It seems that the real estate investor community has taken a huge shift in focus and personality as of the recent years post the Great Recession. The entire landscape has changed due to so many factors related to the economy, the Recession, and shifts in demographics and technology along with other causes. Of course both consumer and RE Investor confidence in the economy is a major player in the shift as well.
Obviously each REIA across the nation has its own personality and focus due to the fact that, like politics, all real estate markets are local. The Real Estate Educational-Industrial Complex is not unlike the Military-Industrial Complex that Eisenhower warned us about. The Real Estate seminar business was quite large even before the proliferation of real estate related television programs and even networks came to prominence. Even here in humble New Mexico people would line up in big numbers whenever a Real Estate Guru or his minions come to town and put on the big event intended to show them how it is easy to be rich with Real Estate.
People pay their big money for the educational packages (sometimes very big money), yet so few actually make a go of it. In times past the membership of our local REIA’s would always swell after an event like a Rich Dad seminar or Fortune Builders event comes to town (among many others), yet the excited future real estate moguls mostly disappear within a few months at most.
Instead of a blog, it would probably take a whole book to thoroughly explore the subject of the markets vs. the RE Education Seminar Industrial Complex. I will limit my explorations as the role of the REIA community in leading the way to a prosperous future for its member instead of just reacting to events in the rear view mirror. It is essential if REIA’s are to remain relevant, that REIA’s reinvent themselves as the whole industry is being redefined by forces that are often misunderstood or not even seen for influences that they are. Stay tuned for the next post in this series where we will explore REIA’s success and failures of the past before we start looking ahead.
The glory days of the REIA must have seemed very heady to those who found themselves in that right place at that right time. Many a fortune was won and many lost, and some even won and lost again. People then ahead of the curve saw the possibilities and refused to see obstacles as anything that could hold them back. Word of huge successes got out and more and more people entered the business. All along the way people in significant numbers tried to enter that world and failed though maybe not as spectacularly as in recent times, perhaps due to the Real Estate Educational Industrial-Complex having grown into a mature art/science business model. Yes, the vast number of seminar goers will opt out early in the game and cut their losses. Others drop out at all stages along the way, from those purchasing small basic packages all the way to ones that buy packages over $10,000.
The educational packages might often include features like coaching, coaching calls, mentors, professional website hosting with back office functionality, marketing minions, hand holders, partnering opportunities, or any of a slew of value-added-sounding like features to appeal to any particular potential or actual real estate investor that is game for a good seminar. Yes, a good many people have entered the business from these ports of entry, and some have had or are having wildly successful careers. I suspect many have bitten the dust or could not sustain a steady real estate investor business. It is difficult to say what any ratio of the two may actually be, but looking at how many people attend these seminars and how many of them you actually run into in the course of working in the business suggests that most people in the business come from other sources or backgrounds.
There is more to the story however. The business, or better yet, the industry of real estate is what is referred to as “Fragmented.” What that essentially means is that there is an inherent or intrinsic nature or rules of a specific business that impedes its market or markets from growing efficient, or efficient beyond a certain point over time more precisely. And when markets are fragmented and there is sufficient demand, typically many more opportunities arise and whole cottage industries emerge around the primary industry. That is what we see here and that then sets the stage for the Real Estate investor and the REIA world to emerge and make its mark in the industry, so we will look at that next time.
Entry of the REIA
One of the grandfathers, or maybe just a Grand Father of the REIA movement is a man called Albert Lowry. If I remember correctly he was an orphan originally from Canada that was one of the earlier huge visible success in the industry. He codified his profitable discoveries and started or at least significantly advanced the real estate investor “business/science/art” education world. He did very well for himself in real estate and helped others as well. He believed in giving back since he became so successful through real estate. First he put money into services or charities that benefited orphans. Later with other successful investors he basically started through funding and organization the entire REIA concept and spread it across America by funding and opening up chapters seemingly everywhere. The model for the REIA’s is as a non-profit organization. Any profits made from bringing in high visibility speakers/teachers/professionals is to be used to grow and support the membership.
REIA’s proliferated and then they came into their own as the membership became more successful. They became a force to be reckoned with. Real estate investor groups evolved and communities emerged. As with any gathering or organization, each had their own group personality and needs relative to the market in which they were located. In larger markets often their basic function was just to bring together or connect birddogs and wholesalers with the more advanced investors with their funding in place. Some REIA’s focused more on education for the “new to the business” people that wanted to make a go of the opportunities available. There became many variations on the theme again as a function of the individual markets.
