{"id":168434,"date":"2024-02-26T14:01:36","date_gmt":"2024-02-26T21:01:36","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=168434"},"modified":"2024-07-11T01:41:10","modified_gmt":"2024-07-11T07:41:10","slug":"what-national-retail-chains-taught-me-about-investing","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/what-national-retail-chains-taught-me-about-investing","title":{"rendered":"What I Learned From National Retailers to Decide What and Where to Invest\u2014And How You Can Do It Too"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC5811364164\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p><span data-preserver-spaces=\"true\">In 2005, I decided to start an investor services business. I reviewed all the popular investing literature. What I found were self-professed experts offering opinions and no processes. As an engineer, opinions hold little value.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">I shifted my research focus to the&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/commercial-real-estate-fundamentals\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">commercial<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;sector, where I found rigorous processes that resonated with me. I discovered that retail store location selection and stocking methodologies are excellent guides to systematic residential investing.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Here, I will explain how I use methodologies from national retailers to select properties that generate reliable income.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Don&#8217;t Reinvent the Wheel<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">National retailers have spent decades developing and refining processes to choose store locations and inventory. Retailers base all decisions on their financial goals: location of stores, layout of stores, decorations, etc.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Retailers do not make decisions based on opinions they read on websites or books. They know the demographic of their customers and do what is needed to maximize returns.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">For example, in Hawaii, McDonald&#8217;s has spam, Portuguese sausage, hot haupia (coconut pudding), and taro pies on the menu. This level of localization was necessary to attract locals to eat at McDonald&#8217;s. Once at McDonald&#8217;s, they order from the full range of standard items. This is an example of using an \u201cattractor,\u201d which I will talk about later.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Who Is Your Customer?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Operating a rental property is a business where you provide housing services to your customers\u2014your tenants. To maximize profit, it&#8217;s crucial to understand your customers&#8217; needs and what they are willing and capable of renting.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">If your goal is reliable income, you need a reliable tenant to occupy your property. A reliable tenant stays many years, always pays the rent, and takes good care of the property. And since you will own the property for many years, you will need multiple reliable tenants. However, reliable tenants are the exception, not the norm.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Many people mistakenly believe that all tenants have the same behavior. This is not true. The renter population comprises many segments, and each segment has different housing requirements and behaviors.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">For example, as illustrated, there are three primary tenant segments in Las Vegas. Each segment has different behavioral characteristics.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1999\" height=\"1147\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image4-1.jpeg\" alt=\"\" class=\"wp-image-168442\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image4-1.jpeg 1999w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image4-1-300x172.jpeg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image4-1-1024x588.jpeg 1024w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image4-1-768x441.jpeg 768w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image4-1-1536x881.jpeg 1536w\" sizes=\"auto, (max-width: 1999px) 100vw, 1999px\" \/><\/figure>\n\n\n\n<p><span data-preserver-spaces=\"true\">The most crucial segment characteristic is the duration of their stay. If there are frequent turnovers,&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/5-steps-to-lower-vacancy-rates-and-increase-renewal-rates\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">vacancy<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;costs can turn what appears to be a cash cow into a money pit.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">So, if you want a reliable income from your rental property business, targeting a tenant segment that stays many years is critical. Among the three tenant segments, the Permanent segment has the longest average tenant stay. These people should be your customers.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">How Do You Target a Specific Target Segment?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Each tenant segment has specific housing requirements and are unlikely to rent a property that doesn&#8217;t meet all their requirements. Here is an example of a segment&#8217;s housing requirements and a property that fulfills these requirements.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1206\" height=\"662\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image2-3.jpeg\" alt=\"\" class=\"wp-image-168440\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image2-3.jpeg 1206w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image2-3-300x165.jpeg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image2-3-1024x562.jpeg 1024w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image2-3-768x422.jpeg 768w\" sizes=\"auto, (max-width: 1206px) 100vw, 1206px\" \/><\/figure>\n\n\n\n<p><span data-preserver-spaces=\"true\">The converse is also true; a property typically meets the housing requirements of just one segment. Therefore, when you purchase a property, the tenant segment the property attracts is fixed, and there is little you can do to change this. Only purchase properties that match the housing requirements of the segment you want to occupy your property.