marginal gains real estate investing

 

How bright is each of those Chinese lanterns above, by its lonesome?

Not very bright. Around what a second-rate pulp novelist might describe as “a dull glow.”

But standing in that crowd, with a thousand lanterns in the air above you? I bet you could see just fine.

And so it is with Marginal Gains Theory. The theory goes like this: even small improvements, if repeated over time and applied to many aspects of activity, will add up to create markedly better results.

Imagine that you did 100 small-but-important things 1% better, every single day. You may not double your performance instantaneously, but over time all those tiny tweaks aggregate to produce radical changes in results.

Ready to talk… bicycling?

 

The Brits (Finally) Win the Tour de France

The man who popularized the theory was Dave Brailsford, the new coach of the British cycling team in 2010. Brailsford explained the theory as “the 1 percent margin for improvement in everything you do.”

He inherited a tough job: coach the British team to win the Tour de France. Which they had never – not once – won.

He started with the obvious: how the cyclists trained. What they ate. The weight of their bike tires. Testing bike seats to find the most ergonomic seats on the market.

Then, of course, he got maniacal about it. After all, this isn’t the “improve a few obvious things” theory. Brailsford brainstormed endless lists of what impacted cyclists’ performance.

To improve the athletes’ sleep (especially while traveling for competitions), he researched and found the best possible pillows, and made sure his team brought them on the road.

He coached his team on more effective hand-washing techniques to avoid illness. He researched the best possible massage gel.

When he discovered how much wear was being caused to his athletes’ bikes and gears from dust, he had the training room floor painted white to help the cleaning staff be more thorough.

And so on, with dozens of other small improvements.

Brailsford believed it would take all these improvements five years to add up to enough of a competitive advantage to win the Tour de France. He was wrong.

It took three years.

In 2012, a Brit won the Tour de France. His teammate came in second, sealing the team’s success. Later that year at the 2012 Olympics, the team took home 70% of the available gold medals.

 

Marginal Gains Theory

We humans are not designed to think in this way.

Instinctively, we look for big-picture highlights. We love hearing about the woman who lost 200 pounds… for about 90 seconds. The headline catches our attention, and we tune in hoping to hear some magic bullet that she did. Something easy we can replicate to knock 15 pounds off our own waistlines.

So, we listen to the first thing she said she did, and to the second, but by the third our minds start wandering.

The truth is that she probably started by removing cookies from her house. Maybe she stopped eating meals at restaurants and started cooking all her own meals. At a certain point, she probably shifted to meals with more vegetables and less meat and empty carbs in them.

Then she started eating smaller portions. Then she cut back on her alcohol consumption.

By the time she’s talking about how her five-minute daily walks evolved to 45-minute runs, she’s completely lost our attention.

People love the highlight reel. They love the big game-winning play, the pivotal moment, the confetti cannon.

Graphic courtesy of James Clear

 

But most people just aren’t interested in the million little details that it took to prepare for those results.

Those details, that no one wants to hear about? They’re the important part. They’re the marginal gains that made the big result possible.

 

Marginal Gains in Rental Investing – The High Level

What makes a successful rental property?

It starts with buying a property with high cash flow potential. Think about all the components involved there – learning a market better than your competitors. Projecting rents and home values accurately. Understanding how to accurately forecast cash flow for potential investment properties. Accurately evaluating needed repairs (and their corresponding costs). Forecasting repair timelines and vacancy rates.

And each of those activities involves a dozen micro-skills of their own.

Did you notice how I said “high cash flow potential,” when it comes to buying a rental property? You can buy the best property in the world, and it will lose money if it’s poorly managed.

Which means good property management requires another subset of macro-tasks, each with their own subset of micro-skills.

Good property management falls into two larger umbrella components: placing good tenants in vacant rental units as quickly as possible, and then keeping them as high-performing tenants as long as possible.

Read: dozens more little processes that could be improved.

 

1% Gains in Action: Advertising Vacant Units

Let’s get more granular, shall we?

You have a vacant rental unit. Your first task: advertising it.

First, you start with the obvious. Where do you advertise? Where do the best possible renters in your market look for new housing?

You talk to other landlords, and renters in the area. You find out where they go first to look for housing. A website? A social media group? A local newspaper? A local newsletter? Maybe a local bulletin board?

Then comes the ad. What speaks most to these best local renters? What are their priorities? Are there high-demand amenities you might need to add? What’s the most attention-grabbing and magnetic headline you can write?

How do you take more attractive and inviting photos? Do you need to be using a better camera? Do you need a more experienced real estate photographer? How many photos is the optimal number?

(Incidentally we cover all of this in How to Write Irresistible Rental Listings.)

Start with the obvious, and just look for little ways you could do them better. If you get overwhelmed, ease off the throttle.

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1% Gains in Action: Tenant Screening

When you start getting calls or emails about your vacant unit, it raises a whole new set of questions.

How do you identify the applicant most likely to remain as a long-term, high-performing tenant?

The questions might look like something like this:

How effective is your initial telephone interview, in weeding out obviously bad candidates before investing the time to show the property?

What can you do to make your showing of the property more appealing? What can you do to raise curb appeal and improve first impressions? How sparkling clean is the property? What time of day shows the property’s best features in their best light?

What questions can you ask, at what points in the tour, to get a better sense of what kind of renter the candidate is likely to be?

How easy is your rental application to use? Can the prospect fill it out electronically and email it back to you? (And the answer is “Yes,” for our free rental application 😊)

What information do you collect from their current landlord? Do you contact their previous landlord as well?

What does their supervisor say about them? Does their stated income match their pay stubs?

