Real Estate Guru Erik Selin: "Buy when everyone is terrified"
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Is it possible to build a real estate empire without taking major risks? According to Erik Selin, low risk investment is the key to his company Balder now approaching a market value of 50 billion Swedish kronor. His seemingly mythical entry into the real estate industry took place in the midst of Sweden’s financial crisis during 90s, when he, barely over the age of 20, bought a piece of property in Ängelholm for around 20 million SEK. This is where everything started.
Isn't it a bit odd that a guy who just turned 20 years old buys a house for millions of kronor in the middle of a financial crisis?
– Yes, clearly it is.
Wasn’t that a major risk?
– No, it was extremely cheap at that time. When there’s a crisis and you buy property, it feels like a very high risk, right? But here’s the truth. It’s at that very moment when the risk is at its lowest. It’s not really a high risk to buy something very cheap when everyone else is terrified. The dangerous thing is to buy when everyone is enthusiastic. It’s our human psyche that makes us react this way.
So you bought the property, and then another, and then another. What has been the common thread, or prevailing business idea?
– To avoid risk and have a healthy cash flow. Sounds simple and sufficient, right?
But how can something be so successful if the only starting point is to avoid risk? Don’t you have to take major risks in order to receive positive results?
– No, I think it's really the opposite. If you avoid risks then you’ll receive a good result. However, if you think “now I need to make fantastic profits or earn a lot profit quickly”, then of course you have to take risks...the kind of risks that are probably too excessive. On the other hand, if you simply think "I don’t want to lose out because I'm afraid of risks and dangers" and then continue to keep your head down and work hard, don’t you agree that it’s most likely that you’ll eventually receive a decent result?
A decent outcome yes. However, there are 9 million Swedes who avoid risk every day, and yet your results were exceptionally profitable.
– Yes absolutely, but most people don’t hold onto investments or businesses in the long run, right?
You say that you’re taking small risks, but in fact, aren’t you taking wild risks?
– No, absolutely not. I always try to think about how anything and everything can go wrong. In other words, I look at a new deal and ask myself "what are the ways this investment can go bad?"
You have said that you don’t do numbers so much. But isn’t there some sort of analysis at the foundation of an investment?
– It’s true. I have never done Excel, but I do count very well and very quickly in my mind. Perhaps I shouldn’t say that, but the truth is, I do. So, you’re constantly counting on what the return is, and how you think the investment will develop in the future. However, I don’t spend time guessing what the return will be on equity over the next five years, because it is merely a theoretical calculation. What’s the benefit of this? Honestly, nothing at all.
But if you’re going to assess the cash flow and risk, you still need to know if someone will rent the premises out in the future? How do you know that?
– You don't know, but you need to have a feel for it. You need to be able to think about what happens when a commercial house is empty. Do I buy this house and if it's empty, how fast do I need to rent it out, to whom, and for what price? All tenants move sooner or later.
There are many young people who might be listening to you, thinking, this sounds exciting. But are there some sensible ways to take a step into the industry now, during such tricky circumstances, without a starting capital?
– There always is. But remember what I previously said about the strength of the market. When the market is very strong it is more difficult, but when the market is very tough and everyone’s pessimistic it’s actually much easier to manage. I think more equity is required at this time because we in Sweden have had a long-standing increase in the market, and so naturally an economic cushion is a good thing. At the same time there are always good conditions to make profitable business deals if you like what you do, remain enthusiastic, put in the time, and stay persistent. And there’s something else you can do as well. Ask yourself: “Do I want a large company or to get rich?” If so, remember it usually takes a long time. Are you okay if the investment takes a long time, or do you feel that if it does, it will no longer be of interest to you? The reason you think about this now is because it’s good to know beforehand so that you don’t start an investment today and want to be a giant tomorrow. There’s nothing wrong with thinking like this, but it’s important to remember that this kind of success is quite unlikely. That being said, if you’re content with waiting, then invest away.
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