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Why You Should Marry Your Market

by | Oct 26, 2020 | Real Estate Investing

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Here’s what you will read about:

  • This concept applies to investors just starting out & industry vets
  • How I learned the concept through extensive trial and error
  • The drawback of marrying your market means you will forego outside opportunities.
  • The benefits of marrying your market include establishing expertise and developing key relationships that fuel your business.

NOTE: I refer to the “Market” a lot in this article. It’s beyond geography. By Market, I’m referring to the product type: (single family, multifamily, office, etc) and geographic area: (Downtown Denver, West Los Angeles, etc). For example, my market is distressed entry level single family homes and multifamily properties in Pueblo, CO. I can tell you everything about that product type in the Pueblo market. That’s marrying your market.

I was living in downtown Denver when I started real estate investing. I was most interested in cash flowing rental properties. Naturally, I was attracted to the higher cap rates offered in the Pueblo market versus the Denver market. So I began shifting my focus away from the Denver market to focus solely on the Pueblo market.

I moved back to Pueblo in early 2017. For the next two years I was in between Pueblo and Denver. It’s about a 100 mile stretch of land between the two cities but each market is entirely unique from the other.

I had to make the hard decision to focus exclusively on the Pueblo market. As an entrepreneur, that decision was tough; I had to forego opportunities up north to better serve the south. I had to consciously make the decision to go 100 miles deep rather than 100 miles wide.

Marrying my market was one of the best decisions I’ve made for my business. It allowed me to zero in on the market and establish a strong market presence. I refer to the concept “marry your market” from a book I read titled “Value Added: Successful Strategies for Listing & Selling Investment Real Estate” by Brad Umansky.

From the book:

“Selecting a market area is like getting married. The most successful brokers I have ever met are the ones who have selected a market area and are totally devoted to working this market area. At the same time, most brokers seem afraid to make this commitment. I have concluded it is because it is a little like marriage. Once you make that commitment to getting married, you are agreeing to forego all others, and this is obviously risky.” (pg. 56)

The above quote refers to brokers but I believe it applies equally well to investors. I’ve put together a short list of advantages and disadvantages that are inspired by Umansky’s book and developed through my own experience.

The Disadvantages to Marrying Your Market

 

You will be foregoing opportunities in other markets.

The main disadvantage to marrying your market is having to forego opportunities. I am presented with deals in other markets on a weekly basis; even multiple times per week. At this point, it would take a very, very good deal presented by a trusted source to make me pursue an opportunity in a market outside of Pueblo. That’s because most deals outside of Pueblo don’t meet my criteria. I’m not on the “inside” of that market. I’m an outsider and outsiders pay a higher price than insiders. On top of that, acquiring market data is a time intensive process that needs to be supported by gut instinct and backed with hard data.

It’s just not that easy to make it to the inside of a new market AND have all the data you need to make a wise investment. So by marrying your market you will be letting opportunities pass you by. You’ve got to be okay with that. And I think the advantages far outweigh the drawbacks.

 

The Benefits & Advantages of Marrying Your Market

 

You will develop expertise in your market

The better you know your market, the easier it becomes to spot incredible opportunities. I was just presented with a portfolio of rental properties in Indiana at an 8.5% cap rate. I have no idea if that was a good deal because I’m not familiar with the market cap rate, the rate of appreciation, rent rate, or market demand. The properties were all built in the 1950s. I’m not sure if that’s old or new for the market. If I pieced the properties out and sold them upon vacancy, would they move? I’m not sure. Further, I don’t know how friendly the State is with respect to Landlord-Tenant laws. If one of the tenants stopped paying, how long would it take me to evict? All those questions are vital to knowing the market. And if you don’t know, you can’t make a wise investment.

On the other hand, I was presented with a similar sized portfolio of rental properties at a 7.5% cap rate in Pueblo. I am familiar with the Pueblo market. Upon first glance of the marketing package, I recognized the streets as my target sub-markets, I immediately knew rents were about 50% lower than the market rate, I knew the per unit price was low for the package and I could make a significant profit selling each house individually. It took me about thirty seconds to decide this portfolio was worth consideration. That’s market knowledge!

 

You will develop key relationships that drive your business

The more you become a market insider, the better the deals that will come your way. The best deals go to market insiders. A market insider is someone who is known for buying a certain property type in a specific area and not wasting any time. Market insiders are presented deals from other investors, wholesalers, real estate agents, and other property owners. You want to become the first person that comes to mind when someone has a deal they need sold! Since shifting my focus, I have become the “Pueblo guy” in many real estate networks I’m involved in. Investors know if they come across a deal in Pueblo, I can help them out.

And getting a great deal is just the start of it. If you’re investing in fix-and-flips like I am, you need to have a team assembled that you can trust and rely on. Your team needs to include lenders, general contractors, real estate agents, property managers, and insurance agents. You need to know the building codes that may cost you time and money. You need to have a reliable title agent that can help you when you need a quick close and to process the sale transaction. It takes time to develop these relationships. If you’re bouncing around between markets, it’s going to take you a lot more time to develop key relationships that drive your business.

For some investors, specifically investors purchasing larger assets — their market can be big but you’ll see that it’s focused. One example includes an investor we’re all familiar with, Grant Cardone. Cardone invests in class A multifamily that are at least 100 units in size. Grant needs to cover a larger geographical area to find those deals but he is strict about focusing on class a multifamily. You could put an incredible single family deal in front of Grant and he will not think twice before giving a resounding no. He vocally opposes investing in single family properties. Now that’s marrying your market.

 

In conclusion

The main takeaway is that your business will soar if you find a market and marry it. You will benefit by learning everything about a certain market for a set period before jumping to a new market. My advice for new investors: master one market before jumping to a new one. You will forego opportunities in the short run, but your business will benefit in the long run.

Here’s what you just read about:

  • How new and seasoned investors will benefit from marrying their market
  • How I learned the concept through extensive trial and error
  • The drawback of marrying your market means you will forego outside opportunities.
  • The benefits of marrying your market include establishing expertise and developing key relationships that fuel your business.

Thanks for reading, please share the article and click the thumbs up. Put your questions below or send me an email at Nico@Cordova1031.com – I’ll answer as many as I can get to. If you enjoyed the article please consider subscribing for email alerts to be the first to know when a new article is created.

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