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Striking it rich in the construction and real estate world Striking it rich in the construction and real estate world
by Joseph Gatt
2020-12-03 18:39:06
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I have two methods when I write articles. One is reading thick books and trying to find what common wisdom is in there. The second is reading the press and listening to people, and trying to find out what their common wisdom there is.

The third method is of course looking at how things work, why many people succeed, why many others fail. How my observations may support common wisdom or my observations might contradict common wisdom. But they are, after all, just my opinion. I could be wrong, perhaps more wrong than your sources, perhaps more right than your sources. I leave the truth to God.

There are three common ways very rich people lose it all. The first is falling for scams. The second is gambling it all away. The third is very bad, horrible real estate deals.

constr0001_400Scams. That's why rich people who stay rich don't have friends. So to avoid scams this is the following advice that I would give:

-if a “friend” is calling you too frequently, without clearly stating why he or she is calling you three times a day or three times a week, you want to stop picking up those phone calls. Or get to the truth as to why they are making all those phone calls.

-if a “friend” talks too much about money and little else, they are not real friends. Real friends talk about a variety of topics, from the very basic to the more complicated aspects of life.

-If your bank starts sending you too much information, they are probably hinting that they are in trouble. If you're getting frequent phone calls from banks inviting for investments, and frequent advertisements in the mail from your bank inviting you to invest in this or that, my two cents is you get your money out of that bank.

-If your banker invites you for “a cup of coffee”, tell your banker you don't want to see a pen, pencil, ink or anything that your hand could sign paperwork with. Let your banker expose the “sweet deals” and tell your banker that you will think about them.

-Aggressive bankers are a sign that the bank is not doing well at all. Get your money out of that bank.

-What banks are safe? Usually the well-established ones, the ones with a lot of branches, and the ones that don't invade your mail with too much information.

-What types of scams are there? Lots. They usually involve people telling you to give them your money so you can get very quick returns at amazing interest rates.

-Normal interest rates tend to be in most countries: 1 to 2% for normal savings accounts, and up to 9% of very long term savings accounts at well-known banks. The 9% thing usually involves not being allowed to withdraw those savings for at least 7-9 years or more.

-So if someone tells you that you're getting 5% interest a year, or 10% interest a year, or 20% interest in 5 years, baloney!

-Finally, rich people don't have friends because “friends” come up with all kinds of ways to sabotage them.

-If you're rich, you want to go home to the wife or kids every day, because some people are going to start rumors about you, taking advantage of the fact that the husband/wife does not know where you are or what you are doing. So you could end up being blackmailed for that.

-And finally, there's the “let's be business partners” scam. Rich people who stay rich don't have business partners, and work for their money all by themselves, with the shareholders and employees and all that. But they don't invite “partners” to the deal.

-Gambling. Gambling is pretty straightforward. Some people lose everything at the casino, or at the stock market, or both. In the jargon it's called “blowing up.”

-Real estate and construction. Below is my own advice, from years of observing people working in construction fields, sometimes winning big, sometimes losing it all.

-The most common way people lose millions, or billions in real estate is as follows. They purchase land. They start construction. They work at full speed for a week, or a month. They “take a three day break” which turns into a three month break which turns into a three year break which turns into a ten year break.

-Second most common way people lose it all in construction. Lawsuits. Construction is dirty, difficult and dangerous work. If a construction worker falls off the 8th floor, you sometimes have to pay millions in compensation. If an accident causes damage to the streets or neighboring buildings, you have to compensate those guys. If a construction defect harms other buildings, that's a lot of money you owe the people you are harming. If you violate construction norms or the law, that's a few million you will pay in fines.

-Third most common way people lose it all. You build the building at full speed. But then the occupation rate is not what is expected. I know someone who built a tennis academy with something like 20 courts. He planned to hire coaches and bet on an occupation rate of 100% on weekends, and 30% on weekdays. It was more like 5% on weekdays, and 10-15% on weekends. Same goes for apartment buildings and hotels. You plan a 70% occupation rate, you get 20%.

-Fourth most common way people lose it all. Raw material and land price fluctuations. You start building, cement and metal prices keep going up, construction worker wages keep going up. Rent prices go down, or go way up, so high up no one wants to rent the place. Or land loses a ton of its value, or gains so much value no one is interested in purchasing the place.

-Then of course there's the competition. You build a well-located building in a very crowded district. Competitors build “even better” buildings. You're competing with them, and that reduces the occupation rate.

-Other problems: maintenance costs. Few people keep those in mind. If there's a storm, a hurricane, an earthquake, or heavy rain, or monsoon rain, you name it. That's a lot of maintenance! Plus sometimes gas and water pipes leak, cracks in the walls, fungi, you name it. If you don't fix those, people are not going to want to rent the place.

-Then finally there's the changing nature of society. You build a very nice building in a very nice upper-middle class neighborhood, then, for some reason, drug addicts, or homeless people, or other criminals, or gangsters start infesting the streets. The streets are no longer safe, people move out. You're left with an empty building, and no other option than to rent the place to the struggling working class. If the struggling working class wants to rent, that is.

So, if you're a real estate developer, here are my two cents:

-Real estate development is not the same as playing Sim Tower or Sim City or something. You don't build the tower in two minutes and people move in ten minutes after the tower is built.

-You want to work on one, maximum two buildings at a time. You want to supervise workers every single day. You want to hire construction workers who are skilled, and who have the motivation to finish the project. If your construction workers are constantly sick or on vacation, fire them and bring good ones. Watch out for motivation when you hire construction workers. Better to hire a French or American construction worker than to hire a Mexican or Nigerian illegal immigrant because they are “cheaper.” They may be “cheaper” but they also tend not to show up to work after their first paycheck.

-So you want to keep it legal and give your construction workers carefully studied labor contracts, including workplace accident insurance and the like.

-You want the best lawyer in town. One who has years of experience dealing with construction and property law lawsuits.

-If construction workers “riot” or start “being lazy” you don't want to be fatalistic about the whole thing and pause the construction and escape and evade the problem. Fire them immediately, hire a good team immediately, get them to work immediately. If you get a six month delay, you're losing a huge sum of money. If you get a three year delay, you lose an “Oh my God” amount of money.

-Don't rely on “contractors” who promise to give you “the best construction workers” unless you have a well-established relationship with those contractors. If possible, study construction and real estate, spend lots of time in construction sites, and then, handle your own workers. Contractors are notorious for being sloppy with plumbing and concrete and the like, because they like to save money where they can.

-Make sure, when working with your architects, that the design and construction is not going to violate any norms or laws, and that you are not going to harm neighboring buildings in any way. If possible, check with authorities to make sure your plan is feasible and will not cause harm or damage.

-Get a good disaster insurance policy.

-Get a “feel” for the neighborhood. Are there signs that the neighborhood is on its way to becoming crime-infested? Or does it look life things are going to stay safe for a while?

-Check with the local laws to see what the eviction policy is for occupants and tenants. If there are too many complaints about an occupant throwing too many parties, can I evict him? If an occupant has a routine of very loud domestic violence, can I evict him? If there's a weird smell that comes out of an occupant's house, am I allowed to go in and check what the guy's doing in his house? And if the apartment looks disgusting, am I allowed to evict the guy? If an occupant keeps banging at people's doors and scaring the hell out of them, can I kick him out? If an occupant keeps chatting with his buddies in the hallway, while drinking booze and smoking, can I kick him out? You get the idea.

-So construction isn't just building towers and collecting big money, it's a lot more complicated than that.

So much more I could say, but I'll leave it to another day.


    
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