and had apparently made so much money that there was nothing else to do with it but plow it into real estate.

He worked out of one of his apartment properties in Brentwood, in a ground floor office strewn with papers and newspaper clippings.  He was in his 70s and his main tactic in any negotiation or even discussion was to immediately pretend he was slow.

Whenever you began speaking, he would tilt his head and look at you curiously before responding with a set of ‘is that right’s and ‘you don’t say’s.  He didn’t say much, but you could tell he was processing everything.  With so much office space all around LA, he offered free space to young brokers as a way of being plugged into deal flow.  Essentially, to listen.  He was always listening.  Sometimes his ‘you don’t say’s were sarcastic, as if he couldn’t keep listening to our stupidity anymore, but he was always listening.

We had another client who was a movie mogul.  Over a few decades, he had opened a regional chain of movie theaters and plowed the proceeds into real estate.  And about a mile down from our office, he owned 25 condos in the heart of Redondo Beach.  We brought him multiple offers on the property.  $18 million.  $20.  $22.  But he wouldn’t budge for less than his number, which was a million dollars per unit.

And although we had clients who probably would have bit at $22, he didn’t.  Something about his patience struck me, sitting in his office modeled after a miniature theater, cracking a grin at each new offer we brought him, and sitting back, a picture of consummate contentment, and telling us, if we could please try to get a higher number.

Years later, he was proved right.  Actually, the value of his condos probably exceeded a million dollars a unit.

The thing that both these clients had in common were that both owned and controlled more than $100 million in properties, each, both were well into retirement age, and both arrived at their offices at the crack of dawn.

This is just a sample.  There are people like this all over the country, all over the world.  It was just another lesson about wealth.  In so many ways, wealth is not the goal.

I wanted to be like them.  It would be nice to have the level of wealth they did, but I’m talking about their working for the purpose of their work itself.  And having a purpose that made them work harder than people half their age.

No doubt, it’s what made them great.

Then we had another client.  She had emerged as a buyer for another client’s property in Hermosa.

She made us work.

Among other things we had to do to close the deal, we had to chase down people to get them to sign estoppels.  The existing owner didn’t want to do it, because he preferred to be liked more than he preferred to sell the building.

This meant we had to camp out in front of all 12 units and try to get the tenants to sign a document verifying that they were paying, exactly what the rent rolls said they were paying.

Naturally, a lot of them were suspicious.  Was the new owner going to kick them out?  Was she going to convert the apartment into condos?  They were nervous.

No, no, I answered confidently.  I reassured them there was nothing to worry about, that the new owner had no intention of redeveloping.

But there was something else I had forgotten about.

After dragging the deal across the finish line, I felt a sense of relief as we pulled up to the new owner’s $10 million house in Palos Verdes, with a tennis court in the back.  In the living room, she proudly showed us a rent roll of the $80 million portfolio she managed, from her living room.

And later, she even more triumphantly emailed us to say that she had doubled rents, because the previous owner had been undercharging.

It left me with a bad taste for these kinds of deals and people in general.  All part of the industry, but I couldn’t help but think that while knocking on doors to get those estoppels, I had led some of those people astray.  Some of them, kids younger than I was.

It turned out to be my last deal there.  That, combined with the diminishing fortunes of the property tax appeal business, a countercyclical business if there ever was one, led me to other things.

One last reflection about wealth.  I spent half this time period in Hong Kong.

And in Hong Kong, a summer rite is the boat trip.  On the weekends the waters around Hong Kong and its myriad islands teem with junks and yachts that anchor off a secluded beach, then descend into drunken orgy-level partying.

One of our friends was dating a guy who was as close as you could get to Hong Kong royalty.  He was the scion of a billionaire tycoon, which made him one himself, but you wouldn’t know it to meet him.  Well-educated, low-key, soft-spoken, there is no way you could pick him out in a lineup, as is often the case with billionaires.

Anyway, this weekend we had use of his dad’s yacht.  For seven of us, a uniformed staff perhaps double that number helped us board, navigated, helpfully pointed out the amenities, cooked us a hot lunch, and generally gave us the kind of five-star service you would expect from what was basically a floating villa, way larger than my childhood homes, combined.

