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- Sam Zell, legendary entrepreneur and investor, leveraged his unique perspective on life and his extraordinary background to become one of the most successful real-estate investors of all time.
- After a year working in law, Zell set out to pursue real estate full time.
- His simple strategy landed him anywhere from 16% to 25% returns per deal.
- Today, Zell's net worth hovers near $5.6 billion.
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Sam Zell, legendary entrepreneur and investor, has a different perspective on life than most. In fact, his life almost never happened.
Before Zell was born, his parents narrowly escaped from Poland at the beginning of WWII with his older sister in tow. Remarkably, Sam's father took the last train out of Poland before the track was bombed just 12 hours later.
Most of Zell's family that stayed behind perished in concentration camps.
"When you come from that kind of life, and you hear the stories all over again for all of your young period of time, it gives you a very different perspective on life," he said on "The Tim Ferris Show." "It made me very aware of how lucky I was."
He continued: "So this was an extraordinary background for everything that eventually happened to me - and without question - very much influenced how I made decisions going forward."
In the following years, in order to appease his father, Zell would attended law school strictly as a formality. He needed something to fall back on if his real estate aspirations - which he considered his real passion - didn't come to fruition.
But while he was attending school, Zell built a real estate business.
He managed hundreds of apartments, bought buildings, refinanced buildings, and wrote a manual on property management. He knew law wasn't for him, and after one year of a formal job, he set out to put his entrepreneurial skills to the test.
"I had 44 interviews," he said. "And I got rejected by 43."
Fast forward to today, and Zell's net worth is about $5.6 billion.
How he did it
"My Father had been a very successful business man, and had joined other people in investing in commercial real-estate opportunities," he said. "When I listened to him, I realized there was a consistent theme to what he was talking about it. And basically, he was investing in deals that were in major American cities - New York, Chicago, Los Angeles, San Francisco - but nowhere else."
Upon further probing, he learned that his father was garnering about a 4% return from his deals. However, Zell was earning anywhere from 16% to 25% through his ventures - and he knew he was onto something.
"I ended up investing in Ann Arbor, and Madison, Wisconsin, and Tampa, and Jacksonville, and Orlando, and Reno, Nevado, and Arlington, Texas," he said. "All of which were small cities, growth cities, and ones where there was no competition."
That last bit is important: no competition. Simply investing in areas where he wasn't fighting tooth and nail over properties gave Zell a huge advantage. He identified cities that were up and coming, and put his dollars to work before an influx of demand made his aspirations unattainable.
"It dawned on me that, when it was all said and done, the single most important criteria as an investor was: What was your competition?" he said. "To the extent that you were able to operate and invest in arenas where there was little or no competition, you got much better deals."
Once he identified an unpopular candidate, his decision to invest was based upon the cash-on-cash return, and how much initial capital he had to put to work.
"For me, the real goal was to find situations where I could operate in a competitive environment that gave me the edge," Zell said. "And that became a principle of everything that I did."
To provide an example, Zell talks about one of the most successful deals he ever made, which took place in Toledo, Ohio.
"Toledo wasn't a very popular place - and I was acutely aware of that," he said. In fact, Zell mentions that at the time, Toledo was actually commonly referred to as "the armpit of the nation."
"But all I looked at was that I was able to buy one of the few apartment buildings in town," he said. "So I didn't have any competition. All I looked at was: how much were we investing, and what was the cash-on-cash return? Therefore, where there's no competition, you can produce exceptional margins."
He concluded: "That was a great first lesson."