Have you ever heard this one?
“Yeah, I’d love to invest in real estate, but I don’t want to get called to fix a toilet at 2 AM.”
I’m sure you have. I hear it every week, but it has not stopped myself and many others from investing.
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Real Estate is a Business
One of the biggest issues that new investors face is self-imposed… they treat their real estate investing like a hobby and not like a business. You see, a business takes work. A hobby is just something you do on the side for fun. You can increase the chance of being successful (and reduce stress) by putting time into your business to truly understand it and make smart decisions.
This is the #1 strategy I use when doing business planning. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. It is a strategy that I learned in grad school and use all the time throughout my various business ventures. Typically it is used by business consultants who charge you a lot of money, but today I’d like to show you how you can use this technique to elevate your business.
I like to think of SWOT analysis as a pros/cons list on steroids for professionals. It is used by taking a scenario and asking the following questions:
- Strengths – Things your business or the scenario does well that provide an advantage
- Weaknesses – Things your business or scenario do not do well that provide a disadvantage
- Opportunities – Things that your business or scenario could exploit to benefit from
- Threats – Things that could cause issues with your business or scenario
I like to use a table like the one below to help do the analysis. Strengths and Weaknesses are things that are internal to your business, while Opportunities and Threats are external to your business.
So you can typically control and change things that are internal to your business (Strengths & Weaknesses), while you can only exploit or mitigate the impact of things external to your business (Opportunities and Threats).
Once you go through this exercise, you will have a good idea of the landscape, but you are not done.
The previous step was great, but it does not add much value without action. Now that you understand a view of your business from various perspectives, you need to make some decisions and take action.
For example, does you business have a strength that you could exploit, such as being able to borrow money at a low rate? Does it have a weakness, like lots of manual processes that require you to get them done? Is there an opportunity that can benefit your business, such as being endorsed by previous tenants to fill vacant units quicker? Or do you have threats, such as your investing area experiencing a declining population?
For each item on the list, I then like to take a look and determine the next action. In some cases an action is not needed, so I just enter N/A. In other cases there is an action that needs to be taken, so I make note of it. After I get through each item, I collect my actions and use them as part of my goal planning process.
This ensures that the actions I take are correlated directly to my business and help drive towards my goals. You can do the same, without paying a lot of money for a consultant.
Back to Toilets
So the promise at the start of his post was being able to get started in real estate investing without getting called at 2 AM to fix a toilet. If you perform a SWOT analysis on your business, getting that call at 2 AM could be a threat to your business because you can’t respond to it, could lose a tenant or could cause added stress. By going through the evaluation process and determining an action for that threat, you will be able to mitigate the risk associated with that threat.
What it comes down to is understanding your business, understanding your business environment and taking preventative actions to keep your business running smoothly.
Action: Take the SWOT chart and fill it out for your business. Then determine 1 action that you can take for each section (Strengths, Weaknesses, Opportunities & Threats) and leave it in the comments below.
We have been doing this for years and it has saved us from some big risks and allowed us to take advantage of some fantastic opportunities so, hopefully, it can do the same for you.
Photo Credit: Michel Filion