Just as the real estate industry is a fragmented industry, (see earlier post) the real estate education industry became fragmented as well. In addition to the big box seminars that come into town, many successful real estate investors took on students and admirers.
There have always been people that could see the opportunities available and they did well in this type of real estate investing ever since regular citizens were allowed to own real estate. It helps to remember that through most of the history of western civilization, owning real estate was only for the royalty, clergy, and privileged classes. But real estate investors have been with this nation probably ever since North America was first usurped from the Native Americans. Land was a new resource and most of Europe was already owned and controlled by the privileged leaving little opportunity for others to enter into the game. As an aside, for that reason property was always left Only to the oldest living male offspring of property owners so that the property never be diluted and made worthless. Traditions run deep for practical reasons not obvious or relevant to most Americans.
The REIA’s were instrumental in connecting novices with experienced investors, both casually and through a teacher-student or mentorship type of relationship. Many successful investors became teachers or mentors not intentionally, but because novice and intermediate investors approached the seasoned pros and requested these types of arrangements. Many teachers found it to be fun as well as profitable. Most people do like to share their knowledge, expertise, and passion with those people having a genuine interest and needing help.
Of course wherever there is money to be made there is always some percentage of people out to make an easy buck without regard to the ethics of business, nor do they care if people are hurt as a result. Some people see the bulk of the Real Estate Investor Educational Industrial Complex as sitting squarely in this camp since their profits are huge and such a small percentage of their “Students” actually make money for their efforts, as well as the huge expenditures of money and time required, but that is not the point of this post.
Next time we will explore the possible roles the REIA community can or will play in this brave new world that is always being re-invented.
The theme or focus of this post is to point out that technology has changed the landscape for so many industries across the board and that the Mom and Pop real estate investors and the world they operate in are not immune. Taxi drivers and services may be the latest in the news (Uber) along with the lodging industry (Airbnb), but in truth this trend has been growing for quite some time. Make no mistake, every industry and every business is fair game and there is certainly somebody or group of somebody’s that are exploring how the trend of disintermediation opportunities can be exploited to steal market share from any industry anywhere. After all, billion dollar industries like the music industry as well as many others have essentially disappeared almost over night in some cases with new, never seen on the horizon players owning the reinvented industries.
Years ago the realtor community was deathly scared about what the “internet” would do that to their industry, but the reverse had happened. The small percentage of realtors making the most money may have shifted to a degree, but the 80/20 rule still applied even if the ranks of the 20% has slightly shifted. Those elite realtors actually leveraged the new technology to make even more money while the average realtor take home market share had decreased.
Once again most realtors are blind to the looming dangers. As of the third quarter of 2015 the National Association of Realtors, NAR, has released an investigative report concerning threats to the industry that are now on the horizon. The said report, the ominously titled Danger Report, has been distributed to the membership and has by and large been ignored. There are serious threats cited with many rated as highly probable and in some cases imminent. The fragmented nature of the industry that has protected RE investors will most likely remain so, but only to a degree. There are big changes a brewing. Will these cold winds of change gathering on the horizon affect the real estate investor community and REIA’s along with the “established” real estate community? I think it is inevitable. Complacency is always very dangerous.
Remember back to the great recession? Was it Warren Buffet that said when blood is running in the streets is when investors make their largest paydays? The great recession should have been a much bigger boon for us mom and pop real estate investors. What really happened is that the hedge funds and other Wall Street Whales came in and gathered up the lion’s share of the opportunities while raising the “market” costs for the rest of us by doing so. Did anybody see that coming? Should any of us have seen that coming?
