Is Your Property Just Another Commodity?

[JoeRagona]

Would you agree that most people think buying an investment property
and putting a tenant in is how Real Estate investing works? If you are
like me, then you know there is a heck of a lot more to it than that.

Still, in speaking to investors who have been in the game a lot longer, I find they lack basic fundamentals of business and worse, follow what everyone else is doing when it comes to pricing, tenants, how they care for their properties etc.

They are positioning themselves ` as a COMMODITY.

To their prospective customers, it makes no difference which property they choose.

That is NOT how you want to run your Real Estate business.

But, if you are willing to do what others will not in all areas of your real estate business, you will be successful.
The trouble with most investors is they think of Real Estate as a
passive income source - it is NOT passive, it's a business.


So if
you are running a business, what are you doing to stand out from your
competition? Some investors tell me they `HAD` to drop rent because
property A down the street is asking lower. Well, maybe that investor
is not as specific with whom they want to attract as tenants.


What if that property is a hell-hole inside?


What VALUE does the property and the team (landlord, property manager, handy-person) offer?


Does it have the same features?


When I look at 'competing' investment properties, I know exactly what to add to mine ` and the main thing is VALUE.

• I ALWAYS stage the property (using Suite Design) to eliminate the guess work of how the space works.
• I ALWAYS upgrade my properties ` investing a bit more to attract someone like me

• who would love the property.
  I NEVER negotiate on price - I will ADD another value item (maybe let them move in two weeks early no - charge)

People do not buy for price, they buy for value.

I know some will disagree with that, but think about it, if you have everyone asking you to drop your rent, the bottom line is your potential customer does not see the value in the property with relation to the rent you are asking.


So
think of a way to add more value to your marketing - and when you
choose your next property, have the result in mind - the tenant - does
the property offer what your ideal tenant wants?

If you take away one thing from this it should be...
... adding instead of discounting is a powerful way to market.

Just
think, while others are dropping their prices, YOU are ADDING to the
deal. I can`t tell you how many cars I bought just by `convincing them`
to throw in free car mats, undercoating, a year of free oil changes
etc`the value I perceived was worth it ... AND they let ME think I was
winning the negotiation.


Always look into expanding your business
knowledge, look at more education, always read and finally hire someone
to help you achieve your results - every successful business owner has
someone like a coach or mentor in their corner.

 

[Thomas Beyer]

This is a good post, Joe .. and good advice for most REIN members / real estate experts renting a house.. but it assumes you are selling an ABOVE AVERAGE PRODUCT.



In some cases, such as some apartment buildings or some lower end homes, people have a budget in mind, and of course would rather get a nicer apartment or a bigger one or one with a new kitchen or a view .. but can't pay more than X. Much like cars or fridges or shoes or hotels: some folks appreciate the service/quality and are willing to pay for it .. and some do not and as such economies of scale have to be created to compete on price. Wal*Mart, Shell, Target, Discount warehouses, CostCo .. as examples ..

 

[bizaro86]

Joe, this is (IMO) your best post ever, and could be the best post I've ever read on myreinspace.



People buy value, and that means different things to different people. That could be reasonable aesthetic upgrades (a feature wall is inexpensive) all the way to a brand new kitchen. Maybe it's being flexible with showing times. I had a tenant move in 3 days after she first contacted me, after I went and showed her the place at 9:00 at night. I was expecting it to be vacant that month, but got a good long term tenant out of being flexible with showings. That added value to her. To put the value of a tenant in perspective, she paid me ~$15,000 while she lived there, a good return for making an extra trip. (And the first months rent is money I wouldn't have gotten otherwise)



I truly believe excess value can be created out of any piece of real estate, and that can allow for higher than expected rents. I think some properties are harder than others, but it can still be done.



Regards,



Michael

 

[JoeRagona]

You are right Thomas, this is where the post was directed. There will always be exceptions to the rule and for the most part I am a firm believer in value.



Companies (including landlords / real estate business ) is in a losing battle if they compete only on price.



A company like Walmart is successful at this because they cater to a niche market and have the buying power to do so.



When I compare this to my real estate, I don't want the 'walmart' tenant if that makes sense.



I think most of us can use a value strategy like you have suggested, for an above average product, it's what Don and the crew have been teaching for years also!!



Great having a chance to talk with you BTW in Toronto!!

 

[JoeRagona]

Hi Michael,

Thank you, I will gladly accept that compliment! I'm very pleased you liked the post and see from your examples you are also creating value in your approach! I also agree that some properties are harder than others, but it doesn't always have to be material, like you have proved in your availability!



Great Speed Forward!



Check out my blog and let me know if you like what's happening there also! I always accept new 'likes'

 

[GaryMcGowan]

As I said on FB, Great Read Joey!

You hit all the right "nails on the head".



When looking at a building ask yourself these questions.



Can I add value?if so At what cost? and How long will it take to recoup the cost?



Can I increase the rents after I add value? Will the Value be more than my purchase price + costs?

 

[bizaro86]

Further thoughts on this. In any business, you get the sale by either being the cheapest or being the best value.



If you're selling a commodity, you have to be the lowest price available to get the sale, so the only way you can make money is by being the low cost producer. So well purchased well managed real estate can make money using this approach, but it requires excellence in cost control and (especially) asset selection.



If you're selling a value added product, you have to provide value that exceeds the price asked. This value can be different things to different people. The trick is to provide more value to your customer than it costs you to give them that value. In my example above, if a kitchen renovation costs you $40,000 but only increases your rent by $50 per month, that would be a poor investment in adding value to your property. If you can add convenience, aesthetics, availability, or tenant friendly policies (pets, kids, whatever) you may be able to add value to a tennant (and charge them for that value) at minimal cost to yourself.



The Coca-Cola company sells soda at a high price. The Cott company sells soda at a low price via store brands. One of them makes way more money per soda than the other. The soda is more or less the same, they've just added value through branding.



Regards,



Micahel

 

[JoeRagona]

And thanks again Gary! Appreciate your support with EngagedInvestor.ca also!



You got the point I was making, targeting a higher than average tenant with a higher than average property. The Value is perceived by the customer, not you so what YOU may think is value, may not be to the customer.



you get the idea...

 

[JoeRagona]

LOL, now we are getting into an entirely different discussion



Business sales can be different depending on how it's marketed, positioned and delivered. Value is in the eyes of the purchaser.



Many businesses make the mistake of going after the sale and not the customer ... which is another level to what I was saying in the post. I always go after the customer, same as when I am looking for capital, I don't go after the money, I go after the relationship, the partner.



If you sell commodity you are right, it won't matter to the customer and more than likely they go for the lowest price because they all look the same, just like a bag of rice, which is better, why?



If you want to sell commodity real estate, you will get commodity clients, which is what I was suggesting you should NOT do, at least in my opinion.



When you are adding value to your property such as you had suggested, convenience, policies etc, you are dead on - these don't cost you much at all.



I however take a different look at your example of Coca-Cola, they do not add value by branding ... branding is an entirely different animal, but they DID add some value WHILE they branded to become the leader in their market ... does that make sense?



Good thoughts Michael! I can talk business all day long