Blinded By Numbers: How Fixating on Metrics Can Lead to Bad Investments

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“… not everything that can be counted counts, and not everything that counts can be counted.” — William Bruce Cameron

I was talking to a group of real estate investors at an investor meet up. A few of the investors purchased buy and hold properties in the middle of the great recession. They focused on the numbers and closed a buy and hold deal with a potential 25% cash on cash return. Things were going well for a time, but as soon as the market recovered, vacancies began to rise.

Why did the vacancies increase? The tenants lived there due to the recession. As soon as their incomes rose, they left ASAP. As a result, the investors dealt with frequent tenant churn, theft and vacancies. Over time, the properties turned into huge liabilities.

The investors had a golden opportunity to purchase quality properties at a discount, but instead they picked losers. But how did this happen?

Why Do We Overweigh Metrics?

Occasionally I watch the show American Greed. I cringe when I see these con men prey on poor investors. I thought it was the hucksters’ way with words and charm that allowed them to steal people’s money. Actually, that wasn’t it. The cons told the investors what they wanted to hear: “You can make a quick buck by investing in X.” The lure of a fat return quenches our collective thirst for money.

Related: The 3 Metrics You Need to Know When Looking to Sell Your Investment Property

It happens to most of us. We see a property and think to ourselves, “Yes, it’s in a shady neighborhood; yes, it was constructed in 1910; and yes, it looks like crap, but look at the 25% cash on cash return.”

So we pull the trigger, and then decide which Caribbean Island we will retire on. Sadly, that’s where most real estate investors fail — because they focus only on the numbers and neglect the factors that drive the numbers, which results in the utter failure of their investment.

How Can Metrics Hurt Our Investments?

Donald T. Campbell created numerous works in the field of social science and psychology. Unfortunately, most of his work isn’t known in the investment community, so I took one of his laws and put an investor’s spin on it.

Campbell’s Real Estate Law:

“If real estate investment metrics (e.g. Return On Investment, Cash On Cash Return, etc.) are used as the primary reason for investment decisions, odds are the investment will fail.”

Numbers are important, but not as important as the investment vehicle generating those numbers. Metrics are tools. Such as a compass, they can tell you where North lies, but they don’t tell you about the canyon in front of you.

Post purchase, if we continue to heavily focus only on the numbers, we will make poor decisions in the short term that can potentially cause long term losses and larger costs. If we makes decisions solely on metrics such as pushing off a major structural repair because we want to keep our numbers in line with our projections or for cutting corners with shoddy work, eventually we will decrease the value of the underlying asset and its ability to generate cash flow.

Questions That Will Pull You Out of the Metrics Trap

We can start focusing on the big 3 factors that lead to a healthy real estate investment.

Factors such as:

  • Neighborhood: Is the neighborhood where the property is located a place people want to raise a family? If money wasn’t an issue, would people choose to live in this neighborhood?

  • Physical attributes of the property: (This includes floor plan, square footage, lot size, etc.) What attributes of this property will allow you to charge above-market rents? Is the floor plan larger than the comparable properties in the area?

  • Tenants: What type of tenants will be attracted to this property? Will people with steady incomes, great credit reports and clean tenant history want to live in this property?

Related: The Real Way to Evaluate a Real Estate Deal… If You’re a Rehabber

Then How Do We Use Metrics?

We need to start respecting metrics as tools to help us make decisions instead of the sole determinant of decisions. Metrics can be used as a status report on how things are going and a tool in tracking trends and discovering relationships between factors.

How would you prevent yourself from being blinded by the numbers?

Let me know with a comment!

About Author

Jordan Thibodeau

Jordan Thibodeau is a writer for the blog. He currently lives in Silicon Valley and works for a fortune 500 tech company. Jordan’s family has been investing in real estate for four generations. In 2014 Jordan founded the Silicon Valley Investors club that is decided to helping current and former tech employees make smarter investment decisions. He was featured in BP Podcast Show 74. Jordan is the author of a free investment newsletter called Investors Therapy. The newsletter covers all forms of investing and helps investors understand their psychology to make better investment decisions.


