Investors: Know Thy Customers

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I live in a fairly rural suburb north of Atlanta, Ga. Just this week, I noticed a new store went into a small vacant space adjacent to a little country gas station about 2 miles from my house. Unfortunately, this space has seen a number of occupants over the last few years and none of them can seem to stay in business. I think much of it has to do with the less than ideal storefront location – directly next to the run down gas station. However, the most recent occupant probably won’t last 2 months … not because of the storefront, but because the owner simply doesn’t understand who her customer is in relationship to where she’s decided to do business. Opening a storefront business that caters to 1% of the population for a particular zip code just doesn’t make a lot of sense.

Same concept applies to investors. While you may not think of real estate investors as store owners, they are still business owners with customers. Whether you are talking about renters, investors or end buyers, a real estate investor has a target audience in mind when investing in and renovating a piece of real estate.

Be Careful Not To Over-Spend on Your Rehab

I often think of the house flipping shows you see on cable. I remember one of the houses that was featured in Atlanta a few years back that sat on the market for ages without selling. Spending $100K rehabbing a small house in a marginal neighborhood apparently made for good TV ratings, but in reality, it didn’t make any business sense. The neighborhood was very transitional and wasn’t ready for a $300K+ house with every possible upgrade. I am quite sure that the investor either sold the property at a considerable loss or gave it back to the lender. Either way, it was a great lesson in understanding the market and creating a product suitable for that market.

The same can be said about rental properties. You can’t have a rental property in an affluent area and expect to get market rents with worn carpet, scuffed walls, old appliances, etc. You’ve got to know the expectation of the renters in a given area in order to keep your vacancy at a minimum.

While this may seem obvious, it’s amazing how often I see houses that have been over or under-rehabbed. The goal of flipping a property should never be to produce the best looking property …. it should be to maximize profitability by spending the right dollars in the right places. It’s up to every investor to know the market they are in and make appropriate decisions for fixing and upgrading their property to make the most of the investment.

Photo: Universal Pops

About Author

Ken Corsini

Ken Corsini G+ is the host of the Deal Farm Podcast (on iTunes) and has 10 years of full-time real estate investing experience. His company, Georgia Residential Partners buys and sells an average of 100 deals per year and has helped hundreds of investors around the country make great investments in the Atlanta market. Ken has a business degree from the University of Georgia and a Master Degree in Building Construction from Georgia Tech. He currently resides in Woodstock, Georgia with his wife and 3 children.

9 Comments

  1. One key to a successful business, sell what customers are buying. In real estate, if you want to be a long term investor of rental properties, many factors can work for and against you in determining the year-to-year profits.

    Thanks for the reminder.

  2. Sharon Vornholt

    Ken –

    That is absolutely true. You can have the best product or service in the world, but if you aren’t getting the message out to the right people you are destined to fail. If you build it they won’t necessarily come unless they know about it, they need it and it is positioned and marketed correctly.

    Nice Post. Sharon

  3. Enjoyed the article Ken. I have several rentals that I own with a partner and he does all the management and so on. However, I have started to pick up a few rentals I am holding myself. In particular, a property I just picked up, needs carpet, paint etc. However, it has a large detached garage and an attached 1 car garage. My urge is to convert one car to a bedroom and add a shower to a 1/2 bath very close to the garage. As I research the going rents in the area, there is about a $200 difference in rents between the current condition and if I add the bedroom and shower. Considering vacancies, expenses etc. it will take about 4 years to recover the money. Sounds good to me. There is also the point of rentability and keeping tenants long term. As we all know vacancies cost a lot of money. I would be interested to know thoughts on some over improvement targeted at keeping tenants long term.

    • Ken Corsini

      Gary – thanks for the post. Converting the attached garage in order to get additional rents sounds good …. assuming a converted garage does in fact get the additional rents and doesn’t negatively impact the property. – Especially if it pays for itself in only 4 years!

      I wish there was a magic recipe for finding tenants that stay long term … unfortunately I haven’t found it. I think it comes down to making a property that is desirable and screening across multiple applicants to determine which one has the highest likelihood of staying long term (based on income, credit and especially rental history)

      Best of luck!

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