September 29, 2016
Joe Fairless

Focus on One Investment Strategy and Don’t Chase Rabbits

In my conversation with the Craig Haskell, who owns over 7,200 units that he obtained via syndication, he explained the number one mistake the real estate syndicators make: they chase rabbits. He also provides the two lessons that he learned from chasing rabbits and the importance of focusing on one real estate strategy.

Based on mistakes that Craig has seen many investors make, including himself, is chasing rabbits. Many investor strategies are analogous to going on a hunting trip and shooting at everything that moves. Craig believes the culprit is a lack of focus. Investors are in the market trying to find deals and make the numbers work, but don’t really know what they are looking for. If you want to be a successful real estate investor, you need to be focused and can’t chase rabbits.

Example of Consequence of Chasing Rabbits and Having No Investment Strategy

When Richard first arrived in Phoenix to begin his investment career, he didn’t have strategy. He was simply chasing rabbits, looking at any and all deals. Eventually, he caught a rabbit, purchasing an apartment building known as Red Rock. However, this was back in 1991, and the Phoenix economy was less than ideal. The prior year, over 34,000 units were built. There was a ton of supply and very low demand, with an average vacancy rate of 20%. As a result, Richard struggled to fill the building. Even after he fixed up the property, he had a hard time competing with other local apartments, which were offering a lot of concessions (free rents, TVs, etc.).

Everything turned around after Richard asked himself, “Who is going to live in this apartment and actually stay?” After searching for the type of tenant that was shopping around, he determined that the main demographic was a Hispanic, B and C tenant. The next question he asked was, “What must I do to get Hispanic B and C tenants to live in and stay at my apartment?” After conducting additional research, he found the answer. He concluded that his target demographic, Hispanics, was extremely family and community oriented. Therefore, he created a community center, a playroom, and started an English class at a local church. As a result, he was able to take his occupancy rate from 70% to 92% and raise rents by 25% in 3 months!

Two Lessons Learned From Chasing Rabbits

Focus on one investment strategy and don’t chase rabbits – While Richard was able to salvage the Red Rock situation, if he would have had an investment strategy from the beginning, he wouldn’t have purchased the building. It didn’t have an area to convert to a soccer field. It didn’t have a large enough area to create a BBQ pit, basketball court, or volleyball court to provide a park atmosphere. These are the types of amenities that his target demographic demanded.

Your investment strategy has to solve a problem. Find a problem and then build your business plan around solving it. For Richard’s Red Rock example, he determined that there wasn’t an apartment community in the area that catered to Hispanics, so he created one. Again, Richard didn’t discover this problem until AFTER he purchased the property, but things happened to work out. However, they could have just as easily gone awry. Therefore, it is important to identify the problem first, create a strategy, and then purchase a property.

Bonus Investment Strategies – Additional Problems to Solve

For office space investors

  • The Problem – Due to multiple reasons, there is currently a huge flood of medical issues occurring
  • The Solution – Buy small office buildings and reposition them towards the growing demand for medical space (doctors offices, medical supply stores, pharmacies, etc.)

For retail space investors

  • The Problem – People buy most of their stuff from online retailers. As a result, many brick and mortar retailers are struggling or closing their doors.
  • The Solution – Buy retail buildings and reposition them towards tenants that provide services that cannot be purchased online. (Dentists, perishable foods, haircuts, etc.)

For apartment investors

  • The Problem – There isn’t a mainstream lifestyle like there has been in the past. People have a ton of different lifestyles.
  • The Solution – Based on your target market and demographic, buy apartment buildings and reposition them to senior housing, student housing, green housing, Millennial housing, etc. They will pay more for a community that specifically accommodates to their specific lifestyle

Buy properties, reposition them towards your target niche, and create a lifestyle that they can’t get anywhere else.

Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

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