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October 24, 2023

Navigating Unexpected Challenges and Contingency Planning in Real Estate Investing With Lane Beene [Ep176]

On this episode of The Darin Batchelder Real Estate Investing Show, we are joined by special guest Lane Beene, a seasoned real estate investor with years of experience under his belt. Lane shares valuable insights and strategies for navigating the world of real estate investing, focusing on the importance of contingency planning and executing a plan B effectively. Drawing from his military background, Lane emphasizes the significance of unemotional decision-making and careful analysis when considering options in the real estate industry.

He also shares his personal journey, starting with single-family properties and eventually transitioning to multifamily investments. From overcoming challenges in occupancy to exploring refinancing and selling options, Lane breaks down the key decisions investors need to make to achieve success. If you're looking for practical advice and inspiration in the world of real estate investing, this is an episode you don't want to miss. Tune in to learn from Lane Beene's experience and gain valuable insights to take your real estate ventures to new heights.

Episode Timestamps

  • 00:02:01 Air force officer retired after 28 years of flying.
  • 00:08:25 Ground-up development adds value by transforming raw land into a finished product.
  • 00:12:59 Unexpected drop in occupancy required a pivot and contingency planning.
  • 00:18:17 Social media blasting of syndicators for self-promotion. Preference for bridge and floating rate loans.
  • 00:21:47 Real estate is uncertain; success depends on whether a project can endure tough times or not.
  • 00:29:22 Developing a team is as important as finding the first deal; trying to do everything alone won't work.
  • 00:36:02 Surround yourself with experienced people to achieve your goals.
  • 00:40:25 The importance of financial security and work-life balance is emphasized in real estate.
  • 00:44:02 Passion is important, but financial stability is necessary for pursuing it. Helping others find their passion is meaningful.

Episode Table of Contents

  • Military Background and Transition to Real Estate Investing
  • Having a Contingency Plan and Mission in Real Estate Investing
  • Evaluating Options and Making Unemotional Decisions
  • Building a Strong Team for Success
  • A Contingency Plan for Maximizing Returns

Military Background and Transition to Real Estate Investing

Military Background and Transition to Real Estate Investing
Photographer: Filip Andrejevic | Source: Unsplash
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An Air Force Officer's Contingency Plan: How 28 Years of Flying Advanced Aircraft Taught Focus, Discipline, and Quick Decision-Making

Lane Beene served as an Air Force officer and pilot for 28 years before retiring in 2019. As a fighter pilot, he flew some of the most advanced aircraft in the world and participated in highly complex missions involving dozens of planes working in coordination. Lane emphasizes that being a fighter pilot is like riding a rollercoaster with no rails – exhilarating but requiring tremendous skill and discipline. His military service instilled key traits like focusing on the mission objective, carefully analyzing results to improve future performance, and making decisions in high-pressure situations without emotion.

Having a Contingency Plan and Mission in Real Estate Investing

Having a Contingency Plan and Mission in Real Estate Investing
Photographer: Alvaro Reyes | Source: Unsplash

Transitioning from Military to Real Estate Investing

After retiring, Lane Beene began investing in real estate, first buying single-family homes before moving to multifamily properties. He spent over two years intensively educating himself, reading every real estate book in the local library. Lane acknowledges it took significant perseverance before he found success. A key lesson was recognizing the need to build a team of experts like property managers, attorneys and accountants rather than trying to do everything himself. With the knowledge, skills and team in place, Lane won his first multifamily syndication deal, leading to an award-winning property.

A Pilot's Contingency Plan for Mission-Focused Business Strategy

Lane Beene emphasizes that having a clearly defined mission and business plan are critical for success in real estate investing. He notes that when flying missions in the military, pilots would always start by identifying the mission and the plan to achieve it.

Similarly, real estate investors need to have a mission and plan for each investment property. The mission could be a value-add strategy, ground up development, achieving a certain return for investors, etc. The plan outlines how to accomplish that mission through renovation budgets, operations, financing and other elements.

Lane explains that investors should start with the end results and work backwards. After identifying the mission, they can diagnose why results were not achieved as expected. This allows investors to uncover areas for improvement in their business plans and strategy.

He gives an example of briefing complicated 50-60 aircraft missions in the military. Each aircraft played a specific coordinated role like sections of an orchestra. The mission commander had to understand the whole plan like a conductor.

Lane relates this to a real estate sponsor's role in bringing together all elements of an investment deal. When the plan doesn't go as expected, good operators analyze why and make adjustments.

Execution of Plan B

According to Lane Beene, being able to effectively execute a Plan B is critical to success in business. He emphasizes two principles around this:

  1. Success in business is determined by how well you can execute Plan B when your original plan doesn't go as expected.
  2. You must develop a Plan B for when your Plan A doesn't work out.

Lane explains that even with the most detailed planning and preparation, things rarely go exactly as planned. There are often small or major changes required. Real estate investors and sponsors need to be knowledgeable and adaptable to account for unexpected changes in markets, regulations, costs and other factors. Wise operators develop contingency plans upfront and can pivot quickly.

