Statistics and Damn Lies




I'm sure that everyone has heard of the quote oft attributed to Samuel Clemens, "There are three type of lies. Lies, damn lies, and statistics." This quote was always on my lips as I suffered through my required statistics course in college. It was only when I had to help my fiance (now wife) with her graduate course in statistics that I found a new respect for the field. Nowadays I see the value that statistics can give us, but only when we make the judgments ourselves. Never trust a stat that someone else has quoted to you. Only the raw data itself is truly useful to you.

So what does this have to do with real estate. Well, first of all stop listening to NAR's statistics. They mean nothing. But more importantly, I recently read an old post at I Will Teach You To Be Rich that was highly educational.

Here's the synopsis. Ramit shows you two credit card offers from the same company. The economics of the offers are essentially the same, but the graphical designs are different. Different colors, different pictures, different layouts. One emphasizes "fixed [rate] until 201o", the other emphasizes "0% interest rate". From his post:

This is how real marketing is done–not by handwavy marketers saying “I think red is better!” but by actual, rigorous data analysis.
And he's right. Real marketing is done in this way. When marketers tell you that red ink draws more attention, they aren't relying on some biological study from a university discussing how the physics of light focuses the eye on red (at least not usually). They are basing that belief on statistical analysis. They sent out 1,000 credit card offers in red ink and 1,000 credit card offers in green ink and the red ink led to a 23% higher application rate (all statistics are, of course, made up).

How can we use this information? As real estate investors, we too, have to be marketers. We have to find people to occupy our properties. This could be done in many ways, we can advertise on one of thousands of websites, we can places signs in the community, we can go to a real estate company. But many of those options cost money, and which gives you the best return?

Biff and I have decided to find out. From now on, whenever we advertise an opening in one of our units, we're going to pay attention. Using just a simple spreadsheet, we'll keep track of each person who responds to our ads, storing the date, the advertising that worked, and whether or not they finally applied for tenancy. That last part is important, as Biff currently estimates that we get about 85% of all of our calls due to the neighborhood signs, but most of our actual applicants come from people who find our web ads.

We don't have that many properties and, if we're lucky, we won't have to find new tenants every year. But it's worth while to keep track of the statistics that we can. More information never hurt anyone. And if you've been paying for that apartments.com ad every year, but never gotten a bite from it? Maybe it's time to stop throwing your money in that direction and try something new!