Leveraging Your Online Power For Offline Assets
As most of my readers know, the Internet has become this generation’s yellow pages.
Whether you are doing vacation research, product research, stock research, research to buy a new home, or simply looking for a new restaurant to try, you turn to the Internet.
About ten months ago, this got me thinking. If people are turning to Internet search to do their research for offline products and services, then surely those of us who are web entrepreneurs can expand our businesses by leveraging our online power not only for other online properties, but also for offline properties.
To make this idea concrete, consider this. Let’s say that you are interested in purchasing a condo at the beach as an investment/vacation property. The three bedroom, two bath (with jacuzzi) condo costs $400,000 and is right on the beachfront. The previous owner indicates that he was able to generate about $24,000 per year in rental income with about a 65% rent-through. The previous owner did absolutely no marketing on the internet.
At $400,000 and zero downpayment, you are looking at a mortgage of about $2400 per month. That translates into $28,800 per year, or $4,800 above your rental income. In addition, there is a $375 per month condo fee, or $4500/year. That takes you to $9,300 in payments above rental income. Then you have about $3500 per year in taxes. That brings us to $12,800 in payments above rental income.
Now, one thing to keep in mind is that some of this payment is going towards the principal (sort of like depositing money in the bank) and that the property is supposed to appreciate about 4-5% per year or 1% above inflation. Those are certainly facts to consider, but when I get into property investments, I only make a purchase when I feel confident that I can completely cover 1) the mortage 2) the taxes and fees. To do that in this case, I’d need to squeeze out an additional $12,800 in rental income. Seems tough, right?
Well, this is where your online influence can come into play. Simply by creating a highly SEOed website for this property that shows up for some killer keyphrases and even better pictures of the property (people make the most impulsive decisions from visual stimulation), you can plan on raising the rental rates by 10-15% since you’ll have more people interested in and competing for the property. If the previous owner is kind enough to give you a history of the property’s rentals from the last three years on a week-by-week basis, then you can even identify the super-peak times of year when you could bump the rental rates up as much as 30%.
So the first step in covering the $12,800 is creating a killer marketing site for your property. Killer copy with killer pictures will do wonders for increasing demand. But even if you made an average hike of 20% you’d only recoup $4,800 of the needed $12,800 leaving you with $8000 in uncovered payments. So where do we squeeze out the extra $8,000?
Remember that I said the original property only rented-through about 65% of the vacation season. At 100% the property would generate about $37,000 per year on the old rates, but $44,000 on the new rates. But anyone who has worked with rental properties knows that you can’t always count on 100% rent-through. So, there’s got to be some realistic sweet spot between 65% and 100% that we can aim after. Well, how much do we need? $8000 more than we had at 65% on the new rates: $28,800 + $8,000 = $36,800. $36,800 amounts to approximately 83% rent-through.
So maybe you think that’s too much of a stretch for the first year. Maybe 77% is the best you think you can do in rent-through for the first couple years. There’s still another option (and this shows the beauty of leveraging online properties). Let’s say that in the past, the property has only naturally rented out 6 out of 12 months of the year (in other words, 6 out of 12 months are “peak” months). But you only want to use your property one month out of the year. That gives you the chance to *create* a new market for your vacation property by marketing “off-peak” rentals. There are always people looking for bargains, people who are even willing to shape their vacation plans around times of the year when bargains are available, and maybe you could give a 50% discount for off-peak rentals.
Ok. So that’s a rough draft of the thought process that can be used to leverage online properties for squeezing maximum profit out of offline properties. I hope it gives you some ideas for how you can start to think more creatively about using the web as entrepreneur.
The key take home point: online entrepreneurs don’t have to make all of their money online.
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- Crafting The Perfect College Startup
- Negative Consequences of Brand Leveraging
- The Perils of Online Publishing
- 5 Tips For Marketing On The Web
- Forbes $100,000 Business Plan Competition
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In fact its probably smart for online entrepreneurs to make most of their money offline using just this type of example.