  1. Cheryl Vargas

    Great article Jordan!
    Where do you find information on the desirability of a neighborhood?

    Regarding your goal to charge above-market rents, do you buy floor plans with only 3/2 or greater bedroom and bath amounts?

    • Jordan Thibodeau

      HI Cheryl,

      Great question.

      Before I invested in Sacramento, I spent 6 months looking at houses in the area. I saw at least 100 homes. After seeing all different times of homes and areas, you begin to get a feel for each neighborhood and you can which neighborhoods are ideal for your investment objectives. I would always talk to the neighbors about a given area to get the inside scoup on what’s happening.
      Anyone close to your RE deal can be biased by their need to close the deal and earn a commission, so I always try to seek out neutral third parties.

      Trulia and Zillow keep records on school districts, I find that the stronger the schools are, the more desirable a location is. Of course it’s not a perfect rule, but it can be an indicator of a decent area.

      Also, you can use to preview zip codes to see what people are saying about their neighborhood.

      RE Above Market Rents: While I only invest in multi family. Around sacramento I’ve been seeing 2 bedroom houses and apartments with square footage of 650~. My duplex, has 828 square feet. Sometimes comparing houses by the number of rooms isn’t a apples to apples comparison.

      Let me know if you have any other questions.

      • Cheryl Vargas

        Thank you Jordan

        That is a brilliant idea to buy a property with more square feet than other properties nearby with the same amount of bed/ bathrooms. I’m going to keep that criteria in mind when looking for property.
        I’ll look up that website- next door- and I’ll talk to the neighbors to get a feel of what direction the neighborhood is going in.
        Thank you!

      • Katie Rogers

        I do not know about Sacramento specifically, but in many parts of California so-called “market rents” are already too high relative to the typical median tenant wage. And tenants with higher wages are not necessarily more desirable in terms of noise, cleanliness, and promptness. One way to get great tenants is to offer a nice home at below market rents, and screen carefully. Bad landlords love to trap tenants with one-year leases. And bad tenants love one-year leases because it is more difficult to evict them. I always go month-to-month. If you are a good landlord, your tenants will stay for many years.

        • Jordan Thibodeau

          @Katie Rogers: Thanks for the great points.

          I’ve been using year long leases for my duplex in Sacramento. I find that tenants enjoy have the security knowing their rent won’t be raised for at least a year (especially in hot markets).

          The year lease allows me to weed out tenants that are only looking for a temporary residence, because I don’t want to drive to Sacramento for multiple showings each year.

          I find that month to month and year leases are a matter of landlord preference.

        • Katie Rogers

          If you are a good landlord, tenants will not need to worry about sudden increases in rent, especially if you write in your month-to-month agreement. So rent stability is really a non-issue, or does not need to be an issue.

          I try to operate by the Golden Rule. If I were a tenant, and I got a better job in another city, I would not want the hassle of breaking a lease. If I wanted to buy a house, I would not want to be trapped by a lease. So I try to give my tenants what I would want. Temporary tenants are also a non-issue if you are a good landlord. Tenants tend to stay a long, long time with good landlords because they are so rare.

        • Deanna Opgenort

          Ditto. Month-to-month saved my bacon on my first tenants – I could do an “I no longer want to rent to you” letter, vs. having to break a lease. My parents have had some month-to-months stay for better part of a decade.
          People leave good, fairly priced housing only when they need to (job or family issues) and that rarely happens 365 days after they moved in.

  2. Andrew Syrios

    All of these metrics are based on assumptions and if those assumptions are flawed, the metrics are useless. This is absolutely true with things like the 2% rule and buying in warzones. Yes, it looks good on paper. But it will only look good on paper.

  3. Alison Robinson

    I love metrics! Always have always will. Cash on cash return, estimated annual cash flow, %expenses, %occupancy, mean time between tenant turnover, income 3x rent, etc. I track most and continue to look for more. Metrics may not be the whole story but I think my likelihood of success increases when i leverage both metrics with property criteria.

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