Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
In between creating cute twitter hashtags and inventing new emoticons for their teenage-girl fan base, the folks over at Mashable recently took a few moments out of their obviously busy schedules to write a piece on Big Data and “Real Estate.”
And they got it wrong.
Sigh. Didn’t we just go through this with OpenDoor a couple of weeks ago?
The Big (Wrong) Claim
The Mashable folks claim that big data is going to change “real estate” in five earth shattering ways.
Because (according to them):
“Real estate has traditionally been a game won or lost based on old-fashioned networking and shoe-leather style hard work — deeply dependent on timing, detecting trends and more than a little bit of luck.”
Really? The next time that I rely on LUCK in my real estate business will be the FIRST time.
Has that clown of an author ever been out of the office? Or walked in our shoes? I’m gonna say a big, fat NO.
Let me give you his five “big breakthroughs” of Big Data and then let’s talk about them:
#1: Democratizing data for the real-estate consumer (yeah he really wrote that)
#2: Better understanding communities
#3: Investors and banks: Foreclosure and short-sale changes
#4. Roles of real estate agents
#5: Boosting pitches
Breaking Down Their “Breakthroughs”
In point #1 he suggests that Zillow, Trulia, and Redfin should be hailed as the saviors of real estate because they give nearly "complete transparency of real-estate info.”
Um – did something change with Zillow and Trulia data in the last five minutes that I’m not aware of?
Point #2 refers to community planning.
Point #3 refers to banks getting smarter and thus being better negotiators with foreclosures and short sales.
Point #4 talks about big data making agents obsolete, and he did something that made sense – he quoted a real estate agent who said, "When you seriously start to focus in on an area or a neighborhood, you really need a local agent." He quoted the guy but didn’t get what he said.
And I honestly don’t know what they hell he was trying to say in point #5. Maybe his high school English teacher taught him that any list he wrote about had to have five elements. Who knows.
Bigger Isn’t Always Better
My point though is that none of this stuff is even interesting, much less “earth shattering.”
Actually it’s meaningless fluff – written by someone who pretty clearly doesn’t know anything about “real estate.”
Listen. If you’ve done even ONE deal in your lifetime, including buying a house to live in – you know one thing for certain…
And that’s that REAL ESTATE IS ABOUT SMALL DATA, NOT BIG DATA.
Did you get that? Am I coming across clearly enough? I’ll say it again – real estate is about SMALL data.
I hear people all the time talking about “the real estate market.”
They talk about macroeconomic trends. They talk about national housing starts. They talk about how many apartment units were built in the U.S. during the last quarter… on and on and on…
You know what? Even though I studied econ and find that stuff interesting, I couldn’t give a rats patootie about the overall “real estate market.”
Why? Because it’s completely and totally irrelevant to my real estate investing business.
All that matters is my LOCAL market. And even that’s not always the case.
In fact, all that REALLY matters to me is what’s happening in a 3-block by 5-block area in ONE school district that I target.
That’s a SMALL area. And what I need is hyper-accurate data for my SMALL area.
(Hello Zillow and Trulia? Are you listening?)
I don’t need seven terabytes of data being crunched by a Cray supercomputer to make a decision to buy another rental house.
Far from it.
What I need are maybe a half dozen hyper-accurate data points on recent sales on the same street and another half a dozen on what stuff is renting for in the same area.
That’s it.
Isn’t that true for your business as well?
I mean, if you’re investing in LA, do you really care what’s happening in Austin? Or Palo Alto? Or even Irvine? And if you’re investing in Miami, do you ever even think about what’s happening in Philadelphia? Or Jacksonville. Or Ft. Lauderdale?
I can’t see why you would.
I’ll even go so far as to say this – I buy in a city right next to the city of Detroit - and I couldn’t care less what happens in the city of Detroit.
Because it doesn’t impact my business.
Just like Austin doesn’t impact LA and Philadelphia doesn’t impact Miami.
Go Local, People, Not Loco with “Big Data”
But, I will admit, as a corporate guy, I get the fascination with “Big Data.”
People who don’t know anything about a particular topic always think that more data is better. And that even if you have all the data you can possibly find – if you could find more – it would be better.
But that’s not the case with real estate investing. Far from it, actually.
Because real estate investing is local. And it always will be. And I don’t think that “Big Data” can or will ever change that.
What do you think?
Agree with me? How do you feel about Big Data and REI? I wanna hear your comments below.