Competition is very high in the real estate investing industry. When the industry was established it was, of course, much easier to close deals because a smaller number of real estate investors were active. Certainly a lot less than there are today.
With so many competitors in your real estate market, you might be wondering what’s the best course of action as you go after your business goals. On one hand, you want to dominate the market, and, on the other, these are all your colleagues, and you cross paths with them every day.
Join us as we review the competitive strategies you can use as a real estate investor to succeed. We will consider different types of relations you can have with your competitors and share some tips on how to use online marketing to overcome the infamous Thucydides trap.
Every year, new real estate investing businesses pop up across all US markets. The industry is attractive to people from all walks of life, so let’s check some of the reasons why.
The industry is attractive, yet a lot of the real estate investing businesses close within their first year. Some say that the low bar for entry is responsible for this – it’s easy to get in, but it’s hard to remain operational in the long run. This discussion on “why real estate investing businesses fail” can stretch wide and many influential investors have offered their analysis in the past.
However, we are going to focus on the issue of competitors in your real estate market, so let’s get into it.
In local real estate markets, everyone knows each other. If you make a move to a new market, be it as a complete novice, or after you’ve set up a real estate investing business someplace else, this will be immediately obvious to the businesses who operate there.
Actually, it’s in your best interest, as an investor, to rub shoulders with real estate professionals who are active in your market. This is where networking comes in: local REIA group meet ups will help you grow your business, whether that’s through exchanging leads with realtors, getting loans from private lenders, or simply meeting other investors.
At the same time, the real estate investors who are after the same type of deals as yourself are your competitors. And since the inventory of houses is limited, you have to consider the nature of relations between businesses which compete in the same market.
The best examples of solving issues with contested ground come from history, so we’ll review one example that’s relevant for this discussion.
“It was the rise of Athens and the fear that this inspired in Sparta that made war inevitable.” This is what Thucydides, an ancient Greek historian, wrote when he tried to describe the reasons behind the Peloponesian war. Don’t worry, we won’t make you view real estate markets as if they are war theaters, nor will we ask you to treat your competitors as enemies – it’s the dynamic between Athens and Sparta that’s important to us here.
When the Peloponesian war broke out, Sparta was the established power in the ancient Greek world, while Athens was the emerging power. This power dynamic inspired author Graham T. Allison to coin the term Thucydides trap. It refers to the friction that’s created when an emerging power threatens to depose an established power.
Through the concept of Thucydides trap, Allison posits that direct and open conflict between an emerging and an established power is inevitable, unless these two powers take steps to avoid the confrontation. Usually, the Thucydides trap is referenced in discussions about foreign policy (for example, the Sino-American rivalry), but there are also authors who use this concept to address competition in business.
In the corporate world, when an established business and an emerging business clash, it’s over securing a bigger share of the market than that of their competitor (and total market domination as an extreme end goal). This happens in all industries, including real estate.
All real estate investing companies are bound by the inventory available in a given real estate market. The number of deals to be had from the present inventory is limited, and in that sense, the real estate market is a contested space, which is why emerging real estate investing businesses have to elbow their way into markets where other investors are already established.
So, as a real estate investor, you can find yourself on both sides of the stick. In fact, you can be both the emerging and the established business if you operate in more than one market. In one real estate market, (let’s say, the ZIP code where you actually live) you can be the established business that dominates for-sale-by-owner deals, while at the same time you try to enter a new market (at a different ZIP code) as an emerging business at that particular space.
So, this is relevant whether you are the dominant competitor or the novice.
When it comes to facing a competitor in the corporate world, for those of you stuck in a Thucydides trap, your actions are limited. And this is not only because you want to remain on good terms with the real estate investors in your market, but also due to the fact that the alternatives are either illegal or not cost effective.
I mean, you can’t cut off the tap that streams new house seller leads to your competitor. In some industries, where supply chains play a role, companies can work on securing a contract with an exclusive supplier. In real estate investing, however, you can’t divert all leads to come your way, and even if you could, you probably wouldn’t want to.
Nor can you build alliances with other investors against your competitor. Or take over their talent. These are all aggressive (and borderline hostile) actions which won’t bring any good to your firm and will potentially harm your reputation.
That being said, there are some things you can do to get out of the Thucydides trap, but before we do that, let’s check out some examples of dealing with competitors from the corporate world.
Get them when they are small – in 2014 Facebook bought WhatsApp for $19.3 billion. When WhatsApp first appeared on the market in 2009, Facebook could have bought it for much less, however, Facebook chose to develop its own product (Messenger) instead. In the tech world, it’s best to buy out small companies before they go IPO.
Can you buy out a competing real estate investing business when they start out? It’s difficult to say. Investors start a business to reach financial freedom on their own. Also, how can you predict their performance in your real estate market years down the line? You can’t, so buying out competitors is not the best option (even if you have the money to begin with).
Initiate a price war – in 1982-83 Honda and Yamaha were involved in what is known as a motorcycle war. Which methods were used? Well, ad spend increased, wages were cut, new models of motorcycles were introduced – and all in the name of performing better than the competitor. Yamaha suffered greatly in the end.
How does this translate to real estate? Well, you can certainly improve the efficiency of your in-house processes. We are talking about your follow up process, the close rate, and even stepping up your activity on marketing channels which are free (like SEO traffic). Innovation can play a part too, for example, you can try new ways to close, like with reverse wholesaling. And, ultimately, you can cut your real estate investing competitors short by going with lower profit margin – effectively offering more money to house sellers.
