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

About Author

Ben's an 'out of the box' Realtor and Internet Marketing guy. He's recently started a brand spanking new Training, Coaching, and Marketing company for Realtors called The Exit Pro. He likes all things blogging and teaches Realtors to be more professional through training. He spends most of his time getting the word out about his cool new real estate company and writing guest posts for great sites like BiggerPockets.

3 Comments

  1. John, I can recognize a fellow ‘geek of all trades’ when I see one… glad you liked the article. Good luck on the short sales.

    Tyler, if it’s working for you… don’t mess with it! I could see maybe 1 in 10,000 people actually finding this post useful from a usability standpoint, so maybe it was a novel idea. The world needs more of those anyway.

  2. Hey Ben – There are plenty of closet geeks out there that will find this interesting . . . the number who put it into practice, however, is probably slim. Those are likely the guys making all the money, though! Quantitative analysis combined with an industry where most people are just winging it, can lead to a very high success ratio.

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