So in an earlier post, I outlined the 7 Steps you can follow to find great real estate deals, but the devil is always in the detail. Having been through Step 1 – “Identify Your End Product”, we are now onto Step 2 – “Identify Areas Where Your End Product Is In Demand”. Read on for a blow by blow account of how you can apply this step!
Its All About the Hot Dogs!!
There is an old story that I have heard in the marketing world that goes something like this:
Q: What is the one thing you would want if you were entered in a competition to sell the most hot dogs?
A: A hungry crowd!
Now, having heard the answer, it seems very logical, but the first response to this from most people is to think about how they make the most desirable product they could. Typical answers are along the lines of “great dogs”, “soft buns”, “special sauce” etc. The problem is, no matter how good your hot dog is, if everyone is full, you are not going to sell many.
If, on the other hand, you are selling to a starving crowd, your hot dogs are going to sell like hotcakes, no matter what quality you serve, or what special sauce you offer.
Now, when developing real estate, we aren’t looking to sell hot dogs, but in a similar fashion, there is no point building the greatest house in the world, if there is no one there that wants to buy a house!
And that is why this step is so important. By locating areas where there is already evidence of demand for your end product (see Step 1 – Identify your End Product), you will know that the “hungry crowd” already exists. This enables you to ask (and receive) top dollar for your new construction.
How To Identify These Areas?
Some of the methods you can use to identify “hungry crowds” are:
- Look at recent Sales
How many recent sales of similar products have their been within about 500m (1/3 of a mile) of the area you are working in?
Typically, you would want to see at least 3 or 4 sales over the last 6-12 months of properties that are similar to that which you are looking to build. This is the strongest indicator that there is crowd that is hungry for your product. - Look at current listings
How many current listings are there for similar products in the area?
Note that if there is a lack of current listings, but a good history of recent sales, this can indicate that there is insufficient supply to meet the demand of buyers – a great position to be in! - Talk to local agents and other market experts
By far the least reliable option, but great for building your network, and often can turn up gems of wisdom, but you may have to sift through a lot of unverified opinions and marketing talk to get what you need. Basing your decision solely on the opinion of agents, without any other supporting evidence is asking for trouble!
What if There is No Demand??
If you can’t see any evidence of demand for your product, you will need to change something – typically either your end product (yep, back to step 1) or your area.
Just like you wouldn’t want to try to sell hot dogs to people who are leaving a restaurant, you don’t want to trying to sell a property in an area where people don’t want the type of property you are selling!
Action time!
- If you haven’t already done so, go back and review “Step 1 – Identify Your End Product“
- Look at the areas you are planning to work in. Is there evidence of sales of similar products? If not, consider changing your area and go through the same steps