Why you Should Build Yourself a Moat

The BP Podcast has talked about creating a "competitive advantage" in your business. This is the same concept that Warren Buffett refers to as a "moat". Mr. Buffett won't buy any company that doesn't have a moat. Basically, both terms refer to a particular aspect of a business that is not easily replicated by another "copycat" business. So Coke and Pepsi have their secret formulas, drug companies have patents, BMW has brand value, etc.

What does this have to do with real estate investing? Everything! Without a moat, or competitive advantage, your company gets in line with every other in a race to the bottom, as you have to compete with everyone else on price alone. If you can find your competitive advantage, you can "win" without being the cheapest price (or highest, depending on the situation).

This was illustrated in Podcast 60, where Serge Shukhat talked about his competitive advantage. He would look for properties that were a little different from everything else he was seeing in the market, like a pool, RV parking spot, or 4 vs. 3 bedrooms. These features would allow him to charge a little more rent than everyone else and keep his units rented more consistently.

Other ways you could build your moat in REI would be to build brand recognition in your area; if people trust your brand, they may bring deals to you and you won't have to compete with other investors on price. You can forge relationships with divorce or probate attorneys so that you get first pick of houses they have available. You can create systems that streamline your business, allowing you to operate on tighter margins than your competitors, and find deals that others won't take.

So what's your competitive advantage? How will you build your moat?