The Drake Equation Applied to Real Estate Investing

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Anyone ever heard of the Drake Equation?  If not, don’t feel bad.  It’s not a generally known term outside of the geeky space community (of which I am sadly a part).  In short, it’s a equation that was formulated by Dr. Frank Drake in 1960 to determine the practicality of SETI (the Search for Extraterrestrial Intelligence).  For you brainiac mathematicians out there (of which I am sadly NOT a part) here’s the equation…

N= R* x Fp x Ne x Fl x Fi x Fc x L

where:

N is the number of civilizations in our galaxy with which communication might be possible;

and R* is the average rate of star formation per year in our galaxy

fp is the fraction of those stars that have planets

ne is the average number of planets that can potentially support life per star that has planets

f? is the fraction of the above that actually go on to develop life at some point

fi is the fraction of the above that actually go on to develop intelligent life

fc is the fraction of civilizations that develop a technology that releases detectable signs of their existence into space

L is the length of time such civilizations release detectable signals into space.

This tells you (theoretically) how many technological races are in our galaxy with the ability to send and receive radio broadcasts.

Whew!  Enough of that!  Anyway, I got to thinking that the same type of equation could be applied to investing to help you determine if an area was viable for any number of factors….

The Real Estate Investor’s Drake Equation for Short Sales

Sure, you could use rental rates, cap rates, and Realtor opinions to make the same determination, but what if you got scientific about it?  Let’s make an equation to determine if setting up a short sale marketing campaign would be viable in an area…

N = H* x Po xPf x Pi x F

where N= number of viable investment properties in an area.

and H*= The number of homes in the area

Po= The fraction of those homes that are owner occupied

Pf= The fraction of those homes that are likely to be in pre-foreclosure

Pi= The fraction of those homes that would be willing to deal with someone and participate in a short sale

F= The percentage of those homes that are worth flipping or renting

This little equation could tell you how fruitful your efforts of creating a short sale marketing could be.  If Pi and F are very high but Pf is very low, then a campaign wouldn’t be viable.  You get the idea?  This could help you create viable marketing campaigns with high rates of success.

FYI, that first equation comes out with anywhere between 50 and 5,000 technological species in our galaxy alone.  If we have that many neighbors, think about property investing in a few thousand years.

Check out more information about the Drake Equation or get started in extraterrestrial property investing now!

Photo: NASA/courtesy of nasaimages.org

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.