A little while ago a student, Julie, joined our program. She had spent most of her life working as a tailor, but the industry was in decline, and she was looking for a new way to make money.
There’s something a bit nostalgic about tailors. Kind of like chimney-sweeps. They seem to belong to a different age.
They seem to come from a time when life was different. When our values were different. They come from an era when we placed more value on looking good – on presenting well.
(They also come from a time when women were expected to stay home and out of the professions, so let’s not get too teary-eyed romantic for the past!)
When I first met Julie, at one of our boot camps, she came up to me in one of the breaks and said, “I get what you’re up to. You’re like a tailor for real estate.”
“What do you mean?” I said
“Well, you never settle for off-the-rack. You’re always asking, how can I make this deal better? How can I make it suit my circumstances better? That’s what tailors do.”
And you know what, she’s right. Most people when they get into property have no idea that they don’t have to buy off-the-rack. They go through the real estate pages of the weekend paper, and think that’s all they’ve got to choose from.
Or worse still, they listen to the marketeers and the developers, and buy whatever cookie-cutter model is in fashion that week. They just take whatever over-priced crap they serve up.
They have no idea how much control they can actually have, if they took the time to take charge.
And their investments are often a poor fit as a result.
Julie (who by the way was dressed immaculately) says you should always alter your clothes. Human bodies are incredibly diverse. The chances that your body perfectly matches the body your clothes were modelled on is incredibly slim.
Your clothes were designed for somebody else – at best. Most likely, they were just designed to be as least offensive as possible to the most people possible.
They weren’t actually tailored to a human. They were tailored to an abstract concept of “market”.
Exactly the same story with off-the-plan developments. When you buy a property off the plan from the developer (via the marketer) then you’re buying a property off the rack that hasn’t been designed with you in mind.
And it certainly hasn’t been designed with making you money in mind.
Here’s a newsflash. The only profit developers care about is their own.
But when you’re looking at property, especially new property, there are a number of stages where you can tailor and personalise the deal to make it as profitable as possible.
For starters, you could buy the land at wholesale rates and take charge of the build yourself. That way you can pocket the developer and marketers margin for yourself.
During the design phase, you could also do a bit of extra research and see which features are really going to suit your market. Most developers don’t have the time to make every property unique. They’re working with economies of scale, so they’re looking to build a hundred houses off a single design.
But that means that the market gets flooded with cookie-cutter houses. It’s hard to charge a premium on your property when there’s 50 others exactly like it within a ten k’ radius.
Now, don’t go over-board with the unique factor. No one wants the fridge in the same room as the toilet. But some points of differentiation can set you apart from the crowd.
Take the time to look into what’s selling well.
And why not try and push the envelope on the cash flow potential of your property. Even if council regulations don’t allow granny flats or multiple-occupancies right now, these things are changing all the time.
It’s easy to build in a multi-media room say, that could be turned into a self-contained studio if the regulations turned in your favour. There are a lot of options here.
But the point is, be proactive. Don’t just accept whatever is given to you. On any property and any deal, there are ways to tailor it to your advantage.
Sometimes you’ve got to be a bit cocky. Sometimes you’ve got to risk being knocked back.
But if you never ask you’ll never know.
And Julie makes another good point. Most people’s clothes don’t fit them so well, so they’re never satisfied. They’re always on the hunt for new clothes.
As a result, they spend a lot more on a larger quantity of crappy clothes than they would of it they had just stuck to a smaller number, but paid to have them tailored properly.
Likewise for property investments. One super deal that’s cashflow positive to the tune of 20 grand can be worth 3 or 4 properties that are barely cashflow neutral (unless you like gambling on market movements, but I wouldn’t recommend that to everyone.)
I can understand why tailors are on the way out. The economics just moved against them. The price of Chinese imports fell, while labour costs rose. It’s hard to justify a $50 tailoring bill on a $20 pair of pants.
But this is not true of real estate. If you’re spending $500K on a property, it’d be worth the time to make sure it’s tailored to be a perfect fit, right?
Find that property that brings out the best in your portfolio.