So, back now to the title purpose of this blog. It is time to reinvent the future, or be run over by it. REIA’s, as stated earlier are as individual as the markets they operate in, yet they all face the same overarching forces affecting each and every one of us that lives is this brave new world. There is a tendency for people and organizations to keep doing what they have always done, to do what they believe has always worked in the past. Habit is one of the great forces in human existence. Throughout much of the human past habits have served civilization relatively well, or at least have had limited downside. The world we find ourselves in now however moves faster every day and change is ubiquitous to modern life. Those that recognize this with any degree of foresight, and can leverage change the best are the new inheritors of wealth and influence in the world. REIA’s cannot afford to move into the future with the same models and expect to survive. For REIA’s to remain relevant there must be more attention to provide greater value to the membership. They cannot simply exist on the momentum of a market reality that makes the ride easy for those that just happen to be in the right place at the right time. It will require those that have been successful in the past actually giving back and helping the next wave of investors beyond just benefiting from them by easy and often self-serving mentoring and guidance. That is one area where the traditional Realtor business model and the traditional RE Investor model have much in common. The old guard is getting older and less ambitious in both worlds, with fewer interested and capable entrants to pass the torch to. Perhaps that is why realtors can so easily ignore the “Danger Report”? Such a large percentage of them are so close to retirement that reinventing them is neither palatable nor even possible in many cases. Also, there are too few potential entrants willing to embrace either industry with those dusty old paradigms and business models. If this is actually the case, then the natural order of things is that there will be huge opportunities opening up, and like everything in this new era of change and disintermediation, those opportunities will most likely be filled and owned by players that are not even in the arena yet, or at least not seen by those of us that are in the arena. We are certainly living in interesting times! Staying relevant will require new thinking as well as resolve in execution. This could be a lot of fun for those of us that are emboldened by a worthy challenge with high upside potential!
Will REIA’s remain relevant in the new disintermediation world? Is it time to reconsider the paradigms of the past and embrace new thinking, or risk being left behind and slowly fading away? Of course the smaller market REIA’s will have a more difficult time anticipating the future. Smaller markets provide less deal opportunities for RE Investors in general and probably more competition on what opportunities do exist. The ability to see what others do not, in terms of available or invented opportunities is what sets all successful entrepreneurs apart. Since there are more small and medium sized markets across the nation than the largest markets, and since I am in one of those smaller markets, I have more empathy with that segment. The large market REIA’s will most likely adapt faster as there is certainly more market velocity as well as capitalization there, they will find their way I have no doubt. The smaller market REIA’s will have to be more creative and supportive as there is just not the momentum of money churning and burning through their communities, thereby leaving fewer and leaner opportunities.
Where will the answers to this situation come from? Well, as stated earlier the uniqueness of each market will play a major role in just what will work for any particular local REIA. There is obviously no “one size fits all” solution that I or anybody else can provide. What is most important is how we all look at and approach the challenge. First and most importantly is seeing the situation for what it is and having the willingness and courage to plan and anticipate now rather than wait till the last minute or be blindsided and following the crowd once it is too late. Starting early allows for experimentation and learning rather than a “Hail Mary” tactic for survival. Second would be to learn about and understand the overall trend of disintermediation and what are the consequences and trends that follow once an industry has been disintermediated. Yes, from the end buyer’s perspective real estate investors and professionals are merely intermediaries. Recall about how we as end buyers in other realms of our lives have benefited and pursued the benefits of disintermediation that have occurred in other industries. Yes, our industry will be affected similarly yet also uniquely. Seek out videos and books from Seth Godin, amongst others to give you the edge on understand disintermediation and any implications. Thirdly would be to experiment and try ideas earlier rather than later, before running out of time. This is how we learn and create a more accurate understanding of what is happening within the industry and the economy. Fourth would be to remind ourselves that the most important aspect is that REIA members will only spend their most valuable resource with you, and by that I mean time, if they feel they are getting real value for what they are giving up. How to provide that value begins with really understanding what members value as well as what they need to become successful. Of course this begins with listening and asking and listening some more. This is also most successful when the idea of providing value is its self an earnest value of not just the REIA board members or volunteers but of the membership as well. The best of the business and success gurus usually teach that over the course of a business arc, giving more than is expected pays off to the giver far greater that what that extra service or giving costs to the giver.
Perhaps this technology that is accelerating disintermediation into our lives can be harnessed to help us here? Let’s share ideas and lessons learned? The attitude of abundance, rather that the attitude of scarcity will pay off in a big way. I would love to hear your ideas and perspectives! We can all benefit by sharing in our collective journey into territories never before faced by human beings. The rate of change will only increase. Look around and you must see that Moore’s Law affects all corners of society. If we work together we can all prosper in the times ahead? None of us is as smart-talented-prepared-insightful-strong-experienced as all of us! If we leverage this as a group, then we can make a change in the world for the better and be paid handsomely for it.
Written by Steve Cordova