“Finding Success in Real Estate: How One Entrepreneur Turned Frustration into Opportunity”
In 2004, I was living in the bustling city of New York when I made the bold decision to start a new career. As I searched for potential business opportunities, I couldn’t help but think about some of the most frustrating experiences I had encountered. After some careful consideration, I realized that buying investment properties was at the top of my list. The problem was, the real estate agents I worked with could only provide me with basic MLS data sheets for the properties I was interested in. There were no analytics, processes, or services offered to help me make informed decisions. I was left to do everything on my own, which was not only time-consuming but also led to costly mistakes.
But in the midst of this frustration, I saw a golden opportunity. The question was, where should I establish this business? I knew it couldn’t be in New York or New Jersey, so I began researching how retail store chains select locations for their new stores. Through my research, I discovered a sequence of events that were crucial for success, as shown in the chart below.
The first step was to choose a location, and after careful consideration, I decided on Las Vegas. But the next step was even more critical – determining the right tenant pool segment to target. This was essential because reliable tenants are the key to a successful rental property. They not only pay their rent on time but also take good care of the property and stay for many years. Unfortunately, based on my experience and what I learned from others, reliable tenants were the exception, not the norm.
Knowing that my clients and I planned to hold these properties for many years, I knew we needed to attract multiple reliable tenants throughout the hold time. And the best way to do that was to purchase properties that would appeal to a segment with a high concentration of reliable people. So, my task was to find that tenant segment.
As an engineer, I naturally turned to data analysis. I tried various paid and free data sets and wrote numerous software programs, but after a considerable amount of time and effort, I realized that this approach would not work. The fundamental problem was that humans do not behave algorithmically. So, I had to ditch this approach and try something else.
That’s when I turned to historical rental data. I downloaded about 10 years’ worth of MLS rental history and started over. After many failed attempts, I finally plotted monthly rent versus length of stay and discovered a strong correlation between the two. This was the breakthrough I had been searching for.
I then focused on the segment of tenants who stayed for over five years and converted the low and upper rent range of properties they occupied to approximate gross monthly income using the formula monthly rent/30% = gross monthly wage. I also interviewed property managers and scoured job boards to determine the most probable jobs based on this income. Through this process, I was able to identify a specific wage range that tended to attract reliable tenants – those with lower-skilled jobs.
With this valuable information in hand, I was able to create a successful business that catered to this specific tenant segment. And it all started with a frustrating experience and a determination to find a solution. Today, my business continues to thrive, and I am grateful for the opportunity to turn my frustration into success.