After anchoring, there are only a few things you can do.  We rode jet-skis.  We bounced off of inflatables.  Some of us read a book on the upper deck.  Some of us just floated in the water.

Which is what I did.  Bobbing, I could see all the other boats around us.  Some of them were like us.

Splendid, sleek yachts.  Barely any people on them, though.  There were kids on some of the nicer yachts, towards the front, and they looked bored out of their minds.

And, the people on the nice yachts were all looking in the same direction I was, which was towards the bacchanal boats, the ones thumping music that could be heard hundreds of feet away, with the people backflipping off the upper rails, doing keg stands, sliding headfirst and belly up down makeshift slides into the water, floating around the boat suspiciously in pairs.

Of course sometimes it’s nice to be alone.  But also sometimes I think that with great wealth comes great isolation.

I noticed this during my brokerage days in LA.  Sometimes it seemed like our richest clients called…just to talk.  Or when we went out in Hollywood – there is type of person, usually male, who buys drinks for everyone, is exceedingly generous, talks a lot, is best friends with everyone at the bar, is also exceedingly rich, and then at some point during the night…leaves alone in a nice car.

In the summers in LA, you can ride a bike from Venice Beach down to Redondo.  Over the course of 15 miles, the crowd changes.  Rowdy and larger up around Venice and El Segundo, Playa del Rey, huge barbeques with organized beach football games.  Then you reach the $10 million houses (at least) in the South Bay, along the Strand.  Nice organized picnics going on, some beach volleyball games, more individual, more rich, smaller.  Sometimes just a guy on the upper balcony of his home sipping coffee and looking out over the ocean.  Of course in some of the houses in between were always some frat antics going on, but still.  Richer, more individual.  In many ways, more alone, although there’s nothing wrong with alone.

But, now why is that?

A Real Estate Career: Lessons Learned (2010-2012)

The optics of business school are great because being a student gives you a halo – you appear to be “studying”, hard at work, transforming yourself.

Whereas if you took two years off to just actively look for, recruit, and interview for jobs in a new industry it would raise eyebrows, if you instead pay vast sums for the privilege of doing so, while paying even more in opportunity cost / lost income, it is more professionally accepted.  Ironic and backwards, but that is the imprimatur of business school.  That’s what people pay for.

Also, it’s a good two year break that looks good on a resume.

I entered Haas because I wanted a break.  I also wanted to be close to home, and the counties where Property Tax Advisors was appealing cases.  I wanted to be on the West Coast, because most of my consulting clients were in Asia – and I would have to fly there from time to time.  In case it wasn’t obvious, I still wanted to work part-time.  And also, to seal the deal, Haas gave me a scholarship, which combined with what Gary still owed me, made it an all-expenses paid, tax-free, two year vacation.

But I don’t want to make it seem like I didn’t take the whole experience seriously.  I did want to learn.  I wanted time to read books again.

The first thing I did when I arrived on campus was sign up for Mandarin classes, which I took with undergrads.  And then I signed up for some advanced real estate classes to try to figure out WTH had just happened in the world.

I took real estate classes every quarter.  And I read books on real estate history outside of it, outside of the classes.  At the end of it, I’m not sure I came very much closer to understanding the mechanics of what had happened, but I did gain an appreciation of how fragile things are in the world.

For our final project in a real estate financing class, we had to analyze a CMBS prospectus (commercial mortgage-based security), you know, those products that had helped bring down the global financial system.

I remember little about the product except that its supporting document was about two hundred pages.  Five of us pored through it for weeks.  All of us had come from real estate development, banking, or brokerage backgrounds.  One of us actually had a real estate lawyer for a father so we ended up asking him about the finer points.

But the prospectus was written so as not to be comprehended.  It was written in legalese, even though it was describing what should have been a fairly straightforward series of waterfalls in Excel.

And in the end, it couldn’t be modeled, because it was worded so ambiguously.  It was another lesson in what I had long suspected, which was that in business, maybe a small fraction of people know what they’re talking about, and the rest are just pretending.

I guarantee the bankers selling the junk we tried to model were in the latter camp.  Some of them were probably in business school at the same time as me.