Ignore your competitors – this is what the Detroit Big Three car manufacturers did when Toyota and other Japanese companies started biting into their market in the 1980s. American car makers did nothing to respond to the rise of Toyota and the exact reasons behind this can be subject of debate. But the facts state that US manufacturers spent decades to recover from the blow.
This is probably the easiest competitive strategy (it’s a sort of a non-strategy): you stay in your corner and you do what you do best. However, if you stop paying attention to what the competitors in your real estate market are doing, one day you may wake up to find that you’ve been squeezed out of the market.
Because of this, you should be mindful of the possible outcomes before you enter a new market and consider whether these outcomes are in line with your business goals. Let’s elaborate.
Two issues plague the process of developing a business plan for real estate investors: vague goal setting and poor performance tracking. Both can cause a real estate investing business to fail. If the objectives aren’t clear, you can’t achieve them. And if you don’t follow key performance indicators, you might close shop prematurely, as is often the case.
That’s why you need to consider the possible outcomes from engaging with competitors before you enter the new real estate market. It’s not as hard as it sounds, you simply have a preferable outcome in mind, and this helps you make decisions as you come into friction with other real estate investors.
There are three outcomes worth mentioning: market domination, co-existence, and merger. It’s much simpler than competitive outcomes in the corporate world, in which many other combinations are at play.
This is straightforward – one investor dominates the market, while the other leaves for good. If you are the real estate investor who ends up dominating the real estate market, this is the perfect scenario. That’s not to say that your worries are over. You become an established real estate investing business in the market, so you will be challenged by emerging businesses soon enough.
At the end of the Honda-Yamaha war, the leader of Yamaha announced that the competition will persist, but it will be based on mutual recognition of relative positions. The under-performers accept the dominant position of the top dog and vice versa.
For example, the leading real estate investor closes 10 deals a month, while the competitor closes only 2 deals a month. The established business doesn’t mind the competitor, as long as they close 2 deals a month, and the small real estate investing business agrees to it’s share of the market (2 deals and nothing more than that).
This scenario can also be viewed as a variation of the first outcome – in a sense, both real estate investing businesses join forces to dominate the market together. Mergers are complex, and many circumstances need to align for this to happen.
In terms of goal setting, its important for you to have a framework for potential mergers with your competitors. If someone comes with an offer to incorporate your real estate investing business into theirs (and everything you’ve built up until that point) would you be up for it? On the flip side, are you willing to buy someone out and absorb someone else’s team and resources into your own? The answer to these two questions will determine your relation with competitors in your market.
It’s important to note that your position in the real estate market is not absolute, and these outcomes are transient. We are examining them to help you navigate through scenarios which are typical for real estate market’s dynamic.
Also, you can’t plan your piece of the real estate market in advance. Sooner or later, the market itself will give you a reality check. You can gain dominance, but you can lose it, too: that’s where the competitive strategies kick in.
And sometimes the whole real estate market is transformed due to influence that is out of your control. The crisis we’ve all faced during these past two years is a perfect example of this, and we are yet to see it’s ultimate effect. Chances are, many real estate investing businesses will change their position in the real estate market, as some have already started to shuffle.
Investors, in general, have real estate market dominance as their end goal. But what do real estate investors do to outperform their competitors? Frankly speaking, some of the petty tactics investors resort to are quite silly.
For example, it’s well known that real estate investors destroy promotional materials that are left behind by their competitors during prospecting. You know, when you are knocking on doors (or driving for dollars) and you don’t find the property owner, so you leave your prospectus or a yellow letter in the mailbox. The last investor to visit that house usually collects all of those.
Also, these days house sellers get quotes from many of your competitors before they decide which real estate investor to choose – this is a given. Often, investors adjust their offers in order to steal the deal before the property owner signs a contract with their competitor. Does this seem to far fetched? Well, just browse YouTube videos of real estate investors and you’ll find some of them do this on camera, so obviously, these kinds of methods are fair game.
The question is: What are you willing to do to dominate your real estate market? We are not labeling these methods as good or bad, we are simply suggesting that you should decide how you want your business to operate.
Let’s now turn to what we know best.
There are many ways for an established real estate investing business to respond to a threat (losing deals) that comes from an emerging business. Or to pick up an extra deal in the market if they are the emerging business. The spectrum is wide, and we are experts in online marketing for real estate investors. So, let us examine the marketing strategies you can use to dominate your real estate market.
Marketing is useful to both the established and the emergent entity in a real estate market. If you are the established real estate investing business, balanced multichannel marketing allows you to keep your position and to secure your stream of house seller leads. If you are the emerging business, online marketing campaigns allow you to get deals which would otherwise end up at your competitor.
Online marketing can provide a competitive edge for real estate investors, and if you’ve been in the business for a while now, you’ve probably already heard some of these marketing strategies.
Real estate investors operate in competitive markets, but that doesn’t mean that you have to fight your colleagues tooth and nail to dominate these markets. Sometimes it’s ok to stop and consider several options.
Business strategists apply the concept of the Thucydides trap to the business world and we did our best to breakdown points that can be of help to you. Use them to “game out” different scenarios regarding your place in the real estate market. Once you determine where you want to be, it’s much easier to take steps to achieve your business goals.
It’s a thought exercise about goal setting, and hopefully it serves to illustrate the influence your competition can have when it comes to completing your long term business goals.
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