Paper don’t refuse Ink
When I finally graduated college, I went to work for a crusty, old farmer Jerald Miller. I was only there for about a year, but he taught me some of the most important lessons of my life.
There were two occasions in that year in which he really chewed me out. One of them was because I had done something wrong because I got in a hurry. I will not say I never repeat this particular flaw, but I remember how displeased he was!
The second time, he chewed me out for something he thought I had done. I had not done anything wrong, and when he investigated a little bit, he apologized to me. I remember that well. He taught me that you are never too big to make a mistake. And if you mess up, own it. Thank you, Jerald.
I do not know what Jerald’s educational background was, but he was smart. He ran a large grain and hog farm and he ran it well. He served on several Boards in the area. He taught me a lot about business. He’s been gone a long time, but his lessons live on.
One of the most memorable lessons was when he quoted “Paper don’t refuse Ink.” He meant that absolutely anything can get written on paper. It holds no long-term value. You can massage numbers all you want on paper. It does not mean anything. It’s just ink on paper. Nobody can enforce it.
We calculate budgets, CAP rates and ROI ad infinitum. But they hold no value. You cannot exchange them for money. Once you leave the property closing, the carefully calculated CAP rate is meaningless. Once you sign the bank loan, your budget is meaningless. All that time spent working numbers, is gone. Now it is up to you to perform.
When the 10-year old furnace blows up, can you fix it by showing it the CAP rate? Nope. It requires $5,000 and you didn’t budget for that. When you can’t make the loan payment because you spent $5,000 on a new furnace, can you remind the bank about your budget and make them happy? Nope.
What about the lightning strike that causes you to cover your $2,500 deductible? Or the unexpected tax increase because a new school is needed in the area? Or a minimum wage increase? All of these are real expenses and can’t be paid with financial projections.
I bought a facility one time that had a 1200 SF commercial unit and it was rented to a national Food Distribution company. Great, right? That was an easy $500 check every month. Until a couple years later when the company reorganized and moved out. That was a $6,000 annual hit to NOI. That is a $75,000 hit to the CAP rate. Did it matter to the large company? Nope. Was it any less real? Nope.
The lesson here is that stuff happens. We prepare our financials based on everything we know. We put ink on the paper. But we can’t predict the future. You better be prepared to overcome and excel. Because buying storage units is easy. Making them perform is the hard part.