Business school was also an opportunity to experiment.  I tried out different careers.  I interned for a hedge fund manager in San Francisco.  The first time I had a conversation with him, my mind almost exploded.

We began talking about a gold mining company, and his process of thinking out loud led the discussion into energy consumption requirements of the world, and caloric intake of Africans.  It all had a logic, but it was just beyond my grasp.  Just like, say, a college lecture that is beyond your head will make you fall asleep, this conversation had all the trails of making sense, but it was beyond my comprehension.  Struggling under the mental strain of it, I had to go home afterwards and just lay down for a few hours.

They say investing is the last liberal art.  It is the best cross-disciplinary, systems thinking training that anyone can get, I truly believe that.

In the summer, I interned for GE Capital Real Estate, the first big company I had ever worked for.  It also turned out to be a mistake.  Not the company or job itself.  As part of the Global Valuations Team, for the first time, I worked with people who were all exceedingly kind, competent, and able to regulate their emotions.  I had never worked with such nice people before.  I also had a boss that summer who was the best boss I had ever had up to then, and since.  She was patient and a great communicator.  I saw in all the ways what I had been missing by working only at small shops and with extreme people.

But at the same time, in order to take the job, I turned down offers from a resort development company (US-based), and a Mongolian conglomerate that wanted me to help them create a business plan for yurts, in Ulaanbataar.  There is no way I would have that kind of opportunity again.  It was a mistake to turn down adventure when I was still single and should have taken those kinds of “risks”.  It remains one of my regrets.

But the job was a revelation to me in other ways.  I came away from the internship and my classes at school with a more profound realization about the world.  Mostly, about the fragility of it.

You could see this clearly because GE Capital was such a high-level investor and manager.  By high-level, I mean that they invested in properties that were worth hundreds of millions of dollars, and purchased portfolios that were in the billions of dollars.  When scale gets that large, numbers become abstract.  When you’re evaluating a portfolio of hundreds of properties, the individual properties themselves also just become pieces of paper holding different lease terms and cash flow logic, encumbered by loan contracts that are themselves just other pieces of paper.

I looked at the stack of hundreds of pages we were poring through, which represented the several billion dollar portfolio we were buying.  And that was it.  Although we weren’t buying the pieces of paper, the pieces of paper held the agreements that held this entire thing together, all the terms and clauses and logic that would be transferred, on other pieces of paper, from a different owner to us, moved like you would a large boulder, carefully, so that at the end, someone could print out another, similar stack of papers with our name on them instead, and magically all the obligations and claims would belong to someone else.

Yet what was contained on these stacks of paper allowed us to borrow more money against it, allowed us to engage service providers and managers to service it, and served as the basis for the valuation of our company.  All around the world, balance sheets were being rearranged, title was being rewritten, people were moving, getting hired, fired.

You might note that this is just a larger scale, of the same type of transaction you would undertake when buying a car or getting a loan.  It’s true, but just think about those transactions too.  Do you ever read every word in a contract?  Do you really know every implication of every clause in a contract?  I doubt 99% of the world does.  Similarly, there were things in the contracts of our portfolios, and the leases, that if you read them carefully were questionable, or ambiguous at best.

But the whole thing was wrapped together by a system of trust.  Trust that people down the channel, the title officers, the lenders, the managers, the agents, the lawyers, everyone, was doing their jobs correctly.  No one at GE Capital was going to have time to review every single line.  Internally we all had to depend on each other, and us as an organization also depended on our service providers, suppliers, the governments and cities in which the real estate was, etc, to do their jobs.

At a scale that enormous, no one person has the whole complete picture.  And if you telescope out to the national economy, the world, it’s the same thing.  No one person has the complete picture.  It’s held together by trust.  And when that trust breaks, the system breaks.

And that, I think, was the main lesson I learned at GE Capital, and probably the main lesson of the financial crisis for me.

After my summer in Connecticut, I moved again.  Business school offered a semester abroad.  And I was going to study abroad in Hong Kong.

Living and studying abroad has been the source of some of my deepest relationships and experiences.  After studying abroad in Hong Kong, I decided I would have to live there.

