As I said in the introduction to investing in San Diego real estate, I use the word ”investor” as though it were universal, but it’s not. I see three distinct spheres or levels when I look at people buying and selling real estate. Two of those levels are well served: the owner-occupied and the commercial. Clients falling into either of those categories may learn from these articles too, but it’s that middle sphere or second level client I want to focus on and reach. These are the people I call Small-Cap Investors and they are, by far, the most underserved. So, what are these three levels specifically?
Level 1 Clients
By far the largest in number, Level 1 clients are buying or selling their own homes. This group is well represented by the real estate industry. It wouldn’t surprise me at all if you said there were 1.8 agents for every man, woman, child and large puppy in California.
Level 2 Clients
My target audience and I believe, one of the fastest growing segments of the real estate world. These are primarily individual or small group investors buying single family homes and 2 or maybe 3 unit buildings. Because this group is so inadequately served, they must look for advice where they can find it. They either try and use the services designed for Level 3 (and are left feeling like second class citizens because of their lower net worth and limited objectives) or they settle for Level 1 representation. In which case they are trying to make an investment decision while consulting someone more normally associated with staging open houses, comping properties and holding nervous clients together while buyers’ remorse passes. All important tasks, to be sure, but a poor substitute for understanding debt planning and proper valuations in relation to cash flow.
Level 3 Clients
This is a set of investors buying and selling at a commercial level. They are quite knowledgeable going in and their transactions may involve 10 unit apartment complexes and commercial buildings. The agents at this Level work with firms that have taught them how to view their clients’ investments in much the same way we do on Wall Street. But they are too large to work with the Small-Cap Investor and their tools are too sophisticated. They are going to discuss things like “cap rate,” “1031 exchange” and “triple nets.” If you’re really curious, I’d be happy to explain these concepts but here’s what’s important: they are not the right tools for Level 2 clients. They do not provide the appropriate framework of analysis for Small-Cap Investing.
Call to Action
Here’s the bottom line. If you are or think you may be a Small-Cap Investor, these articles are written especially for you. If you have any questions or you are in need of a specialist, please don’t hesitate to contact me. If you are an agent looking for a better understanding of these concepts, this is written with you in mind too. If you are interested in gaining a much more detailed, working knowledge of Small-Cap Investors, we offer seminars and webinars through a company I co-founded called: The Real Estate Training Team (TREETT). We are also available for office presentations. No matter who you are, I hope this series of articles is helpful and I look forward to your comments.
Filed under: INVESTORS , comps, Small-Cap Investor
[...] be a Renaissance Firm and our area of greatest contribution continues to be the INVESTOR. The Small-Cap Investor in particular, as they are the most underserved market in all of San Diego real estate. The [...]
[...] « Newer Older » [...]
[...] calling themselves “real estate advisors” and no real system or structure for the Small Cap Investor. The first time I saw this it hit me: when you enter into a transaction it’s like stepping [...]