How well do you understand what red flags to look for on the applicants’ credit reports? On their criminal background checks? Do you run a nationwide eviction history report? (We offer all three as a renter screening package, chargeable to the applicant – just saying.)

What does their current home look like? How do they treat it? Is there any damage? How dirty or clean is it?

And so on. There are a dozen more questions you could (and should) ask. But don’t worry about all of them, all at once. Start with how you perform the most critical tasks (like tenant screening), and ask yourself a simple question: “How could I do this a little better?”

Even small improvements make a big difference, when all added together and repeated over time!

 

Seth Williams’ Experience with Marginal Gains

We happened to dive deep into a few areas above, but don’t stop there. Why do you think we talked about 11 Ways to Boost Your Tenant Retention? Because renter retention is extremely important for minimizing tenant turnovers, which have a huge impact on your property’s cash flow.

And most landlords overlook it.

Enough of me proselytizing. Don’t take it from me – here’s what Seth Williams (of RETipster.com fame) said when I asked him about his experiences with small improvements leading to big gains:

“I’ve been able to sell my properties exponentially faster by posting my listings in multiple markets, on several different listing websites. My listings get FAR more visibility and exposure this way, which gets results much faster than if I listed it once on the MLS.”

Like many real estate investors, speed of sale makes a huge impact on Seth’s business. Carrying costs are expensive, and beyond that, the longer his money is tied up in one single property, the fewer deals he can do in a given year.

So, what did Seth do? He brainstormed and researched all the ways he could think of, to sell his properties faster.

It paid off.

 

How Marginal Gains Improved Mark Ferguson’s Business

You know Mark Ferguson from his excellent blog at InvestFourMore.com (or you should, if you don’t!).

Mark is both a superstar Realtor (like our co-founder Denise) and a rental investor (also like Denise). When I asked him about his experience with marginal gains, here’s what he told me:

“One small change that made a huge impact on my business was changing the way I hire agents on my team.

“In the past I would hire agents strictly so they could sell houses. We would provide leads, training, and mentoring, but many applicants ended up choosing other offices because of higher commission splits to them. (Most agents fail in real estate because they do not get proper training, but that is another topic for discussion.) 

“Lately we changed the way we hire agents. We now offer them hourly work on the team. They can help with marketing, my blog, paperwork, or other things we have to pay someone to do anyway. Instead of losing most of our initial applicants to other offices, we are now hiring 50 percent or more of the agents who interview.

“This means we can be much more picky about who joins and we have instant help with busywork at the same time.”

What Mark discovered when he looked closely at what new real estate agents want is they’re anxious for stability. Being paid on commission is scary for any salesperson just starting out. It’s a big risk, and it feels awful not knowing if you’ll make any money this month. (I know. I’ve been there.)

He was willing to give these new agents the tools they needed to succeed, but they were going elsewhere because they were worried about money. Mark was able to speak directly to the agents’ fears by offering them guaranteed income while they learned their trade.

And at no additional cost – he had busywork that he had to pay someone to do regardless!

This one tiny change made a huge impact in his recruiting, but it required a deep dive into why he was losing prospective team members and how he could make his offer more appealing.

 

Marginal Gains and the Pareto Principle

Familiar with the Pareto Principle? Sure you are, even if you know it as the 80/20 Rule.

How do you jive the apparently contradictory advice of these two theories? Should you focus on the critical few, the 20% of activities that produce 80% of your results? Or make small improvements to many activities?

These notions aren’t as contradictory as they sound.

Use the Pareto Principle to identify the most important overarching activities. Then, within those most important umbrellas, drill down and look for ways you can improve all the smaller sub-tasks.

This is why we got granular with tenant screening above, as an example. Tenant screening is one of those 20% of landlord activities, that produces outsized results. But within it, there are dozens of ways to improve your processes and more accurately identify good long-term renters.

 

The Beauty of Marginal Gains: A Starting Place

When you’re hunting for ways to improve your life, your business, your relationships, your real estate investments, it often feels overwhelming.

But the nice thing about 1% marginal gains? You don’t have to do everything all at once. What’s one thing you can improve?

Start there.

Looking to get in better shape? Start with a one-minute walk today. Tomorrow, raise it to two minutes. That’s doable, right? But in no time, you’ll be walking for a half hour, then running for a few minutes, then running for a half hour.

Looking to improve your marriage? Start by saying one kind thing to your spouse every day.

For your rental investments, what’s one small thing you can do better? It doesn’t have to be earth-shattering. But you do have to do it consistently, and you do need to keep looking for small things to improve.

Marginal Gains Theory is about slowly and systematically creating better habits. Small improvements add up over time to massive results, but only if they’re sustained!

Don’t look to break a new record right away. Just start looking for tiny things you can do better than you’re doing now, keep improving them, and keep looking for more ways to do even 1% better.

I’ll leave you with a quote from the ever-excellent Jim Rohn:

“Success is a few simple disciplines, practiced every day; while failure is simply a few errors in judgment, repeated every day.”

What will you do a little bit better today?

 

What to Do Now:

  1. Comment below: What’s one thing that would improve your life, if you did it better? What are a few ways you can do that one thing 1% better?
  2. If you’re new to the rental investing game, download our free Recipe for Rental Income: 5 Steps for Your First $500/Month in Passive Income.
  3. Enjoy this article? Did it raise some questions and ideas that got you thinking? If so, your friends, colleagues, and family members will probably also get something out of it. Share it with them on Facebook or Twitter. You can also follow us on Facebook and or Twitter for awesome daily doses of, well, real estate awesomeness 😀

 

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