I hope everyone had a great Independence Day? As real estate investors and entrepreneurs, the freedoms in our country that we should not take for granted, allow us to make our own choices regarding how we build our wealth and whether we succeed or fail.
Our success should be up to us, based on our decisions! And that is where I want to start this post.
It is important that we start making decisions to position our business to maximize its full potential.
Now, when I talk about positioning, I am talking about how to determine where your market, or any market for that matter, is moving to and positioning your business to take advantage of that movement.
You see the simple and obvious fact is this: if you can figure out where “the” market is heading, and get your business positioned in the path of that movement, it is hard not to profit!
The hard part of course is trying to figure out where “your” market is heading, and if you do figure it out, having the presence of mind to accept that it might not be where you were hoping it was moving towards.
Here is a case in point:
Rehabbers in Southern California know, based on direct experience, that their margins have been getting squeezed, hard! There are a variety of reasons for this, almost none of them within the control of these investors. As a rehabber in Southern California if you are experiencing continually declining profits what are your options?
- Stay in the market as a rehabber, double down on the number of offers being made, offer higher prices (further deteriorating your margins), beat up your contractors to lower their costs, or increase your velocity in the hopes of making up for lower margins by doing MORE less profitable deals. YUCK!
- Change your strategy to become a wholesaler; you still have all of the problems above trying to unload a property that you, as a wholesaler, more than likely paid too much for. YUCK!
- Change your strategy and start purchasing rentals and run the risk of even lower margins based on little to no cashflow and very little appreciation. YUCK!
From my limited view of the Southern California market it appears to be very hard to get into a deal as a rehabber and keep it profitable. (note: I realize that this statement may be an oversimplification, but the bottom line is that margins are being squeezed in Southern California)
Another, yet totally opposite example, is being a landlord in places in Detroit or Lansing. While the rental market (not for the faint of heart) allows for great cashflow due to extremely low acquisition costs and reasonable rents, if you want to move out of rentals and into rehabbing, good luck! As, it is my understanding, that there just aren’t that many people looking to buy a home in these two cities.
Therefore, if you are experiencing one of these two situations or anything in between, what do you do?
Do you keep doing what you are doing and hope for something to be different? Or, do you start to look at first your market and possibly other markets to determine if perhaps you shouldn’t be positioning your business to achieve your goals?
A case in point has been the frequent discussions on the BiggerPockets Forum regarding some of the more experienced investors getting into single family development (read new homes) in a variety of markets because these markets are supporting new development.
Another example are the many posts made by Jeff Brown that almost always describe how to purchase rentals and secure reasonable, if not great, returns in areas outside many investor’s immediate market.
Or… why I am heading to North Dakota (much more on that in later posts) to participate in several projects including a single family development in Williston and a multi-unit in Bismarck.
In every case, these decisions are being made because experienced investors have determined that their normal markets are not supporting their business goals, and they therefore have to find new markets (or significantly change their strategies within their current market) to advance their business.
Questions to Ask About Your Market
How is your market supporting your business? Are you finding enough inventory to support your goals? Are your acquisition costs increasing or decreasing? Are sales prices or rents going up or down? Are you finding that you are working harder and harder, yet your business is not achieving its full potential?
If you answered yes to many of these questions, then perhaps it is time to take a hard look at what you are doing and decide what you need to change to achieve your goals. Realize that everything should be on the table when going down this path, including striking out into new markets!
I hope this post has gotten you to start thinking about your market, your business, your profits. If you are not achieving the results you deserve, know that you can make other choices for your business. I will continue this discussion with some insights into markets and positioning in my next post.
Until than… Best of luck!