PPC For Real Estate Investors

The Importance of Constraints in Your Real Estate Investing System

The Importance of Constraints in Your Real Estate Investing System

We are going to discuss the art of saying no to money in this article. Of course, we are all in business for the profits, but if you over-commit in pursuit of higher profits, this might result in sub-optimal performance and derail you from the end goal.

 

These are problems investors face when they are on the cusp of scaling up their real estate investing business. You know, when you are doing 2 deals a month and you are wondering whether aiming for 4 deals a month is the right thing to do.

 

It’s all about setting optimal goals and making decisions that follow through on those goals in your day-to-day operations. All of this ties into getting the best results from your digital marketing campaigns.

 

Join us, if making decisions for optimal performance is what troubles you when you’re wondering whether it’s time to scale up your real estate investing business.

The Traits of Entrepreneurial People

There are periods when entrepreneurs wake up day after day and act like they don’t have a job. There’s no other way to be a successful entrepreneur and people who’ve never owned a business don’t understand this – once you complete the projects that are in your pipeline, you have nothing to work on. In reality, this is months down the line, but if you are a real estate entrepreneur, you have to work on securing leads today, so that you can close deals in the months ahead.

 

Because of this, real estate investors have an optimistic outlook on business and life in general. It’s only logical: they wouldn’t be investors if they don’t believe that these deals will eventually pay off.

 

This is a great personality trait, and it allows entrepreneurs to come up with creative business solutions. As a real estate investor, you probably know first hand that entrepreneurs are always looking for something new: to improve performance, to streamline processes, to close more deals and eventually to create better quality of life for themselves and for others.

 

However, this optimism can also cause investors to bite more than they can chew. The result? You lose focus. In the 115th episode of the REI Marketing Nerds podcast, Dan spoke about this as it relates to our business and to the investors whose campaigns we manage:

 

The downside is that when you are optimistic like I am like and you probably are, when you are optimistic, you tend to over-commit, and this is why you tend to find yourself in a situation where maybe you’re doing so much stuff that it feels like you don’t have the time to do any of it particularly well or you’re being torn between so many projects, so many rehabs or so many different parts of the business that you feel like you don’t know where to focus or you feel like you don’t have any downtime. You don’t feel like you have any room to breathe.

 

And if your energy and your efforts aren’t focused, you can easily become overwhelmed.

You Make Poor Choices When You Are Overwhelmed

 

Jordan Belfort has been a very successful salesman and in his training, he singles out three features you need to have to close a deal:

 

  • be sharp as a tack – show people you’re intelligent;
  • be enthusiastic as hell – you have to be excited about the deal;
  • be an expert in your field – or a person who has it all together.

 

You can translate these general principles to your everyday operations. No one would sell their house to you if you don’t seem to know what you are doing.

 

If you are overwhelmed by having too many responsibilities, you can’t be sharp and enthusiastic at all times – the burden will drag you down.

 

Take your personal life: even if you start the day full of energy, when there’s too much on your plate – get groceries, pick up the kid from karate class, take the car to a mechanic, plan a holiday, pay the bills, etc. – by the end of the day, there’s not much of that energy left.

 

The same pitfall looms when you try to scale up your business operations. Maximum output will eventually wear you out if you don’t put constraints in place to stop you from over-committing.

Maximal Is Not Optimal

You don’t want to operate your real estate investing business at maximum capacity. We didn’t pull this out of thin air, it’s actually a lesson that comes from the experience of the American car manufacturing industry in the 1980s.

 

At that time, Japanese manufacturers Honda and Toyota were able to put cars on the market that were both cheaper and of superior quality relative to American cars. Our car industry was struggling and for years, we tried to crack the secret to Japanese manufacturing methods. As a result of these efforts we came up with lean manufacturing and Six Sigma processes – methods that are widely used today.

 

One of the greatest lessons we learned is that maximal is not optimal. When car makers push the system to the limits, and by system we mean every machine and worker that is involved in the process, you will get more product recalls. To fix the issues which were created by pushing too hard, you spend even more time and you hire skilled labor, and this increases manufacturing costs.

The Limits of Your Real Estate Investing System

Now, we are aware that you aren’t really patching up real estate deals on an assembly line, but the lesson is still relevant. Do you push your real estate investing business to its extreme operational limits? You certainly might. Here’s how Dan puts this:

 

If your absolute maximum capacity, let’s say, is to do 12 flips a year, it is likely that you will not actually make the most money doing 12 flips a year because of cost overruns and budgeting mistakes, and having to hire a team and just stress, and, hey, medical bills, who knows? Maybe the optimal point, the point where you are making the most money, is actually 10 or even 7.

