Stick with the Majorities- The 100 People Rule

                By Chris Knoppe, Ohio Rehab Loans

Are you attempting to identify your next real estate investment opportunity?  One of the best ways to make money is to make sure you don’t loose it.  By eliminating the loser investments, the winners will take care of themselves and you’ll be free sailing.  There are some basic principles to keep in mind that can significantly reduce the risk of losing money on your next deal.  No matter what your goal is- whether you want to buy & hold a long term rental or buy & sell for a quick profit, selecting a property that appeals to the masses will increase the chance of the investment paying off successfully.  This concept of focusing on the masses was conveyed to me in the following scenario:

Imagine you are standing outside a shopping mall entrance and show the next 100 people who walk through the door a flyer with a picture and details of a property (size, location, bedrooms, baths, garages, etc).  Ask each person if they’d consider buying and/or living in that property.  If the property does not appeal to the overwhelming majority of the 100 people, it’s probably a risky investment because it lacks important requirements that most people consider when choosing where to live. 

Selecting a property that appeals to the largest number of people gives you more options to make money in case your initial strategy does not pan out.  While you can never appeal to everyone, using specific criteria when selecting your investments will help limit your downside risk, because no matter what happens, you still have a property that the majority of people would consider buying or renting.  What I’ve found is that most people want a single family house that has 3 or more bedrooms, 1.5 or more baths, and some sort of garage.  Curb appeal and location are also very important, but are more subjective attributes.  Often times, investors (especially new ones) become so anxious to buy a piece of real estate, that they loose sight of this simple concept.  Instead of being patient and waiting for a bread & butter 3 bedroom house, they may be tempted to buy a 2 bedroom because the price seems right.  Well the price better be REALLY right, because not many people want to buy or rent a 2 bedroom house.  You can do all the updating you want, but you’re still stuck with 2 bedrooms.  The same applies to 2-4 families, apartment buildings and other types of commercial buildings.  There may be larger profit opportunities with these property types, but there is also a greater risk of loosing money.  If things don’t go according to plan, how many people do you know that would or could buy that commercial building from you?  How many of the 100 people at the mall would be interested in buying that 20 unit apartment building?  Even if you successfully hold a property for a long time, at some point liquidity becomes important.  If you really wanted or needed to (in the case of retirement or a financial emergency), you could sell a portfolio of single family houses with attractive attributes, but it is not so easy to liquidate commercial buildings or quirky houses that don’t fit your average person’s criteria. 

In today’s challenging real estate market, it is even more important to invest intelligently, and by sticking with properties that your average person finds appealing, you’ll be better positioned to profit.  While there are always exceptions, playing it safe by following this philosophy of appealing to the masses will help you not loose money, and that’s half the battle when trying to make money.  

Comments or questions can be directed to Chris.Knoppe@OhioRehabLoans.com. For more information about Ohio Rehab Loans, visit www.OhioRehabLoans.com or call 614-433-0570.