Is Real Estate a Relationship Business or an Information Business?
One real estate professional: “Real estate is a relationship business. Your network determines your net worth.”
Another real estate professional: “Real estate is an information business. Knowing something your competitors don’t know is the biggest advantage you can have.”
So who’s right?
Both of them!
What relationships get you
Having a network of people that you trust, that also trust you and know how you operate is invaluable in real estate. If a relationship is a bridge between two people, trust is the strength of that bridge. Every business opportunity in the world revolves around people — so knowing more people directly will net opportunities, but having deep relationships will net opportunities from those peoples’ networks as well.
“The most important single ingredient in the formula of success is knowing how to get along with people.” — Teddy Roosevelt
Make sure your connections know what your capabilities are and that they can rely on you. And don’t forget to have a good time — it’s not just good for business, it’s good for life!
Relationships are valuable.
What information gets you
If having relationships built on trust nets opportunities, then information is necessary to follow through on those opportunities. Particularly if you are a service provider, trust is maintained by sharing valuable information, and making intelligent recommendations based on it. If I trust you, but I already know everything that you know, that relationship is of limited value.
After all, it’s 2018 — less than 20% of our way into this defining century of big data and connectivity, and it’s now possible to know more than every possible before in human history. You can read in plenty of other blogs and publications how much data humankind is creating on a daily basis, and how much information is flowing around. The interesting question to me within real estate is: what information is valuable?
An off-market opportunity isn’t what it used to be now that “off-market” means brokers are sharing deal information online. But there are absolutely opportunities out there that aren’t available to the general public or your average real estate professional. Having more of them obviously means you have more choices, but it also means you have more information. Listings and offers are the crux of Opportunity information.
Knowing what you can do is valuable.
Information that indicates value
True value is an elusive thing, constantly changing and difficult to predict. In our capitalistic system, an asset’s value is, for a moment in time, exactly what the highest bidder is willing to pay. But that’s largely predicated on that same asset’s potential future value. Discovering indicators of future value, particularly if that information isn’t available to others that hold the same opportunity, will allow you to arbitrage your valuation against theirs. Two examples:
First example, let’s say you invented a device that not only counts, but somehow identifies the likely economic profile of all the people walking by a particular storefront. That would help you determine the buying power of potential walk-in customers for a store at that location, and also be a good indicator of which brands would perform well.
Second example, you are a true expert on retail trends. You understand which types of stores are going in and out of style, and what brands will be disrupted by ecommerce over the next decade. You’re a thought leader on the subject. That knowledge you have should help you look at retail properties, their current rent rolls, and determine whether it’s achieving its highest and best use. If so, your collective knowledge on the subject is an indicator of value you can rely on.
Understanding value is itself valuable.
Algorithms that combine the two
Now understanding an opportunity available to you, and the drivers of value, is the key to this game we call real estate. An algorithm is like a formula, or a model. It allows you to synthesize all of that information, apply the proper weights to the various factors, and spit out answers: answers like the dollar value of an asset, or a yes/no decision. Having more data isn’t helpful if you can’t transform it into insight. A better algorithm pulls more value out of the same available data.
Good algorithms turn your data into value.
It takes two
So real estate is both a relationship business, and an information business. Think of it like a multiplication problem — if either one is zero, the end result is zero. If you have the same information but double your relationships, you can double your business. Ideally you’d like to increase both as much as possible. That’s certainly how we feel at StackSource, where we finance commercial real estate through a combination of tech-enabled information, and strong human relationships.
Bringing it all together is the most valuable.