Have you ever seen the movie “Bourne Identity” with Matt Damon?
If not, you should. Great movie.
Or better yet, read the book by Robert Ludlum.
Now, there’s a particular scene in the movie though I want to talk about that’s really relevant for real estate investors.
Here’s what I mean.
Remember when he’s in the diner having coffee after just escaping from Paris? He’s sitting there with the German girl, Marie, still trying to figure out who he is and where he’s from and why he can’t remember anything about his life. Yet, at the same time, he’s incredibly in tune with everything around him.
And I mean everything.
From the movie:
Bourne: Who has a safety deposit box full of… money and six passports and a gun? Who has a bank account number in their hip? I come in here, and the first thing I’m doing is I’m catching the sightlines and looking for an exit.
Marie: I see the exit sign, too, I’m not worried. I mean, you were shot. People do all kinds of weird and amazing stuff when they are scared.
Bourne: I can tell you the license plate numbers of all six cars outside. I can tell you that our waitress is left-handed and the guy sitting up at the counter weighs two hundred fifteen pounds and knows how to handle himself. I know the best place to look for a gun is the cab of the gray truck outside, and at this altitude, I can run flat out for a half mile before my hands start shaking. Now, why would I know that?
Here’s why Jason. It’s called Situational Awareness.
Situation awareness (SA) involves being aware of what is happening around you to understand how information, events, and your own actions will impact your goals and objectives, both now and in the near future. Lacking SA or having inadequate SA has been identified as one of the primary factors in accidents attributed to human error (e.g., Hartel, Smith, & Prince, 1991; Merket, Bergondy, & Cuevas-Mesa, 1997; Nullmeyer, Stella, Montijo, & Harden, 2005). Thus, SA is especially important in work domains where the information flow can be quite high and poor decisions may lead to serious consequences.
While Situational Awareness is mostly referenced in intense fields like emergency room care, police work, pilots, combat personnel, etc., it is completely relevant for real estate investing.
When you are evaluating a particular real estate deal do you ask yourself these questions?
- What is your strategy? Are you buying for cash flow, appreciation, or tax benefits?
- Is the investment the best asset class or geography for that strategy? Do you know the risk profile, population and jobs for where the property is located?
- Is the prospective investment in the right neighborhoods? “Right” can vary depending on your goal and holding period.
- What about team? Do you have the best partners when it comes to acquisition, renovation, property management, legal, title, etc.?
- What about the street and block? Do you know what else is there? Percentage renters? Subsidized housing?
- After all the above criteria are met, does the property fit your investment goals? Cash On Cash Return? Aggregate Return? Tax Efficiency?
If you don’t have the right answers to these questions, then you are missing critical information. Your situational awareness will be less than what is required to make good decisions.
Poor decisions may (and often do) lead to serious consequences…
We’re developing a 3-part white paper based on the major components of Real Estate Investment Analysis:
- Part 1: Strategy
- Part 2: Market Selection
- Part 3: Project Evaluation
jeannie llewellynMay 17, 2010
George Clooney in Men Who Stare at Goats also talks about this, but that's more a comedy, so it might not be as impactful.
That said, SA is certainly needed when considering ANY investment. If SA isn't being used, then it's called something else that you'd be doing: Gambling.
Thanks for the links, Chad!
Chad A. DotyMay 17, 2010
Glad you like the article and I need to see that movie then...
I think what happens is we get "shiny object syndrome" and get married to the property before fully understanding the market. Since the market is the biggest determinant of value, if you get it wrong, it's painful.
SA, is just a way to think about it.