Look for Low Hanging Fruit in Real Estate
I wonder about a lot of things.
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For example, if it’s illegal to drink and drive then why do bars have parking lots?
How does every grocery store in town know to charge $2.39 for a gallon of milk and then subsequently put it on sale for $1.59 at the same time?
Why is it it’s the beginning of March and my neighbor still hasn’t taken down his Christmas lights?
Do the Girl Scouts put addictive drugs into their thin mint cookies? Because I can’t stop until I’ve eaten the entire box.
Then there’s the coffee I drink. I pay $1.75 for a medium cup from the little coffee shop three-doors down from my office. It’s delicious. I often wonder how much of this java they need to sell to cover the rent, maintain the equipment, pay the employees and buy the product. How many $1.75 cups of coffee to break even? How many to get a 10-12% return on investment?
So I sat down with my calculator and figured it out.
In order for this coffee shop to earn $100,000 in annual revenue they need to sell 57,143 cups of $1.75 coffee. That’s 156 cups a day and about 20 an hour. Last time I checked there aren’t many coffee houses not named Starbucks that can sell that much product each year.
Now don’t get me wrong. I’m grateful for my morning coffee. But this isn’t the business model for me. The profit margins are just too thin. I learned from a successful internet entrepreneur a long time ago that in business always “look for the lowest hanging fruit.”
What does that mean?
Find a desirable product that can be created efficiently with low overhead and sold for maximum profit to a large consumer base.
This is why I love to fix and flip houses. In order for me to earn $100,000 in annual revenue I need to sell 6-10 single-family homes a year. I can do this with little overhead. I don’t need an office, a secretary or a sales staff. The people on my team (contractors, Realtors, title companies, attorneys) get paid on a per deal basis. Finding good deals has become a little more difficult lately but they are still out there.
Sure, the business has its risks. I could over value the retail price of a house, under improve it or over improve it. The end result is I lose money.
Still, that’s not nearly as scary to me as having to sell 57,143 of something to make ends meet.