Marketing

What does the name “Pareto” mean to you?

Probably very little. However, the principle made famous by an Italian economist over 100 years ago has a huge impact on your investing techniques and wealth building ambitions.

“Pareto’s Principle,” also known as “the 80/20 Principle,” states that for many areas of life, 80% of the effects come from 20% of the causes. For example, Pareto noticed that 80% of the land was owned by 20% of the population and 80% of the peas in his garden were produced from 20% of the plants. You can see examples like this throughout nearly every field of study in our world, especially in business.  Often times, the ratio is even more staggering.

So what does this mean for a real estate investor?

Pareto’s Principle is useful in encouraging focus on productivity and results-driven business. As a real estate investor, this principle helps to find what areas of our business are really earning income and which areas are simply wasting time. Many of the activities that an investor performs on a daily basis are probably wasted time. By focusing on the 20% of the actions that are providing the most results, we can free up significant amounts of time to do the kind of things we want to do. This is key is beginning to “hack” real estate.

Several years ago I realized that most of my efforts were spent doing small maintenance jobs that seemed to take all day. By hiring a resident manager to take over the maintenance, I was able to gain 80% more time in my life – time that I now spend looking for deals, spending time with my wife, and blogging at RealEstateInYourTwenties.com.

Let’s look at a few more specific examples.

• If you are trying to find leads for motivated homeowners looking to sell, what sort of action is getting you the most results? Are you spending most of your time putting up bandit signs when a simple Craigslist ad is driving most of your business?
• If you are remodeling a home, what upgrades are actually contributing the most to the future value of that home?
• If you are managing a small apartment building, what advertising methods are getting you the most calls?
• Is 80% of your wealth being built by simple investing? Why are you wasting time with wholesaling deals?

What to do with Pareto?

Now that you have begun to think in these terms, its time to begin focusing on improving those areas of your business. If Craigslist is driving most of your leads – then focus your efforts on making your Craigslist ads even better. If new carpet will cause the most significant increase in value or speed of sale -get great looking carpet! Improve the things that matter and watch your investments take off.

I am not suggesting you quit all your other activities if they are not bringing you the most leads or income.   Often times, things that don’t seem to produce much income actually help in other ways. The important thing is to know what your efforts are producing – and prioritize based on that. Don’t waste time if you don’t need to.  The key is being aware of how you are spending your time.

It’s all about finding what works and maximizing those causes to explode your results. Your time is precious, and by looking for ways to increase your efficiency you can free up your time to do the kind of things you want to do. Only then are you truly living life on your terms, the goal of any real estate hacker.

P.S. If you want to learn more about the 80/20 Principle – check out Tim Ferriss’ book “The Four Hour Workweek”. While not a real estate book, the principles taught are invaluable to a real estate investor looking for more time to live to the fullest.

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