He gives an example of unexpectedly rising interest rates in 2022. Many real estate sponsors utilizing floating rate bridge loans have had to re-evaluate their business plans. In these cases, operators analyze options like refinancing, interest rate caps or strategic sales. Having pre-planned options allows decisive action rather than emotional reactions.

Navigating Plan B: "Success in business is how well you can execute plan B. Your plan B is occupancy 89%."— Lane Beene

Importance of Contingency Plan and Budgeting for Variance

Lane Beene stresses the significance of having contingency plans in place for real estate investment deals. As both a limited partner and general partner, he always asks sponsors about their plan if the original business plan does not go as expected.

Lane highlights the importance of preparing for scenarios in which occupancy is lower than projected in the original business plan. He advises budgeting for variances in occupancy and other key metrics that may impact returns.

He reflects on a past experience when his occupancy unexpectedly dropped after acquiring a property. This led Lane to pivot and find a solution to address the lower occupancy. Through support from the property management company, he was able to utilize maintenance personnel from other properties they managed to help turn vacant units faster.

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This experience taught Lane the importance of budgeting for contingency in occupancy, which he now incorporates into his investment strategy for future deals. He budgets for potential variance in occupancy and other key assumptions as a buffer.

Evaluating Options and Making Unemotional Decisions

Evaluating Options and Making Unemotional Decisions
Photographer: hannah joshua | Source: Unsplash

Analyzing Options for Underwater Properties

When faced with an underwater property that is not hitting projections, Lane Beene advises that real estate investors should carefully analyze their options in an unemotional manner. He states that the choices typically come down to selling the property, refinancing, or obtaining alternative financing such as through HUD or agency programs. To determine the best path forward, investors must calculate the costs of each option including expenses like refinancing fees, interest rate caps, and the cost of additional holding period. Weighing the advantages and disadvantages of each allows investors to choose the financially optimal decision.

Surprising Budget Exceedance: "Now I don't think many people expected that 2 years ago that insurance would increase so much, but it did."— Lane Beene

Contingency Plan for Underperforming Assets

According to Lane Beene, when evaluating options for underperforming properties, investors must consider the impact on their limited partners. The goal should be choosing the path that best serves the investors who entrusted the general partner with their capital. By taking the time to thoroughly analyze alternatives like refinancing or selling, general partners can select the route that maximizes returns for their limited partners. Making a dispassionate and calculated analysis of the costs and tradeoffs helps align decisions with the interests of all stakeholders.

Building a Strong Team for Success

Building a Strong Team for Success
Photographer: Natalie Pedigo | Source: Unsplash

Assembling Experts for Large Multifamily Investments

When transitioning from single-family homes to larger multifamily units, Lane Beene stresses the importance of building a knowledgeable team. Attempting to self-manage everything across multiple large properties is unrealistic. He explains initially having a "do-it-yourself" mentality when starting out in real estate. However, after two years of frustration, Lane realized he needed to surround himself with professionals experienced in multifamily syndications. This includes hiring a property management company to handle day-to-day operations and partnering with a real estate attorney skilled in syndication deals. According to Lane, having the right team in place brings credibility, attracts investors, and enables smooth management of larger multifamily assets.

Developing Your Team: "As important as finding that first deal is developing your team."— Lane Beene

Building a Contingency Plan Through an Experienced Real Estate Team

Darin discusses how building a strong team can give investors more confidence, even if you personally lack experience. For example, partnering with an established property management firm that oversees thousands of units in your target market helps validate your capabilities. Working with a specialized real estate attorney also demonstrates you understand legal considerations. Darin explains he assuaged his own concerns regarding due diligence by hiring an expert inspector. Surrounding yourself with experienced professionals mitigates risk and provides the knowledge to successfully acquire and operate large multifamily properties.

A Contingency Plan for Maximizing Returns

A Contingency Plan for Maximizing Returns
Photographer: Markus Spiske | Source: Unsplash

Passive Income and Compound Interest

Lane Beene believes real estate investing can provide financial security, enabling people to live more fulfilling lives. He emphasizes the importance of having autonomy over your time and a flexible schedule.

He shares that passive income, powered by the concept of compound interest over time, is key to achieving financial stability. By attaining financial security, individuals have the resources to support their lifestyle and pursue their passions.

The Power of Compound Interest: "Passive income is the best process. So you have your investment dollars making you money. Right? And then they give you freedom financial security, autonomy of schedule, freedom of time."— Lane Beene

Finding Your Passion

Lane's goal is to help listeners find and pursue their unique passions by providing them with tools for financial stability. He wants to equip people to have the assets of time and capability so they can devote themselves to the things that ignite their purpose and calling.

Where To Find Lane Beene

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Darin Batchelder

Wealth creation through real estate provided me with a new passion to get the word out and let others know that they have an alternative to investing in the stock market.

If I can inspire and educate just one person to take action that results in life changing wealth creation then the work to launch and grow this podcast is well worth the effort.

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