Volume vs. velocity is a metaphor that I’ll admit I didn’t know, understand or appreciate when I started out as part-time real estate investor over 10 years ago. But as I’ve continued to expand and grow my investing business to the full-time endeavor it is now as a HomeVestors franchise in Dallas, I now understand and appreciate the fact that, yes, the “fast nickel” is much better than the “slow dime.”
And here’s what I mean. To understand that metaphor, you’re got to understand and appreciate the difference between volume—the number of houses you buy—and velocity—the rate at which you buy those investment houses.
Those who have had some involvement with investors—whether that means your friends or family or members of a real investment club—know that there is a misconception in this business that volume cures all evil, or that those who buy the most houses are the most successful investors. And I can assure you that is not necessarily true. I can assure you that volume is not the cure-all or the true measure of success in real estate investing—velocity is.
Velocity ultimately is what is going to unlock your future success as a real estate investor. And it’s important to understand the definition of velocity. It is not synonymous with volume. Where volume is the measure of the quantity of deals you do or homes you buy, velocity deals with the rate and direction of change. Or more importantly in our world, it’s the speed at which you move forward toward your ultimate goal of real estate investing—which is profitability.
As I said, many investors hold these two concepts or guiding principles to be synonymous, or they might not even understand or appreciate velocity at all. But it’s important to understand that volume can produce very negative results, whereas velocity, in my experience, produces very positive results.
Let’s look at that from three angles. First of all, let’s debunk the misconceptions and misunderstandings surrounding volume. And then let’s do the same in regard to velocity. And then let me explain why I choose velocity over volume as the key guiding principle for my own real estate investing business.
Volume is not all it’s cracked up to be
First, I can assure you that volume is not all it’s cracked up to be. The more houses you buy does not necessarily mean the more profits you’ll generate or the more successful you’ll be. Sure, high volume can create high profit, but it is not implied or guaranteed in any way. The more houses you buy in no way ensures your success or your profits.
Think about it; when you buy a lot of single-family investment properties—whether you’re going to fix-and-flip them or buy-and-hold them—you can buy a lot of units, but they could be very low-margin, low-profit deals. You could be so focused on the transaction of buying and selling that you could find yourself doing very diluted deals, because you’re just trying to quickly get on to the next one.
And you’ll also find, quite often, if you’re chasing volume, you’re probably going to do that at the expense of execution. You’ll be so focused on the transacation that there’s a good chance you’re going to be sloppy in executing those deals. And when that happens, that will be reflected in your ultimate profits and gains from those deals.
Furthermore, high volume can hinder profit because that’s going to demand a lot of infrastructure in your business in terms of people, resources and energy. Think about the level of advertising alone that you’ll have to invest in and execute in order to support that high volume.
These are just some of the very many reasons that high volume is not necessarily the cure-all, end-all to your real estate investment business, and it’s not all necessarily what it’s cracked up to be. And I have seen this with many investors who do very high volumes, but at the end of the year, they generate very low profits or very low margin. And it’s simply because they’re become a transactional machine, a hamster on a wheel, constantly chasing units instead of efficiency and productivity and profitability.
Velocity is ‘the investor’s friend’
And that leads us to velocity, which I call an investors’ friend. Velocity is the principle behind those who do appreciate, “Hey, that fast nickel is probably better than that slow dime,” meaning I’d rather operate efficiently, effectively and at a good rate of productivity with my real estate deals versus the alternative: just going after high volume.
A key characteristic that you’ll see with high-velocity businesses is that they are efficient. They advertise effectively and efficiently. They produce and generate leads effectively and efficiently. And then they convert those leads into buys. The efficiency leads to greater speed in purchasing good investment properties.
They also do not waste energy or resources. They know how to advertise. They know how to convert those advertising leads into purchases, and then how to effectively convert those purchases into profitable deals. Whether it’s fix-and-flip, assignment or buy-and-hold as rentals, they do that effectively, efficiently and productively.
That combination of efficiency and productivity is what characterizes a high-velocity investor. You’re moving at a high rate of speed in the right direction. And the right direction is defined as moving toward your ultimate goals you have for your business at the end of the year. You’re not bogged down. You’re not wasting resources. You’re not wasting energy. And you’re moving forward and achieving results so that at the end of the year you don’t find yourself short of your ultimate profit goals or your ultimate income goals.
You can find yourself there—on the short end of the profit scale—despite that fact that you may have bought a lot of houses and exceeded your wildest expectations. I’ve done it. I’ve been there. I’ve come to year-end and realized, “Wow, I did a lot of deals and I ran very fast on that treadmill of real estate investing, but at the end of the year, the profits were nowhere near what I had thought.” And it’s because I had adopted a focus on volume versus a focus on velocity. A focus on transaction versus a focus on efficiency, productivity and ultimately profitability.
Here’s why I choose velocity for my business
So let’s talk about why I choose velocity. Volume does not necessarily facilitate or enable velocity, as I noted already. You can be very inefficient and very unproductive as a high-volume investor. And it also can be very costly and exhausting. However, velocity does facilitate and enable volume. And what I mean by that is, when you’re an efficient and productive investor who is generating leads and converting those leads into buys, and you’re closing those purchase transactions efficiently and with a high rate of productivity, you’ll be shocked that is going to enable and unlock your ability to do more volume. You weren’t focused on volume; you were focused on the right things of efficiency and productivity and velocity. That in turn will produce the volume you want—even if that was not your direct intention.
And here’s a bonus: profitability. Focus on velocity to enable your volume, and it’s going to result in profitability when you approach your investing in this sequence. Efficiency, productivity on a lot of deals will ultimately unlock a lot of volume and that in turn will enable a lot of profit.
So here are some key points to take away:
- Don’t always be impressed with the high volume. Instead, be impressed with an efficient, productive investment machine that is running at a high velocity. When your investment machine is running well and can handle the demands of high volume as a result of your high velocity, you’re going to generate profits.
- Focus on your velocity—your ability to do deals accurately, efficiently and with high productivity—and you’re going to unlock your potential for high volume. When you combine that volume with velocity, it’s going to unlock the profits that you are ultimately seeking.
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