Passive Investor Tips is a weekly series hosted by full-time passive investor and Best Ever Show host, Travis Watts. In each bite-sized episode, Travis breaks down passive investor topics, simplifying the philosophy and mindset while providing tactical, valuable information on how to be a passive investor.
In this episode, Travis discusses the idea that you get paid in direct proportion to the difficulty of the problem that you solve. He examines how commercial real estate fits into this discussion as well. By zeroing in on a very specific niche in real estate, he explains, you decrease the level of competition — and increase your chances for success.
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Travis Watts: Welcome back, Best Ever listeners. I'm your host, Travis Watts. You're listening to Passive Investor Tips, right here on Best Ever. Passive Investor Tips is simply the fundamentals, the mindset, the tips, the strategies to being a passive investor, whether we're talking about real estate, or other -- occasionally, these episodes do have some value to active folks as well. This one case in point; what we're talking about in today's episode is why big money is made in the niches. This is something I've been wanting to share with you guys for a while now. Disclaimers as always, never financial advice. I'm not telling you or anyone what to do. This is simply for educational purposes only.
I wanna kick off this episode today bringing you the Webster definition of niche. So we're talking about a specialized segment of the market for a particular kind of product or service. So allow me to share a quick story with you guys. When I graduated college, I did what most people do - I started looking for a job, and I didn't wanna make it any harder than it needed to be. So I started with looking at the companies that affiliated with my school. The ones that they typically sync graduates up to... And what I found was easy access to a job, rather easy, and highly competitive though, I will say that. And ultimately, entry-level to low-paying job. That's where everybody went, and it was the path that most people were on.
Fast-forward, several years later I was working in the oil and gas industry and I decided I had enough passive income to then quit that job and pivot careers. What I really wanted to learn was more about the financial system and more about investing. So I went looking for a financial services job, and again, I did what most people would probably do - I got online, I typed in "financial services jobs", and what I was looking for was something that didn't require a ton of experience, or background in that field, because that is not what I went to college for, so I knew I wasn't gonna be able to get these high-end jobs, so to speak... So the result was basically the same. I found that there was a lot of competition going for the entry-level to the mid-management level of jobs in that sector. And again, mostly low-paying jobs.
So it's been said by Elon Musk allegedly that you get paid in proportion to the difficulty of problem that you solve. So in other words, you send people to Mars, or you create an electric car company that serves the masses, and you might have a good chance of making a lot of money... Whereas you look for an entry to a mid-level job at the same companies and you're looking at a modest, mediocre salary. That, my friends, is just how the world works, for better or for worse.. But let's examine real estate and how it fits into this discussion.
So I'll start out by asking you this - if we think about the United States of America and you look at every single person who lives here - how many people do you think have an interest in investing in real estate? We'll just start with that at large. Any type of real estate, single-family, multifamily, office, industrial, hospitality, whether they're active, whether they're passive, just in general. I'm just gonna throw a number out there and say maybe 30% of the population would have some kind of interest, whether they're doing it now or just are thinking at maybe doing that one day in real estate at large. Well, if we narrow that down and we say "Okay, out of that 30%, how many people are tuned into the message or interested in specifically multifamily real estate?", whether we're talking a duplex or whether we're talking a 600-unit apartment building... How many? Maybe that narrow now down to let's say 10%. So out of that 10%, how many do you think are interested in pre-existing value-add multifamily apartments? That may narrow it down to let's say 5%, because some people may have had an interest in new development multifamily, or opportunistic, or like I said, a duplex, or something like that. But now we're talking about larger units, value-add.
Now let's take it a step further and say "How many of those people out of that 5% or so are interested in being a limited partner in a multifamily value-add syndication?" So now we might be looking at perhaps 3% of people. And we can continue taking this further down. We could say "How many of those folks are accredited investors that actually have the money or the means to do this investment, and are willing to take action and actually do that?" So now we're looking at probably close to 1% or less of the general population.
And as much as my world really revolves around these kinds of conversations day in and day out, it's good to realize that this is really a super-niche that we're talking about. Less than 1% of people actually doing this stuff. And this is one reason why riches are made in the niches. It's just simply because most people aren't doing this.
Break: [00:05:58.18] to [00:06:58.11]
Travis Watts: So if you move toward where everyone else is going, if you do what everyone else is doing, when we talk about the majority or the masses, it can be very difficult to find the money. So I want to share with you a universal law of money. This is probably something you've never heard before, and I think it's very impactful, so please tune in. So to make real money, you need to do or provide three things. And whatever you do, or provide, needs to be scarce, in demand, and be a resource.
Let's go back to the Elon Musk example - is an electric vehicle scarce? Well, does everybody have an electric vehicle? That'd be one question to ask. No. In general, they're still pretty scarce. Are they in demand? Well, I was just on Tesla's website today, and they're backordered for months on end. And I looked at other EV companies and some of those are backordered for a year or two. So it's quite in-demand, you can tell just from the stats. And of course, is an electric vehicle a resource? Absolutely. It's a functional car that helps people get things done, and get from point A to point B. So this is why big money is being made in this particular sector. So let's draw the same example to multifamily apartments. Is it scarce? Well, statistically speaking, we've been behind as a country in providing safe, affordable workforce housing since about the year 2000. And then we had a slowdown through 2008 to 2010, when builders pulled out and made it even more of a supply-demand imbalance. Then we had the pandemic, which slowed things down even more, and now we're seeing builders pull out again, which is making it ever worse. So the bottom line is we're not keeping up. So yes, they're quite scarce, they're hard to find, they're hard to get your hands on... So are they in-demand? Well, again, look at the stats. So nationwide, on multifamily apartments in the class B, C sector, are hovering about 95% occupied. So these apartments are full. So that's your answer to "Are they in-demand?" Absolutely.
And last but not least, is it a resource? Sure it is. It's a house, it's shelter, it's a roof over someone's head. It's a usable resource for people. And that is why big money is being made in this particular sector. So coming full-circle with the point of this conversation, why big money is made in the niches - well, we just examined that roughly speaking (we're having to guess a little bit here), we'll say 1% of people are investing in multifamily syndications. We'll say 1% of companies worldwide, if you look at every single type of business that exists, probably about 1% are in the business of making electric vehicles. The majority of people worldwide are working jobs. They have a W-2 active income, they're working anywhere from an entry-level job to usually a middle-management job, and that's where the bulk of people are... So therefore you U.S. average salary, according to the Bureau of Labor Statistics at bls.gov is about 56,000 per year for a U.S. citizen. Meanwhile, you've got people like Elon Musk, throwback to that example, worth roughly 250 billion dollars according to Forbes.
So the takeaway here is quite simple - it's to find a niche and to either operate actively in that niche, or to invest in a particular niche. Now, I'm not recommending, I'm not endorsing, I'm not affiliated with Elon Musk or Tesla or any of these companies, I'm not recommending any multifamily firms in particular, I'm just pointing out that the riches are made in the niches. And that's simply because what we're talking about is scarce, in-demand, and it's a resource.
This was obviously a shorter episode of Passive Investor Tips, but that's the point; I'm trying to make it short, consolidated, to the point, to give you as much value as possible. I hope you've found some value in this short episode. If we haven't connected on social media, let's do it. Instagram, Facebook, you can find me at Passive Investor Tips. Any other outlets online - Travis Watts, or travis [at] ashcroftcapital.com. I hope you've found some value; thanks for tuning in. Have a Best Ever week, everyone, and we'll see you next week on the next episode.
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