Trader Joe's Affect -- The Seattle "Starbuck Affect"

19 Replies | Seattle, Washington

I read the book Zillow talk: The new Rules of Real Estate not too long ago that talked about the Starbucks affect as well as some other interesting facts that I think you might enjoy if you're into these types of things. A few examples off the top of my head are prices ending in 999 or 444, houses with the number 7 in the address, phrasing when listing a property and the corresponding sale price, etc.

I think these are fun things to look at but I don't think they should carry too much weight when it comes to acquisitions, although they are definitely signs of a more affluent and stable neighborhood...just my .02

I have a buddy that owns bagel shops here in Vegas. He used to use the starbucks method of looking for new bagel locations. One thing that he told me that always stuck in my head was that it is not only about being by a starbucks but it is important to be by a starbucks that does NOT have a drive thru. If they have to get out of the car to go into starbucks then his walk in business would be much higher than if he were to be next to a starbucks with a drive thru as no one gets out of their car. 

Originally posted by @Michael Johnson :

I read the book Zillow talk: The new Rules of Real Estate not too long ago that talked about the Starbucks affect as well as some other interesting facts that I think you might enjoy if you're into these types of things. A few examples off the top of my head are prices ending in 999 or 444, houses with the number 7 in the address, phrasing when listing a property and the corresponding sale price, etc.

I think these are fun things to look at but I don't think they should carry too much weight when it comes to acquisitions, although they are definitely signs of a more affluent and stable neighborhood...just my .02

 I think what's great is knowing that companies spend a literal ton of money on location research, they are doing our work for us to know what average household income is, what disposable income is, and they do a lot of footwork in location, location, location.  House buyers are going to be attracted to those areas (if those customers/businesses are your tenant base, or selling base) why not use their research and leverage it to increase our success?

I currently rent in Ballard, and the wife and I are unwilling to move because we're within walking distance of a Trader Joe's. I have friends in the area who are very strong tenants like us, and feel the exact same way.

Originally posted by @Robert Adams :

I have a buddy that owns bagel shops here in Vegas. He used to use the starbucks method of looking for new bagel locations. One thing that he told me that always stuck in my head was that it is not only about being by a starbucks but it is important to be by a starbucks that does NOT have a drive thru. If they have to get out of the car to go into starbucks then his walk in business would be much higher than if he were to be next to a starbucks with a drive thru as no one gets out of their car. 

 The 24 Hour Starbucks on Tropicana, I heard, was one of the busiest locations in nation.  I hated having to go over there though because all the off duty cabbies would hang out in front an there was a cloud of smoke hanging over the whole place that never went anywhere.  But their drive thru line never slowed down, always full.

Originally posted by @Kai Hicks :

I currently rent in Ballard, and the wife and I are unwilling to move because we're within walking distance of a Trader Joe's. I have friends in the area who are very strong tenants like us, and feel the exact same way.

 See, I don't really like Trader Joe's.  I never see anything I want to buy, but I'm a pretty simple guy.  So because of this affect, are you investing in areas near to Trader Joe's?

I don't think it's a bad idea, but I'm currently hoarding cash while waiting to see what happens with the Fed raising rates in Sep or Dec, and if China's stock market actually manages to erase its gains and then crash

Originally posted by @Kai Hicks :

I don't think it's a bad idea, but I'm currently hoarding cash while waiting to see what happens with the Fed raising rates in Sep or Dec, and if China's stock market actually manages to erase its gains and then crash

 If rates go up this year your buying power goes down!  As a buy and hold investor I'd look to try and deploy my capital before that happens!

As far as I know, mortgage rates are tied to the 10 year T-bill, which I don't see demand dropping for anytime soon. But when rates go up, and CDs and savings accounts offer better yields which leads to less competition for alternative asset classes like real estate.

Originally posted by @Kai Hicks :

As far as I know, mortgage rates are tied to the 10 year T-bill, which I don't see demand dropping for anytime soon. But when rates go up, and CDs and savings accounts offer better yields which leads to less competition for alternative asset classes like real estate.

 I don't see there being any chance of people passing on real estate to get into CD's and savings accounts regardless of what rates do.  You could bury the money in the backyard and get a better return than in a CD or savings account.

I have been to the local trader's Joe a few times.  waste of my time.  I thought it would be like whole foods since I went to spend some money on serious foodie eats.  didn't see anything worth spending money on.  they didn't even have Dutch processed cocoa. just the regular Hershey crap

Originally posted by @Jordan Morrison :
Originally posted by @Kai Hicks:

As far as I know, mortgage rates are tied to the 10 year T-bill, which I don't see demand dropping for anytime soon. But when rates go up, and CDs and savings accounts offer better yields which leads to less competition for alternative asset classes like real estate.

 I don't see there being any chance of people passing on real estate to get into CD's and savings accounts regardless of what rates do.  You could bury the money in the backyard and get a better return than in a CD or savings account.

 Don't underestimate our generation's aversion to risk ; it's easy to forget that BP is a bubble. It's a great bubble of like-minded people looking to educate themselves and build investing strategies, but that is not the typical state of things elsewhere. I've talked to soooo many people who I would consider otherwise intelligent that were so shell-shocked by the '08 mortgage crisis they swear they'll never put another dime into stocks, bonds, or real estate because they're all scams. 

I don't think we have a trader joe's in the state, and the nearest Starbucks is at least a 3 hour drive.  looks like no appreciation in my rentals this year.

I'm with you Jerry not a Trader Joe's with 4 hours of me but I do see the idea behind the investment. Every time I have been to one they are packed. Kai that's what you would think would happen to home prices but they actually rise when rates do. It's part of the herd mentality. Read this http://www.forbes.com/sites/billconerly/2012/12/18/when-mortgage-rates-rise-will-home-prices-fall/ By you waiting for them to rise you will be part of the push upwards.

If you aren't familiar with the "Starbucks effect": 

 http://money.cnn.com/2015/03/04/real_estate/starbu...

TL;DR - Between 1997 and 2013, homes closer to the coffee shop (.25 mile) increased in value by 96%, compared to 65% for all U.S. homes.

Here in the Greater Seattle Area, you can't help but live within a 1/4 mile of starbucks.  In fact, you might be in an area that there are multiple locations within a 1/4 of your home. 
What it boils down to is starbucks spends a lot of time evaluating MSA's and farm areas for property that is on the upswing.  So, whats the next place for us to look to for companies that may be able to process macro and micro economic fluxes when placing new locations?  In the Seattle Area it's Trader Joe's.  They often fit into smaller locations than a Whole Foods, and tends to attract a certain type of expendable income clientele.  

My thought is how do you leverage other peoples knowledge and skill-set without having to really leverage it?  If I could identify businesses that historically research and build new locations aggressively in areas that are up and coming so that they can lock in todays rents on a 10-20-30 year escalating lease, I'd be watching for any indications that they are building in my market, or if I am looking out of state, it gives me a higher level of confidence in that area.

I think every one is being very Micro and should be thinking Macro. Yes when the google bus stops sparked controversy when they spiked home values in the immediate area but these are rare cases and often EXAGGERATED BY THE MEDIA and LAY PERSON CONVERSATION TOPICS.

What MACRO things should we be looking at?  If you want to invest in strictly West Seattle shouldn't you be looking at Micro effects instead of MACRO effects?  Also I might argue that the Layperson is the majority buyer of residential homes, and knowing where they want to live is going to increase your ability to rent to those people.