When you think about real estate investing, my guess is that you don’t immediately think “direct marketing” as well. But direct-marketing skills are essential to almost every aspect of real estate investing… from finding motivated sellers… to buying a property… to finding your ideal buyer… and more. In fact, mastering direct marketing can help make practically every step of the real estate investing process more profitable and a lot less risky.
I discovered this on the plane back from a recent trip to Austin, Texas, while reading Dan Kennedy’s The Ultimate Marketing Plan. I was flipping through it looking for the useful big idea of the book. I’d expected to find an idea I could apply to my Internet business, but instead found applications to my real estate investing endeavors.
When my husband and I were new to real estate investing, we had loosely defined goals. (I wrote about that in my article “The Problem with Fire.”) Our lack of clarity led us to buy properties because they generated a lot of positive cash flow or because we could get the deal done with no money down. That didn’t always work out well for us.
In fact, one of our no-money-down, positive-cash-flow properties turned into a complete nightmare – landing us in court to defend fire code violations, dealing with a property manager charged with manslaughter, and having 3 of 6 units vacant for more than six months. What started out as an investment that put $1,000 per month in our pockets turned into a $30,000 lesson in what NOT to do.
Had we focused on some fundamental marketing principles before buying that property, we’d have never considered it.
Here are three of the rules that you can apply to your real estate investing ventures:
Direct-Marketing Principle #1. Find the Starving Crowd
As a real estate investor, one of the biggest risks you’ll ever have to deal with is carrying the costs of a vacant property. Empty units can suck the profit from a property in a single month, and consecutive months of vacancies can sink you.
How do you minimize this risk? You figure out who your most likely prospects (tenants) are and what they are hungry for. It’s a brilliant way to approach finding low-risk properties to buy.
You can do this fairly easily by visiting open houses and chatting with the realtors or calling a few property managers in the city. Ask them about the houses that people are buying – and why they’re buying those houses. Ask them about must-have features. Ask them about the people who are renting. Ask where people in the neighborhood usually work, and what attracts people to that area. You can even ask about rental rates and popular apartment buildings in the neighborhood.
Then walk around and chat with people in coffee shops and parks. Find out where they work, what they like about the area, and other general information. And pay close attention to apartment buildings with no-vacancy signs. What size units do they have? Where are they located – near a subway or bus stop, across from a park or something else that might be drawing tenants? Do they have any special amenities?
Finally, you can go online and read the ads people are posting. You can even call some of them and ask questions. Find out what features everyone highlights. Be curious.
Pretty soon it will become apparent what it is that tenants in the area are hungry for – maybe 2-bedroom units with dishwashers, or 3-bedroom homes near George Washington High School, or 1-bedroom condos off Granville Street. That’s the kind of property you want to buy.
Had we done more research before we purchased our six-unit disaster, we’d have realized that a crowd of drug users, drug dealers, and other shady characters were happily occupying that entire block. And we’d have considered how, even if our property was fixed up nicely, the neighboring properties would deter good tenants from renting from us. Instead, we made the mistake of focusing on the fact that we could strike a deal that enabled us to buy the property for no money down.
Direct-Marketing Principle #2. Develop a Unique Selling Proposition (USP)
As Michael Masterson says, “The feature or benefit you decide to promote with your USP does not necessarily have to be unique to your product, but it does have to seem like it is.” When you apply this principle to investment real estate, it means that you don’t have to find a property that has some feature no other properties in the area have. But you’d be wise to ensure that any property you are considering has appeal. The more appealing it is to your starving crowd, the higher the rent you can command, and the easier it will be to sell at a great price in the future.
So find the USP for a property before you buy it. Imagine yourself placing ads to attract tenants, and even imagine yourself selling it in the future. What will you say about it? Is it positioned for perfect sunset viewing? Is it a short walk to fabulous shopping? Does it sit on a peaceful and beautiful street? Does it have a gorgeous yard that brings a country feeling into the city?
If you’re looking at a property and you can’t find or create a USP for it, you could find yourself struggling to rent it if the competition for tenants gets tough. Worse, you could lose money when you go to sell it (like I did when I bought a condo unit in North Toronto several years ago).
Direct-Marketing Principle #3. Focus on Benefits Not Features
When you write an ad to attract tenants to your property, base it on the juicy USP you created – and include plenty of additional benefits that tenants will enjoy by living there.
The typical ad – “2 bedroom apartment on Granville Street, dishwasher, washer/dryer, hardwood floors, and full en-suite bathroom in master suite available July 1″ – is all features. Instead, you want to focus on things like the spectacular view from the terrace and the apartment’s easy access to award-winning schools and the best nightlife in the city.
In “What Clayton Makepeace Knows About Selling Your House in This Market,” I said that it’s important to appeal to the positive emotions that might make someone want to buy your house. That same emphasis on your prospect’s emotions is true of rentals.
So why not try to attract the best tenants at the highest price by describing how convenient and comfortable your apartment will be for them?
Apply the above direct-marketing techniques to your real estate investing efforts, and you could see a big difference in your profits.