When you hear the word “investors” in the context of real estate, what image do you conjure up in your mind? Chances are, you envision a bottom-feeding foreclosure vulture who just finished attending a seminar on getting rich quick and wants to use the two nickels he has to become a millionaire by midday.
It’s one of the challenges we face when discussing real estate investing with brokers and agents in this industry. The real estate investor is saddled with an ugly stereotype that repels most real estate professionals. (It’s interesting how an industry that would love to shake off its own ugly stereotype is so quick to buy into someone else’s, but that’s a subject for another post)
This phenomenon is not restricted to the street-level practitioners in our business either. I had a meeting with a top-of-the-heap leader of an iconic real estate brand who, at the end of our meeting, told me that investors were not really of interest because once the foreclosure crisis dies down, they will all disappear. In other words, investors equal foreclosures. Their interest is isolated to buying distressed property at a discount. Their strategy is myopic — feed at the bottom and capitalize on the misfortune of others. Nothing could be farther from the truth.
The silent majority of real estate investors, however, are actually just rental property owners. They don’t consider themselves investors. They are business owners, attorneys, lawyers, teachers, firemen (and Realtors) who acquire residential property as a nest-egg investment. They rent them out, make a profit, pay off the mortgage and retire comfortably. These people never attended a get-rich-quick seminar. They simply witnessed how well rental property ownership worked for their parents, friends or neighbors and followed the most common sense and dependable retirement plan on the planet. Consider these facts:
- There are 14 million single-family rental households in the United States today. That number has increased a little since the housing crisis but has remained north of 10 million for the last 30 years.
- There are an additional 7 million 2-family to 4-family rental households.
- That total of 21 million households towers over the 16 million multifamily households that exist.
- Residential real estate cares almost exclusively about the owner occupied market.
- Commercial real estate ignores the housing market.
In the book “Blue Ocean Strategy,” authors Renée Mauborgne and W. Chan Kim explain that the greatest leaps in value for companies come from finding new, uncontested market space. Competitors that redefine market boundaries and tap into new areas of demand find themselves operating in a blue ocean and leave the red oceans (with their churning, bloody waters) behind. Innovation in the red ocean is marginal, restricted to incremental product improvements, cost-cutting and fighting with the same competitors every day over the same customers.
When you find a blue ocean, you render the competition irrelevant. The new demand you access is being served for the first time. Everything you do for them is appreciated. They are delighted by being the center of your attention — and even a little surprised by it.
So don’t think of rental property owners as investors. Think of them as a blue ocean.
Greg Rand is CEO of OwnAmerica, a national network of real estate brokerage companies that represent housing as an asset class. OwnAmerica provides the technology, training and marketing systems to real estate brokerages that pursue the single-family investment sector.
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