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">How can you target a specific segment? By using a combination of attractors and detractors.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Attractors and detractors<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">Attractors are property characteristics that attract a specific tenant segment. For instance, to target the Permanent segment, invest in properties with rents that match a gross income range of $60,000 to $85,000 (as in the Las Vegas example). Doing so attracts individuals within this income bracket and discourages those who earn more or less.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">How do you translate gross income to probable rent? Most people opt to live in the best place within their budget, typically allocating about 30% of their gross monthly income for rent. Therefore, you can calculate the rent range as follows.<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">Lower rent range:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;$60,000\/year x 1 year \/ 12 months\/year x 30% ? $1,500\/Mo<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Higher rent range:&nbsp;<\/span><\/strong><span data-preserver-spaces=\"true\">$85,000\/year x year\/ 12 months\/year x 30% ? $2,125\/Mo<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">So, if you buy properties that rent for between $1,500\/month and $2,125\/month, you attract people with a gross annual income between $60,000 and $85,000. At the same time, people who earn more or less than $60,000 to $85,000 are unlikely to rent properties in this range.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">However, not everyone in this income range has the right behaviors for reliable income. Based on our research and experience, only families with elementary school-aged children tend to stay over five years. Singles and couples within this wage range typically stay less than two years, making them less desirable tenants.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">So, how do you attract families with elementary school-aged children? By purchasing properties that match their housing requirements.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">For instance, our research indicates that single people and childless couples typically rent condos, townhomes, and small single-family homes. When they opt for a single-family home, it usually has two bedrooms, a one- or two-car garage, and a small yard.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Families with elementary school-aged children typically rent single-family homes that have three or four bedrooms, a two-car garage with at least 1,200 square feet of space, and a yard that&#8217;s over 3,000 square feet (so children can play in the yard).<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Another key attractor\/detractor is&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/breaking-down-the-location-location-location-principle-in-real-estate\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">location<\/span><\/a><span data-preserver-spaces=\"true\">. Singles and couples usually want to be near the \u201caction\u201d and are not likely to rent in suburban areas popular with families with children.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">How can you identify attractors and detractors for your target tenant segment? Through property manager interviews.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Property profile<\/span><\/h3>\n\n\n\n<p><span data-preserver-spaces=\"true\">Once you identify the attractors and detractors for your target tenant segment (your customer), you can create what I call a property profile. A property profile is a physical description of properties that will attract your target subsegment and deter others. Your property profile consists of at least four characteristics:<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">1.&nbsp;<\/span><strong><span data-preserver-spaces=\"true\">Location:&nbsp;<\/span><\/strong><span data-preserver-spaces=\"true\">The locations where significant percentages of the target segment rent today.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">2.<\/span><strong><span data-preserver-spaces=\"true\">&nbsp;Property type:&nbsp;<\/span><\/strong><span data-preserver-spaces=\"true\">The type of properties they rent today. Condo, high-rise, multifamily, single-family\u2014the type does not matter. Only a reliable tenant matters.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">3.<\/span><strong><span data-preserver-spaces=\"true\">&nbsp;Rent range:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;What the segment is willing and able to pay.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">4.&nbsp;<\/span><strong><span data-preserver-spaces=\"true\">Configuration:&nbsp;<\/span><\/strong><span data-preserver-spaces=\"true\">Two bedrooms, three-car garage, large backyard, single-story, two stories, yard size, SF, etc.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Once you have a property profile, you can provide this description to any real estate agent, and they can find properties that match.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">However, property selection involves far more than just the four characteristics listed. I also summarized what you must consider in the diagram.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1445\" height=\"1343\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image1-3.jpeg\" alt=\"\" class=\"wp-image-168439\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image1-3.jpeg 1445w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image1-3-300x279.jpeg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image1-3-1024x952.jpeg 1024w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image1-3-768x714.jpeg 768w\" sizes=\"auto, (max-width: 1445px) 100vw, 1445px\" \/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Does This Work?