Cornerstone 10: Serve Demand, Don’t Create It.
By Paul Martinez
Warren Buffet said, “I don’t look to jump over seven-foot bars; I look around for one-foot bars that I can step over.”
Put Yourself in the Path of Demand
It is much more difficult to create demand than serve it. Trying to create demand is by far the most risky, time-consuming, and expensive route you can take to build a business or invest in Real Estate. Companies like Microsoft and Apple spend decades trying to create and perfect demand, and operating like this is always difficult. Can you create the next Facebook, Apple, or Microsoft? Maybe, but why not create something like TechCrunch, serve the demand in that industry, and then sell it to AOL for $40 million instead? This is like looking for the one-foot bar that you can easily step over.
Go Big! Success in Creating Demand – Let’s go to Havasu
Robert P. McCulloch was the visionary who founded Lake Havasu City, now a very popular spring break destination and home to over fifty thousand residents. He purchased a 26-square-mile parcel of land on Lake Havasu, and then spent much of the 1960s and 70s creating demand for the development of this location. In a bold move, McCulloch purchased the famous and historic London Bridge, which was then dismantled and moved from London to Havasu over a three-year period of time. It is reported that he purchased the bridge for over $2M. He then had a grand opening for the attraction in 1971 which kicked off an aggressive development campaign to get buyers interested in the city. As part of his campaign, he reportedly offered free flights from 1971-1978, totaling approximately 2,702 flights which brought in 37,000 perspective buyers. He spent many years and millions of dollars creating this community.
Although he was ultimately successful in creating the demand, he had the time and resources to make it happen. For the rest of us, there are much easier ways to make a profit by serving demand. Instead of getting people to come to a remote location and purchase property, it may have been easier to go to a growing city and do the exact same thing on the outskirts of that city.
Go Smart! Why Not Serve Demand?
People sometimes ask us, “What is the hot real estate product right now?” Our response is that any real estate product can be lucrative. The most important part of having a “hot” product is to place yourself in the path of demand. Often, people who consult with our firm are excited that they found a piece of land to purchase and develop. Their excitement clouds their judgment, and they don’t take the very simple step to see if that particular product type is in demand or if it is over-supplied. What good is a piece of property that you can buy and build a 60 unit apartment complex on if there are 12,000 apartment units hitting the market, as is the case in Seattle? With so much market over supply, this isn’t a solid move. Five years ago – when everyone was running from this type of investment – would have been the time to execute. So, focus on what is in demand and then try to produce something to serve that demand. It is much easier than figuring out how you will get customers or buyers to like what you want them to like.
Go Big or Go Smart – It Doesn’t Matter What You Choose as Long as You’re in the Game!
You can go big and that can often be a huge payoff. Just know why you are going big and understand that it is much harder, more time consuming, and much more expensive. You can also choose to go smart and still make millions by serving what you already know is in demand. This route is shorter, safer, and less expensive. It is your job to determine for yourself if you want to look for a seven-foot bar to jump over or a one-foot bar to step over.