Also, one night while eating hot wings at a place that prided itself on the scoville (spiciness) levels of its food, I found myself dry heaving, tingling, and in tears after half a bite of their vaunted apocalypse wings.

I began rubbing my eyes, which was a mistake because for some reason the XXL-killer-apocalypse-suicide hot oil had spread to the back of my hand, and now I couldn’t feel my face anymore.

It was at that moment, with fluids draining out of my face, that a girl in a white and black dress walked in smelling of spring, and sat down with me and my friends.

A few years later, she would become my wife.

A Real Estate Career: Lessons Learned (2010)

Almost exactly when The Year of Reflection had ended, I received a call from an old contact, Tim.

He wanted to know what I was up to these days, and whether I might be interested in helping him out.  Over the phone, I couldn’t really process what he was saying.  He spoke of taxes and property values excitedly.  I know how that sounds.  But yes, he was excited.

From what I could make out, it was evident that this was an opportunity that had risen because property values had crashed.

One thing did stand out, though, and that was the word “ridiculous”.  Tim was using the word “ridiculous” quite liberally to describe the situation, the money, and the job itself.

If there was anything I had learned about myself in my career so far, it was that I was a ridiculousness hunter.  Intrigued, I accepted his invitation to come in and check out their operation.

Indeed, when I arrived at their “offices” in Manhattan Beach, I found the situation a little ridiculous.  The office was a two bedroom apartment off Manhattan Beach Boulevard with no natural lighting, and seven people were working in it.  Files were scattered everywhere, like debris from a bomb explosion.  I met Jason, who worked with Tim in the master bedroom.  Gary, the owner, worked in the second bedroom.  Everyone else worked in the living room.  Files were stored everywhere, including in the kitchen cabinets and in the oven, which no one used.

The operation was one that appealed property taxes.  This meant going down to the assessors’ office of the California counties and argu-, demonstrating that our clients’ properties were not worth the inflated prices they had purchased them for.

Jason, Tim, and Gary explained this to me as I surveyed the wreckage of an office, and asked me when I could start.

That weekend, I moved to Manhattan Beach and came into the office the following Monday.

Bureaucracy causes pain, and pain causes opportunities.  This whole operation was there, because dealing with the county assessors’ offices was a bureaucratic and logistical nightmare.  If my experience at ERA was like being in a time capsule from the 1970s, the assessor’s offices were dated at least a few decades earlier.  They communicated only by phone, mail, or through in-person hearings, the latter of which gave it the flavor of judicial and legal proceedings.

All this is to say the following.

Challenging the roll value of a property in California, in most of the counties, [was] free.  Free.

But like most things taxes, people hired us to do the job for them because they couldn’t understand the process.  Or even if they did, the psychic pain of having to be put on hold and transferred through the various departments of the assessor’s office, having to search for information on values retroactively to the assessment date, or attend hearings in the middle of the day scheduled months in the future, caused them to hire us.

The business was unglamorous, taxing, under the radar, and operated out of a master bedroom with soiled carpets.  And at Property Tax Advisors, we were discreetly generating ~six digit sums in fees, per week.

This is when I learned that a real business eases pain.  A real business is not the storefront, or the colleagues, or business cards, or a website.  A real business is where someone pays you to do something they can’t or won’t do themselves.  At real scale.  And sometimes you can create a profitable business out of something that is already free.

Don’t be afraid of boring businesses.  I’m sold on boring businesses.

The substance of the work was scouring through reams of data, photos, and assembling a case.  The actual analysis didn’t take long, but it was time-consuming, carpal-tunnel inducing, and after working out of the cave of a master bedroom for about a month, I noticed another something.

I was losing a lot of weight quickly.  People have a misconception about Southern California.  They think if you live by the beach, it’s balmy and tropical.  It’s not, especially in the South Bay.  Most of the time it’s under cloud cover, and if you’re not under the direct sun, there’s a sea-cold to it.  I lost 10 pounds the first month I worked there, just from the ambient bone chill.

The cold and the enormous workload brought something out of me that had lain dormant for a few years.  It was time to dust off my Excel macro skills.

Over a few weeks, I made a program that automatically valued our cases at the rate of one every two minutes, which was a vast improvement over the 45 minutes it took to do it manually.

