One of the first things you need to do as an entrepreneur before entering a market is to assess the competition. Real estate investors are no exception, especially since getting deals has become increasingly harder over the years. You have to do this before you open shop, and even if you have been going for a while, it’s recommended to reevaluate your place in comparison to your competitors’ on a regular basis (twice a year, for instance). The reasons for such an assessment are quite simple – the insight you gain will help you improve your business model, should you decide that a change is needed.
You can analyze many aspects of your business: in-house business processes, marketing practices, long-term goals, lead generation.. This list can go on for a while. To avoid being stuck in a never ending analysis-paralysis, you need to keep your focus on a narrow set of parameters. And, what’s more important, you should study them in relation to other REI businesses on the market. This will allow you to determine which of these businesses has the competitive advantage and in what specific area. Those who have the edge, do their best to keep it, while those who lag behind, try to catch up.
Now, everyone can identify an advantage when comparing two competitors. Whether it’s by looking at numbers or noting a specific position on the market – these things are fairly obvious. But you’ll need to further qualify the type of advantage: is this a short-lived fluke that allows a certain REI business to come on top? Or is it a long-term strategy that puts your business in a position to dominate the real estate market?
The latter is a competitive advantage and if you find a way to secure it, you’ll have success for years to come. There are two parameters that will help you recognize competitive advantage – the answer to these following questions simply needs to be yes:
1) Can someone else replicate the model that gives you a competitive edge?
2) Is it time-consuming, expensive, and otherwise taxing to replicate your winning model?
If you are a real estate investor, you know that in this field everyone knows everyone else. Whatever you do differently, it will be noted, and if it brings results and it’s easy to copy, others will immediately introduce it into their process. This is why our podcast on this subject was titled “The moat.”
Stock market investors at Berkshire Hathaway – Charlie Munger, to be precise – use the moat analogy to explain that the thing that gives you your competitive advantage (whether it’s a resource, a strategy, or a skill) should be closely guarded – the same way moats used to protect castles in the past. As Dan describes it in the podcast:
“You don’t just dig a trench around your castle. You fill it with water, right? Because it makes it more of a pain to get across, and then ideally, you put crocodiles in the water, and then you put lasers on top of the crocodiles, and then when the crocodiles open their mouths, bats fly out.”
Of course, this is all said in jest, but it’s fundamentally true: if you have a competitive advantage make it very hard for others to replicate what you do. Real estate investing is an industry where you need every type of edge you can get because the same methods are used by everyone. These days, motivated sellers receive a whole bunch of postcards (and all of them are virtually the same), and it’s a similar story with mail as well. Or when motivated sellers list their home, REIs appear at the door and practically wait their turn to speak to a lead. So, now more than ever, you need to stand out.
All REIs are facing the same problem, however, they try different approaches to get the edge in their markets. As unique as these strategies may be, eventually, all real estate investors fall into the same pitfalls when they want to shake things up. Let’s take a look at some common examples of strategies that just weren’t enough.
You have to determine the boundaries of your operations anyway, so why not make the limits of the market also your greatest strength? Often, real estate investors choose to stick to properties within a specific zip code, neighborhood, or part of town. There are a lot of benefits to this approach:
If you focus your operations on a couple of neighborhoods, do you have a competitive advantage relative to other REIs? Yes, you do have an advantage compared to REIs who are yet to learn the ins and outs of your market. But there is nothing you can do if other REIs decide to enter your market, which means you may lose the edge within months.
Do you accept every deal that comes your way? Or do you stick to a specific type of deals? This is another aspect of your business operations you have to consider early on, so you may also try to do it with distinction. And there is no lack of options, either: probate proceedings, foreclosure properties, rehab projects, code violation and fire damaged properties, etc. You can specialize in any one of these. What are the benefits?
Again, can this be a competitive advantage for a REI? There is nothing really secret or special about the methods – everyone can learn the latest laws and regulations on deals. Other REIs will have to tackle a learning curve, but once they get the hang of it, you can’t protect your dominance on the market.
Real estate investors can try a number of other ways to stand out from the competition. They can also go for any of the following:
The bottom line on each of these strategies is that every other REI can copy the same methods to close the gap. That is, unless you make an extra effort to separate your business from the REI crowd.
Online marketing is arguably the easiest way to dominate a real estate market. As people search online for solutions to their problems, those who are positioned favorably get a lot of the deals. There are many benefits to investing in online marketing:
Now, we are aware that if you haven’t done digital marketing before, the inner workings of investing in marketing might overwhelm you. But, as Dan explained in the podcast we mentioned above (The Moat: How to build a lasting competitive advantage in your market), there’s an easy way to illustrate this in terms of click-through-rate, conversion rate, and their compounding effect.
Don’t worry, we won’t just throw all the online marketing metrics at you, only those that really matter. And once you check them out, you’ll get a clearer picture of how to gain the competitive edge through marketing.
The CTR of your campaign lets you know how many of the people who saw the ad clicked on it. It’s expressed as a percentage and everyone is after as high a click-through-rate as possible. You can look at your general branding strategy to craft an online ad that will bring you those clicks. But in terms of getting competitive advantage over other REIs, you want a high CTR because that means that the advertising platform (Google, Bing, Facebook) will reward you with a lower cost for showing your ad. Why? Well, you drive traffic to their platform and this is their way to give you an incentive to keep up the good work.
So, a high CTR will result in low costs for obtaining leads.
You probably know this marketing lingo from your offline campaigns: conversions are the people that contact you (they clicked on an ad and it brought them to your website). So, if your landing page inspires trust, more of those visitors will fill out your forms and this will boost your conversion rate.
This is where the machine gets going. If your click-through-rate is high, you pay a low price for every click you get. And if the conversion rate is high, the costs for obtaining a lead are lower. If you focus on these two metrics, you have a chance at getting a competitive advantage. How does that work? Well, this starts a virtuous cycle. It allows you to achieve better results by investing the same amount of money as anyone else. Since your ads have a high CTR, the platform will charge you less, but you can keep throwing the same investing budget at it. Advertising costs you less, so now you can even bid higher for that ad space. You are effectively raising the prices for marketing, but remember – you don’t pay the same amount as every other REI out there, so your benefits are twofold.
This sets the wheels in motion: the more people see your ads, the higher your CTR. The higher your CTR, the higher your conversion rate. The higher your conversion rate, the lower your cost-per-lead. And of course, with all that data you’ve gathered on your website visitors (motivated sellers), you can further improve the success of your campaign through A/B testing.
Online marketing enables real estate investors to compound the effect of their online marketing over time. Once you get the top position for your real estate market, it’s really hard for anyone else to come close to your results, particularly given the fact that you get more leads for less money. That’s why online marketing can give you a lasting competitive advantage in your REI market.
The short answer is yes. If you target the metrics in a particular order and if they start bringing in good results, it would be really hard for any other REI to overturn the effects. You can keep the advantage, and not just for the time being. If you intend to stay in real estate markets in the next five-to-ten years, online marketing will allow you to keep a long-term competitive advantage. Literally, everyone that wants to take a piece of the market will have to outperform you, and that’ll be no easy feat.
Real estate investors are doing their best to find a competitive advantage for themselves over other REIs in their markets. This becomes a difficult task, especially since many REI businesses operate using the same methods.
You are free to explore different avenues, but we recommend going for an online marketing campaign to get the edge everyone else is looking for. It’s hard to get ahead – it takes investment in terms of money, time, and effort, but once you get to the top, it will be difficult for anyone to replicate what you did. This takes long-term vision, and the real results might manifest years down the line.
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