Almost exclusively, competitors spend all of their time fighting over the same market share. Staying within the same niche and changing things like price, or something similar breeds a competitive advantage over the competition they believe. The truth is, competing for the same clientele with essentially the same value proposition is a recipe for disaster. This is called competing in a red ocean as referenced in the book Blue Ocean Strategy by Renée Mauborgne and W. Chan Kim. Differentiating yourself from your competitors by changing the landscape of the competition itself is called a “blue ocean”. Creating these blue oceans takes an understanding of where the industry you’re competing in fails to capture a potential market share and is able to capitalize on this opportunity.
Recognizing a red ocean
My industry of real estate is an extremely competitive one. It is also difficult to differentiate yourself and create blue oceans when you take a traditional approach. During the recent market downturn, property values have been going down across the country precipitously. This is due to the huge hike in interest rates compared to the last several years where it was not uncommon to find rates in the 2%-4% range. Sellers are having an extremely difficult time selling their homes right now for two key reasons.
- The value of their home might have decreased since they’ve purchased it. This is common for people who have purchased their home in the last three or so years. This can lead to situations where sellers have little to no equity and could have to potentially come out of pocket at closing to sell their home!
- Interest rates are super high! The same home now’s payments might be double or more than what they were just 2 or so years ago with the increase of rates into the 8s now. This makes homes less affordable for more people and the buyer pool decreases significantly.
Being a traditional realtor became a red ocean quickly in 2022. While the previous few years had been as simple as sticking a sign in the lawn and getting multiple over-ask offers, situations were beginning to develop where sellers couldn’t sell their homes for the two reasons mentioned previously or otherwise. All a traditional realtor could do is decrease the price and continue marketing hoping the seller agrees to their price reductions or lower their commissions. This is a red ocean developing where the competition can only offer things that fit within the traditional modes and standards and doesn’t really tackle the sellers problem. With an ocean this blood red, there are bound to be some blue oceans that can be created through the chaos.
Creating a blue ocean
As a real estate investor, I began looking into ways to capitalize on the current market conditions. Two things stuck out to me that I took into account.
- Interest rates over the past few years were extremely low. This is a valuable asset that if one can hold on to can gain them great paydown over time and lower monthly payments overall.
- With homeownership now less attainable, I have an opportunity here to offer housing to people who can’t qualify for a home or can’t afford the high payments and give them a property I can rent to them and cash flow on.
During this time, I discovered the “subject to” strategy where you gain ownership of a property from a seller and simply make payments to their existing loan. This strategy allows me to solve the problem of these sellers that I outlined before all while obtaining amazing debt terms and a house I can make money on in multiple ways. While others were and continue to be stuck in the red ocean that is conventional real estate sales, my partners and I are doing 8-12 deals every single month where we decide to either wholesale the deals to other investors for profit, or keep them ourselves and add them to our growing portfolio. Our value proposition compared to traditional real estate professionals is completely different. It’s a completely different subsect of the industry that has existed for years, but hasn’t been fully capitalized like it is today. Our target is not the masses of people who wish to sell their homes, it is the target seller as described above being afflicted with these problems. We are the best solution to solve their problem in the current marketplace. Blue oceans allow for success like no red ocean could even dream of!
Blue oceans in any field
Creating a blue ocean can be done in any field you so choose. What you need to do is see where the current industry standards fail or alienate a potential customer base. You’ll want to differentiate yourself from the market so you don’t target the same individuals your competition is. Instead, you’re making your competition irrelevant. Doing things like lowering costs or other standard industry norms won’t help you separate yourself from the pack. Discover your niche and create your own blue oceans to thrive in!