Is there any real secret sauce in Real Estate?
Is there any real secret sauce in Real Estate? In other industry, one player may have significant competitive advantage through technology innovation or business model innovation, etc.
Is the only barrier to entry in real estate just capital? And there is no secret sauce that would lead to any competitive advantage but rather just "first get yourself in the game, operate as sufficiently as others do, then don't get knocked out of the game"
That is true in real estate as well.
No.
Proofing yourself against downturns is always a good idea. Unfortunately it can be tough to underwrite conservatively because you'll always lose to people who are willing to roll the dice again and again and hope to keep winning with aggressive assumptions.
There is no "secret sauce" in the same way there isn't in any industry. There are a variety of ways you can gain a competitive edge over your competitors, and which you find or choose will depend more on your strengths and circumstances as the inherent validity of the underlying strategy. However, you're right that the key to long term success is to make sure you've always got enough liquidity to pay your bills, that you don't expose yourself to the downsides of a credit crunch, that you always have the ability to come out the other side of a down market with the ability to be nimble. The huge crash and burn stories you hear in this industry are almost always people who grew at a frenetic pace during a boom period and then found themselves exposed when the pendulum inevitably swung. Anyone who can't hold on to an asset wasn't screwed by the market, but by their own recklessness.
In biopharma having a patented "secret sauce" is the name of the game.
The secret sauces tend to be blockbusting, illegally evicting rent controlled tenants with physical intimidation, and inflating assets’ worth to investors and creditors. Do you have the stomach for these sauces?
If you start rich, use moderate leverage and always keep a ton of liquidity.
if you start broke, find a way to use OPM until you’re rich. Then see above.
There are lots of real estate strategies that involve barriers to entry. For example, there are many expensive towns that have one trailer park that was built in 1970 but that would never in a million years allow zoning for a new trailer park in 2023. So if you own that trailer park, you're the only game in town- like owning a patented drug.
Relationships are the secret sauce. An amazing asset gets listed? If you're friends with the broker you get the jump ball. No one can get financing in a tough market? If you're friends with the banker they'll get something done. No good deals around? If you're friends with landlords you can snap something up off market without any competition.
I mean... I guess? Brokers aren't cutting anyone a deal, they want to get paid and it's the Seller who has ultimate control. You know a lender? Great, but you still have to get through a credit committee. Having a friendly voice to sell a deal is helpful, but it won't turn a turd of a property into a diamond, so your lender isn't going to throw money at you because you lift together at the gym. You know landlords? Great, maybe your landlord of 10 years will sell you a building for a song when they want to retire, but that's not a replicable strategy.
At it's most basic, you need to have a source of capital that is cheaper (or dumber) than your competitors, or have knowledge that others don't. Cost of capital is self explanatory. Maybe you're politically connected and know what kind of laws are being debated which might impact real estate values, maybe you have insight into local zoning variances, or know how to navigate applicable tax breaks. Other than those two, I don't see any competitive advantages. You can take calculated risks (e.g. someone in 2012 betting big on last mile warehouse space) and those can pay off, but I don't know that that is a "secret sauce" as much as, well, a calculated risk
I agree with this.
I see a lot of people on the thread talking about zoning, connections with the city etc. but ultimately it depends on what you're doing.
IMO - If you are executing development projects then yes that would be a competitive advantage / secret sauce If you are purely doing value-add acquisitions, it's all about being able to have access to cheap capital or being able to hone in on risk better than others.
Relationships and sometimes economies of scale. Other edges might be cost optimizations (getting materials directly from the source) and labor economies of scale.
Individual secret sauce is relationships, access to cheap capital. If you had a family/friend that had low pref requirements and attractive splits and only looked for core yielding assets, you can get a lot of deals done.
Secret sauce for deals, not as much, but dependent on asset class. Secret sauce in general is doing things that others aren't, that's hard to do in multifamily since there are so many investors. In a more niche asset class, I'm sure there are things you can do that the typical investor doesn't that works for you. Best I can think of is expertise in a specific location that doesn't seem to be attractive, but based on relationships and market knowledge you have an edge over everyone else.
The "secret sauce" is simply one word. Basis. Buy at a good basis and you will succeed.
Lots of potential "secret sauces". Maybe you're close with city council and get zoning variances no one else can, maybe your good at finding opportunities for cheaper than your competitors, maybe you've got dumb money backing you and you can overpay and hope you get lucky, maybe you are the smartest in the room and can accurately see trends before they are national news, maybe you can design projects that attract tenants better than your competitors.
Feels similar to any industry?
Cap Rate Compression
Once received this in an OM
Bro I almost just had a stroke, not just from the unreadable and retarded paragraph, but also from the most horrendous formatting choices I've seen in a while.
I have to imagine he screenshotted a highlighted section and it's not actually that blue... I have to believe that...
Easy answer - creativity.
Part of the reason I was drawn to real estate is because I realized how dumb and uncreative most players are vs. finance (where I started).
If you are creative, whether it comes to financing, operations, design, deal structuring, negotiating etc, you will come out WAY ahead of the pack because your competitors mostly only know how to spread irrelevant comps on a page and put in new countertops, or simply do the same shit 99% of the other players are doing because it's easy and "proven". Which is fine, if you just want to be average and in line with the pack, but the question was about secret sauce which implies outperformance. If you're spending time on this site, you are probably already in the top 10% lol.
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