Because in order to win a case, we had to present a preponderance of evidence that proved the house was overvalued.  “Preponderance” meant that often we pulled together hundreds of pages of evidence for a single property, replete with pages of full color photos.  We took this burden of preponderance seriously, and made sure that our cases were also preponderantly heavier, in actual weight, than the appraisers we faced.

Sometimes I could see a visible sigh from the appraisers when they saw the buckets of paper we hauled in during hearing days.  It was a psychological tactic.  Because when I saw those sighs, I knew that we were winning.

And you might think that it’s weird I use the word ‘winning’ in conjunction with something like a valuation.  But I discussed this before; the concept of value is a vague one.

What is value, really?  Value is a consensus arrived at by subjective opinions.  Everyone starts with the same facts.  Your value is what you choose to emphasize and omit out of those facts.

The assessor’s office was biased towards preserving the roll value.  We were biased towards lowering the roll value, to alleviate taxes for our clients.  And it was a clash of opinions and wills.

But whatever side you’re on, bias takes its toll.  For instance, when you believe that values are too low and are going to go higher forever, like a broker does, you’ll start making yourself susceptible yourself to frauds and bubbles.

This is just as true on the other side.  Exhibit A was our owner, Gary.

There are people you’ll encounter who seem absolutely suited for the work they do.  Sometimes this is because when you do something every day, it can’t help but influence the person you become.  And sometimes it’s the other way around.

For Gary, I couldn’t tell if he was always the way he was, or it was the 20+ years in the tax appeals business that had shaped his entire worldview.

To back up, our work involved looking for direct evidence that our clients had overpaid.  Every case needed to be presented as, “our clients made a mistake and bought at the top of the market and everything is worth about 30-50% less.”

And repeating this story thousands of times over a few decades, I can’t help but think it influenced Gary a little.  Because Gary categorically believed that everyone in the world was overpaying for everything.

From $20 million megamansions in Bel-Air to gym memberships at Equinox, Gary opined endlessly on the ways not to get f**’ed, how to not buy at the top of the cycle, and how to save money.

To him, any debt of any kind was idiotic, even mortgages, and he railed against buying any car new.  One summer when I dropped by to say hi, riding a rented Audi (a free upgrade from the Chevy I had reserved, which was out of stock), he had some choice words.

He was the type of person who, as a Manhattan Beach millionaire, thought nothing of sometimes walking across the street to the motel and helping himself to the free continental breakfast, with a wink and a nod to the staff.

Or walking into the gym with free passes and registering multiple times under different names to extend free trials for months.

Or on Tuesdays, skipping a place for lunch because on Fridays, that’s when they had a promotion and it was 15% cheaper.

Or expounding on the exact depreciation schedule of items like sofas, automobiles, cutlery, and researching gas stations miles away, where prices were pennies cheaper than our local one.

At the time, Gary was going through a lot.  The financial crisis had halved his net worth from $20 million to less than $10 million (I know).  And he was in the middle of a bitter divorce.  All this, I’m sure, conspired to make him feel poorer than he really was, but part of it was probably also in his makeup.  The son of a mailman in Hawthorne, he had always looked at the society people in the towns around him like Palos Verdes, and wanted to be them.

But now he was them, but I don’t think he ever felt like them, nor wanted to be them.

He always had some words about the overpriced nature of the houses around us, and the fallacy of the dual-income homeowners who had taken out million+ dollar loans for them.  How can it be worth it to live like that, and slave for decades just to pay off the mortgage on a property, he would rail.  Why would he buy that car when he’s a [enter profession here] and making [enter salary here], he would exclaim.  Why do people feel like they have to keep up?  He would rant for the entire 40 minutes it took to drive to downtown LA for a hearing.

And slowly, I began to take on his mentality too.  I couldn’t help it.

This was in the ashes of the financial crisis, and still shell-shocked from the previous year, I began making it a game to see how frugally I could live.

For a time, I slept on the carpeted floor of my apartment on a sleeping bag because I didn’t want to buy a bed.  I proudly clipped coupons and returned to my old trick of asking people in restaurants if they were going to finish their meals.  I needed to regain those 10 pounds, after all.