 

There is a sweet spot for achieving optimal results, and while this spot is different for each industry, you will definitely do more if you operate at less than maximum capacity. It’s simple: don’t overexert yourself, instead – focus on quality.

 

Now, let’s turn to what we know best – marketing for real estate investors.

The Theory of Constraints

When we discuss online marketing for finding motivated house sellers, we often state that closing deals is a numbers game. More ad views = more clicks = more leads = more deals, something along those lines. In general terms, this idea is solid, but if you take it too far, you may end up wasting time and money. Let us explain.

 

Eliyahu Goldratt developed the Theory of constraints in an attempt to bridge the gap between Japanese and American car manufacturing. In essence, this theory studies efficient management of processes, be they industrial or not. Goldratt introduced the concept of the illusion of local optima (don’t worry, we’ll revert to speaking English soon).

 

This concept – the illusion of local optima – states that if you have a process that includes multiple steps, and you optimize each individual step (thus local optima), you will not automatically optimize the process as a whole.

Optimize Your Ad Campaigns

The theory of constraints is featured in many episodes of our REI Marketing Nerds podcast, however one specific episode, episode 120, covers the illusion of local optima and its importance for online marketing:

 

To tie this into online marketing, the way that this often comes up is people will think, OK, I need to have the most amount of impressions, which is eyeballs on my ad or my website or whatever, just somebody seeing it. I need to have the most impressions and the highest click-through rate, and the highest conversion rate, which is the percentage of people that become leads when they land on my website, and I need to have the highest close rate, and if I do that, most number of impressions, most number of clicks, highest click through rate, highest conversion rate, highest close rate, my business will be at its maximum level of success. That is something that makes sense on paper, makes sense intuitively to us. We kind of get that. What the theory of constraints posits is that that is actually not true.

 

We’ve brought house seller leads to real estate investors in all US markets through the years, and this experience taught us that when you focus on the quality of leads, the end result is optimal. If you go for the maximal performance, the end result, i.e. profits from closed deals, is sub par.

Goal Setting When You Need New Leeds

Let’s say you come to us and you ask for an X amount of impressions (or ad views) just because other marketers told you that this is attainable. We can deliver it for you, but do you really need to optimize ad impressions?

 

For example, if you are running a PPC campaign for motivated sellers, we will tweak your Google Adwords campaign to show your ad to search engine users who type broad match keywords. The ad will be seen by more users, and you will get more leads, but the leads will not be as hot.

 

Also, you can set a goal to raise the bids on Google Ads, to ensure that your ad is shown to more people. While you’ll achieve the goal and the impressions for your ad will increase, the costs will also go up. And this will diminish profits, because, frankly, these bidding wars can result in high cost per click very quickly.

Lead Volume

If you are interested in maximizing the volume of house seller leads in your funnel, we can craft a digital campaign to achieve that. For instance, Facebook Ads can be set up to include a wide target audience. Plus, there is a lead capture form that allows Facebook users to enter their details directly to the platform, without leaving Facebook itself. You will get a large volume of new leads, but chances are, many of them won’t even remember that they shared their details with you at all.

Less Is More

The illusion of local optima applies to each digital marketing metric that you use to get house seller leads. You can maximize ad impressions, you can maximize the click through rate, and you can maximize lead volume, but none of this will get quality leads in your funnel.

 

I don’t know about you, but I’d prefer to have 10 good leads in my funnel instead of 30 lousy ones that will waste my time. In the end, I’d get the same amount of closed deals but the bad leads will additionally drain the energy of my whole team in the process.

Takeaway: Honor Constraints

Focus on optimal performance as opposed to maximal performance, because optimal always brings better results over time. This applies to optimizing your personal efforts, but also to optimizing the use of resources within your real estate investing company.

 

Expand your operations based on your optimal capacity, because if you over-commit due to possible gains from maximal commitment, the risks outweigh the benefits. When your workload is overwhelming, you can’t really be available for your team members, sellers, and even your family – and nothing good can come from that. When your real estate business is pushed to the limits, you risk facing cost overruns and dissatisfaction on all fronts.

 

Online marketing for obtaining motivated seller leads is subject to the same principles, especially to the illusion of local optima. If you set the marketing objectives for your real estate investing business the wrong way, you may end up with high lead volume, but these leads are likely to be cold.

 

Aim for getting high-quality leads and don’t use the maximal capacity of your company. That’s the best way to scale up your real estate investing business.

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