Real Estate Investing is a Weak Link Activity

That doesn't sound like a good title for a blog. It would sound nicer if I said Real Estate investing was Strong Link activity, but it is not. I am not an expert at it but let me try to explain what weak link/strong link theory is about. Strong link activities are those whose results can be improved dramatically by improving the strongest person on the team. A criminal court case would be a good example. Paying three times the normal price for the top criminal lawyer and one regular lawyer will produce much better results than paying for 4 average lawyers. Adding one or more below average lawyers to the top lawyers team will have little effect.

An example of a weak link activity would be a fire bucket brigade. Remember in the olden days when there was a fire and there were no such things as hoses and pressurized hydrants? (think of the westerns, where a building was on fire and the only way to get water to put onto the fire was to pass buckets of water from one person to the next person who had formed a chain and finally the last person on the chain threw the water on the fire. Well if you put Stephen Hawking anywhere in that bucket brigade, then fire is going to burn down the house! In this scenario it is best to replace your weakest link, with an average person, not replace your strongest link with the Terminator.

So now, back to Real Estate Investing. I will only speak from the point of view of a buy and hold investor.

If you are a fix and flipper it may be slightly different.

When I started investing, the problem as a whole was too hard to visualize all at once, so I chunked down. It is much easier to visualize in these steps.

The components as I saw them were

1) lead generation

2) deal analysis

3) funding

4) professional help: RE Agents/ inspections /conveyance/legal/insurance

5) renovation (if needed) semi skilled (painting) etc. and skilled (electrical/structural/plumbing/gas) labor etc.

6) property management

For item 4) we will skip because I assume that most people will hire competent professionals who must get licensed and pass exams, ethics courses and have some experience in the field. (be careful of that inspection because in some areas they do not need a license) You may be employed in one of those fields but I assume you can't do them all and have professionals do most of #4.

In all of the other activities we can see ourselves taking on that job to keep our costs down. There is a whole TV channel DIY dedicated to you and #5! 

Now put yourself in the position of a professional Real Estate investor. If in any one of the other 5 activities, your skill is weak (or you have not paid for help in that area) you are probably not going to be a good RE investor.

So why is BP so successful? Well BP is a shortcut to fixing your weak link. You have the ability to post questions in your weakest areas. If you do not know how to do step 1 and 2, I recommend attending one of the Wednesday Webinars. If Brandon Turner is giving the talk he is going to explain how to generate leads and how to use BP calculators for deal analysis.

So if you have read my previous blogs about my biggest failure, it was at step #6. I was in a JV with a General partner who was great at 1-3, hired professionals for step 4, and hired the wrong people for #5 and #6. It took a number of years, but he/we eventually lost the property.

In Malcom Gladwell's lecture on Weak link/Strong link games he describes weak link activities like playing soccer. You can have the best defenders, passing to strong midfielders and strong forwards, but if your striker is weak, he is going to get stripped of the ball and it doesn't matter that you paid top dollar for the best midfielders!

Four years after that investment I am now very strong in #5 and #6.

If you are early in your investing career, it is so important that you work on your weak links especially in #5 and #6 since you have already invested. If your weak link is #1,2,3 you probably did not get to #4. All you lost was time, but likely gained a bit of experience in how to do 1,2,3 better for your next potential deal.

I only thought about this idea for a couple hours before I forced myself to write it out, so if you have more detail or criticism your welcome to add. I promise not to take it personally! You can help me fix my weak link!

if you want to know more there is a lot published on this theory and the soccer example I have used is from Malcom Gladwell's lecture on the topic. Teat the pandemic like soccer.