The irony, again, is that the year was turning out to be my best yet, financially.  Again.  I was drawing on two sources of income, and making consulting calls to clients in Russia and Arizona alike, stepping outside on the patio.

Anyway, Gary was shameless in a way with his frugality.  And Jason, who handled sales and collections, was just…shameless.  And shameless about his shamelessness.

Shameless people are an object of fascination in our society.  They have their role.  And in our office, Jason was the id.  He was the walking manifestation of the things we wanted to say and do, because he had no filter.

If you’ve ever worked with real good salesmen, you’ll understand they’re a different breed of person.  Until I worked at the Harris Group, I’d never met real good salesmen, even at Wharton.

Jason had more energy than anyone I’d ever met.  This wasn’t drug-addled energy.  This was just raw male energy, like he was a wind-up toy that was just always…on.  If you stood next to him it became uncomfortable from waves of enormous body heat, like some sort of constant metabolism of targets was taking place.

This extreme energy had him going through a hundred phone calls a day, with no let up in pace.

Like all good salesmen, he didn’t care about rejection.  And unlike other good salesmen, he was completely honest.  He was almost honest about everything he believed and felt, and that made him good on the phone.

Being honest and tireless also made him good with girls.  Bear with me through this section because there is a point.

Every weekend he went out and found himself another girlfriend.  He hooked up with a girl who was going door to door selling magazines, who he invited in to his apartment.  He hooked up with a girl who was selling hats on 3rd Street Promenade.  He had hooked up with the woman who he had purchased his used car from, offering a lower price and a steak dinner.

When he was at bars, he was completely straightforward about what he wanted.  If a girl he was pursuing had a boyfriend or a husband, he didn’t hesitate to say the conversation was over.  He didn’t want a relationship, and every Monday, the endless stream of text messages from his weekend romances bounced in, letting up only around Wednesday.

You may or may not condone this.  I regarded this then with a mixture of wonder and grudging respect.  If nothing else, he was honest.

That honesty extended to the office.  He was not above hanging up violently on clients after calling them dishonorable scumbags for not paying, or calling out people within the office for not working hard enough – and he was right.

For him, what was right was right, what was wrong was wrong, and he knew exactly what he wanted and did not want.  And it always struck me, seeing someone so honest, that people do not really respond well to honesty.

Clients who had been through the Jason treatment didn’t pay until Gary called them back and apologized, assuring them that they were not dishonorable but just “forgetful”.

People in the office who were slacking did not step up their game when called out.  They shut down, and resisted the idea that they were fallible.

And the endless stream of girls (I’m using girls instead of women deliberately) who he had warned in advance and made clear all throughout the duration of their 36 hour romance, that he was not interested in anything longer than a weekend, texted him endlessly.

It’s just a point to consider.  People don’t listen to the ‘what’, they listen to the ‘how’.  Jason knew the effect of never filtering himself, but he accepted the consequences and lived as he did.

Also, back to the energy point.  It’s hard to win against or resist someone who has higher energy.  10 pounds lighter and feeling lightheaded from my endless working, I found it hard to ever win an argument against Jason, no matter how hard I tried.  He kept coming.  And I would definitely never even have a chance after lunch, when I was soporific and for some reason he was going the same speed as at 10 in the morning.

It was then I realized that energy levels are an underrated part of success, especially when you’re working for yourself, and need to be cultivated as carefully as other resources like money or time.

The work was interesting, the growth in revenues was inspiring, the money was lucrative.  But midway through the year, I decided it was time for me to go back to business school.  Reasons to be discussed in a later post.

If I had stayed, I would have earned my way into a relatively easy few million dollars over the next few years.  I knew that.  And I still gave up my equity.  To be clear, I did stay involved with the business over the next few years.  It was one income stream.  But I gave up ownership in order to be free, and have time to do my own things.

People ask me all the time why I did it.  And for a long time I found it hard to articulate.  It just never felt like my thing, or my destiny.  It was Gary’s thing.  It was Tim’s thing.  It was not my trade.  Does that make sense?

Also, maybe it was just hubris again.  Still, I believed that I would find that few million dollars somewhere else, in the future.

Finally, maybe because I just wanted more…adventure?