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David Diner
  • Research Assistant
  • Glen Rock, NJ
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Creative Business Strategies From A Complete Newbie

David Diner
  • Research Assistant
  • Glen Rock, NJ
Posted Oct 3 2015, 23:51

Io,

I've been doing some serious reading, webinar watching, podcast listening, and forum lurking. This has helped me identify a couple of solid business strategies.

First, let me explain why I want to get into real estate (as opposed to just starting my own technology business). Even though my own technology company would likely be more profitable, it would not build wealth. Taking care of my parents, siblings, kids, and grandchildren would not be an issue while I am at the company, but afterwards, it would be difficult to ensure that the wealth flows to the next generation(s). Based on what I have learned, real estate seems to be the most stable vehicle for preserving wealth. So, even if my business is not in real estate, eventually, I need to get into the real estate business (and there is no time like the present).

A solid business plan needs to identify a gap in the current marketplace and explain how the business fills the gap. This requires identifying a target market and how much of that market the business can capture. Personally, I am in the camp that it is better to have a large chunk of a small pie than a small chunk of a large pie (for scalability and less competition reasons). The bad news is that this will vary from location to location, so I feel that it is imperative to begin in a real estate market that you are intimately familiar with, where you can easily take a pulse of how the market is doing. The good news is that this familiarity will give you a competitive edge and theoretically should enable a higher rate of growth. A few examples I have been theory-crafting are affordable student housing, foreclosure relief programs, and new graduate housing (these are mostly from personal experience, I am sure there are plenty of other markets out there and I'm sure that there are many markets that are yet to be created). Of course, there are established markets, typical families looking to buy a single family home or rent a unit that aren't changing any time soon (until someone comes along and completely disrupts the industry, but that is a story for another day) that offer traditional avenues (buy and hold, fix and flip, commercial real estate). If I knew more about wholesaling... I'd make a comment about it here (read: if you can explain the wholesaling business model, please elaborate in a response to this post). 

My main concern with traditional approaches is scalability. (My point of view comes from these two articles and various podcasts and webinars, I apologize that I did not record where I got specific references from). 

http://www.biggerpockets.com/renewsblog/2015/04/20...

http://www.biggerpockets.com/renewsblog/2012/12/12...

The major flaw with the first article (which it points out towards the end) is that in order to build substantial wealth using the method described, you eventually need to expand and control more units. The amount of passive income mentioned in that article is significantly less than what you can expect from starting your own business. The major flaw with the second article (aside from assuming appreciation, which the author addresses in the comments and being region locked) is how to grow investment operations when these deals are virtually non-existent in the investor's home town (again, the author addresses this in the comments).  If you happen to live in an area (or are comfortable travelling to an area) where it is efficient (I'm arbitrarily saying efficient is that for every 100 properties you view, you make 10 offers, of which, 1 is accepted), the the rest of this point is moot since that is fairly easy to scale up (as in a small team can probably view 1000 properties annually while the wealth is compounding). This scaling issue is partially addressed here

http://www.biggerpockets.com/renewsblog/2012/09/23...

What I took away from the article is that in an expensive region (like the one I live in) requires a creative individual to tap into a new market. This is most easily achieved through a business and it offers plenty of room to grow an expand.

I want to briefly touch on flipping. It suffers from scalability issues in the sense that in order to be profitable, you need to constantly have houses in the pipeline. Although this is definitely a great area to expand into (since there are plenty of societal benefits) it seems to me (especially after listening to podcast 3) that there is virtually no room to grow initially. However, once you have the experience and capital to do multiple flips in parallel, this becomes a profitable business that can restore neighborhoods and make the community a better place to live.

I (regrettably) do not know enough about commercial real estate to speak on the matter at length. It seems to me that the problem is the high cost to enter the market. This would then make sense as a great area to expand into, but I am not sure how one would get started with a commercial real estate business... if someone can fill in the gaps, please let me know.

With that out of the way (hopefully I explained why I am not in favor of traditional routes for my area, the opportunities are there, but there is not enough room to grow the business). I want to explain a creative solution I have and hopefully get some feedback from the community.

My first problem after moving to MA for my first job was finding my first apartment. I did not know the area, did not know what a good price was, and did not know how to find a roommate. My business would be to pair home-owners with a spare room with new grad students starting a new job who need a place to stay for a month or so. What (if anything) does this have to do with real estate? Mostly, the idea is to make money on the side while networking with potential clients. Since this can easily be scaled up to just about any town that hires a lot of new grads, it seems like a solid way to enter the real estate market.

There are plenty of deficiencies in just about any given market. A good thing to remember, if the numbers for a certain investment strategy are not giving you the answer that you want, it's time to ask a different question.

Thanks for reading...!!! I hope this gets at least one person thinking about creative real estate business opportunities...!!!

~Diner

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