Acquiring financing for development and growing your investment portfolio requires careful planning to cope with the array of internal and external factors present in the real estate marketplace. SWOT is a valuable tool you can add to your planning to address your internal strengths, weaknesses, and identify strategies to take advantage of opportunities and handle threats. In this article, we’ll discuss each part of the SWOT analysis and how they can be specifically applied to real estate development, investment, and marketplace lending.
Strengths – ‘S’ in SWOT Analysis
What do you do best as an investor? What key skills do you possess that give you or your firm an advantage?
These questions will help you identify your core competencies. These are the traits, resources, and skills sets that will help offset weaknesses and overcome environmental threats. Knowing your strengths provides the basis for building a competitive advantage in the marketplace. Allocate extra attention and resources to those areas where you excel to build the greatest differentiation from competitors.
Consider the various functional areas of business. How well equipped is your investment operation in terms of project management, marketing, maintenance, accounting, legal, acquisitions, and capital?
Where you find strengths, you’ll find excellent benefits and motivators to offer to other parties. If you’re particularly well capitalized, you can use this to your advantage in persuading a counter-party to accept your offer over another offeror.
Excellent project management skills? This could open up opportunities to expand into development or property management. Completing the SWOT analysis will give you a better awareness of the operating environment, including less obvious, but profitable opportunities strategically aligned with core competencies.
What could you be doing better? Where does your team lack experience and education? What pieces of the strategic puzzle are you missing?
Addressing weaknesses is a key step in the success of any venture. Investors and partners will want to understand your strengths and weaknesses to confidently assess the risk profile of your project or proposal. Objectively consider what weaknesses personally and professionally you may have that could interfere with the execution of your plan. Be bold in identifying your weaknesses, as well as strengths.
Where you find weaknesses, hire the appropriate professionals to bridge gaps. We should never limit ourselves based on weaknesses. There is always a way to improve ourselves and team by planning, learning, and seeking the help of others. Wealth generation in any field requires a team. Practical weaknesses to address in your SWOT analysis as an investor include capitalization, liquidity, experience, risk tolerance, team size, accounting, and rental management.
What room is there for market share expansion? What technologies are available to improve efficiency and offer more value? How can you diversify your portfolio and differentiate your brand?
One of the key benefits of conducting your own SWOT analysis is that it allows you to identify the multitude of opportunities that are available to you. You can find opportunities in terms of new product ideas, unmet consumer needs and demand, enterprise technologies, and more. After you’ve completed the strength and weakness analyses, you can begin to seek and be open to opportunities that will enable you to achieve additional growth and revenue. For investors and developers this can mean new tax legislation, favorable interest rates, low property taxes, expense reduction, and improvements in vacancy rates.
Other valuable opportunities that can be identified through SWOT analysis are benefits, services, and brand positioning potential that will allow your firm to further improve brand strength and demand in the marketplace. A competitor analysis, an essential aspect of strategic planning, can further help evaluate the core competencies of competitors and help you stand out amongst the plethora of other investors and developers seeking acquisition opportunities and capital.
How do your competitors lead? How do you want to lead? What do you want to be known for?
Depending on your market and the nature of the competition, you can strive to differentiate on access to capital, reliability in closing, and meeting project deadlines, as well as other factors that would be a value to your prospects or partners in the investment industry. Your reputation and brand position is critical in real estate investment. It helps other parties understand what you offer and why they should trust you.
What internal and external factors could damage your portfolio over the next 12 months, 5 years, and 10 years? How will the economy and shifting consumer tastes affect the multi-family and commercial real estate market?
Unless you know what you’re up against, there’s no way to prepare and ensure success. Fool’s luck may get you by for a period, but in the long-term of wealth generation objectives, strategic planning is invaluable. The SWOT analysis identification of threats is perhaps the most important to developing a set of effective contingencies to deal with the potential for depreciation, lease rate declines, economic obsolescence, inflation, regulation, and a number of other factors. In general, threats can be categorized as internal, external, regulatory, environmental, social, and operational.
Internal threats are typically those that are the result of issues involving employee conduct, financial solvency, and credit issues, as well as other weaknesses identified in the foregoing analysis. Regulatory issues are vital to monitor over the span of years by staying closely involved in legislative matters affecting the industry. A notable example is the Dodd-Frank Act, that while beneficial in improving transparency in the finance and securities industries, also drastically limited a subset of investors engaged in direct lending.
If a current dominant revenue generation strategy is suddenly rendered enviable by newly enacted lending, it can severely limit an operation. Being observant and planning ahead allows the formulation of contingencies and appropriate exit strategies according to each threat.
Risk and Management
Conducting your own SWOT analysis is a valuable exercise for the investor that dreams of a stable, cash-flowing portfolio. Building a reliable, low-risk, and properly managed investment business necessitates diligent strategic planning and forethought. If you’re seeking strong returns without the management troubles, oversight responsibilities, and risk, consider partnering with a proven marketplace lending platform.