<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">This map shows where the majority of our client\u2019s properties are located. Note that I did not choose the locations, property types, configurations, or rent ranges. I found the tenant segment with the right behavioral characteristics for reliable income and bought what they were willing and able to rent. It really is this simple, and the process will work anywhere.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1994\" height=\"1999\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image3-1.jpeg\" alt=\"\" class=\"wp-image-168441\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image3-1.jpeg 1994w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image3-1-300x300.jpeg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image3-1-1021x1024.jpeg 1021w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image3-1-150x150.jpeg 150w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image3-1-768x770.jpeg 768w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image3-1-1532x1536.jpeg 1532w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/image3-1-200x200.jpeg 200w\" sizes=\"auto, (max-width: 1994px) 100vw, 1994px\" \/><\/figure>\n\n\n\n<p><span data-preserver-spaces=\"true\">Here are the results of over 16-plus years of using this methodology:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">2008 crash:&nbsp;<\/span><\/strong><span data-preserver-spaces=\"true\">Zero decline in rent and zero vacancies.<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">COVID-19 pandemic:&nbsp;<\/span><\/strong><span data-preserver-spaces=\"true\">Almost no impact.<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">Eviction moratorium:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;Almost no impact.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Our average tenant stays over five years.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">We&#8217;ve had six evictions in the last 16 years with a tenant population of over 1,000 tenants.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">From 2013 through 2023, the annual appreciation and rent growth rates were over 15% and 7%, respectively.<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Final Thoughts<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Retail chains make decisions based on their financial goals, not the opinions of others. These goals dictate store locations, configurations, and the merchandise they stock. If you want reliable income, follow retailer strategies rather than adhering to others&#8217; dogma.<\/span><\/p>\n\n\n\n<div class=\"wp-block-group has-slate-200-background-color has-background\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n<h2 class=\"wp-block-heading has-text-align-center has-theme-slate-dark-color has-text-color\">Take Your Market Research to the Next Level<\/h2>\n\n\n\n<div class=\"wp-block-media-text has-media-on-the-right is-stacked-on-mobile is-vertically-aligned-center\" style=\"grid-template-columns:auto 34%\"><div class=\"wp-block-media-text__content\">\n<p class=\"has-theme-slate-dark-color has-text-color\">Need help finding the right market for your next investment? Dave Meyer created our brand new <strong>Picking a Market Worksheet<\/strong> to help investors like you identify and analyze the right locations for their next deals. <\/p>\n\n\n\n<p class=\"has-theme-slate-dark-color has-text-color\">Download our worksheet today for quick and easy analysis when researching your next market.&nbsp;<\/p>\n\n\n\n<div x-data=\"frictionlessSignupForm()\" class=\"button-account-type alignleft\">\n\n  \n\n  <!-- Guest Button -->\n      <template x-if=\"!$store.wp.isMember()\">              <button x-on:click=\"$store.wp.displaySignupPrompt()\" class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\">Sign Up to Download<\/button>\n          <\/template>  \n  <!-- Free Member Button -->\n      <template x-if=\"$store.wp.isMember() &#038;&#038; !$store.wp.isPaidMember()\">              <a href=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/Picking-a-Market-Worksheet_v2.pdf\" target=\"_blank\"\n                    x-on:click=\"window.analytics.track('Blog | Market Intelligence | Picking a Market Worksheet', {\n            referrer: 'https:\/\/www.biggerpockets.com\/blog\/what-national-retail-chains-taught-me-about-investing',\n            account_type: 'free',\n          });\"\n                    class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\">Download the Worksheet<\/a>\n          <\/template>  \n  <!-- Pro Member Button -->\n      <template x-if=\"$store.wp.isPaidMember()\">      <a \n        href=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/Picking-a-Market-Worksheet_v2.pdf\" target=\"_blank\"\n                x-on:click=\"window.analytics.track('Blog | Market Intelligence | Picking a Market Worksheet', {\n          referrer: 'https:\/\/www.biggerpockets.com\/blog\/what-national-retail-chains-taught-me-about-investing',\n          account_type: 'pro',\n        });\"\n                class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\">Download the Worksheet<\/a>\n    <\/template>  \n  <!-- Frictionless Popup -->\n  <\/div>\n<\/div><figure class=\"wp-block-media-text__media\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"1024\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/Picking-A-Market-1024x1024.jpg\" alt=\"picking a market worksheet\" class=\"wp-image-165579 size-full\" title=\"\"><\/figure><\/div>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>In 2005, I decided to start an investor services business. I reviewed all the popular investing literature. What I found were self-professed experts offering opinions and no processes. As an [&hellip;]<\/p>\n","protected":false},"author":613715,"featured_media":168444,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7389,7119],"tags":[],"class_list":["post-168434","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-analysis","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/168434","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613715"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=168434"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/168434\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/168444"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=168434"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=168434"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=168434"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}