Developed by a successful management consultant in the ‘60s named Albert S. Humphery, the SWOT analysis is still in use today at management level. It starts with a goal in mind, a measurable objective, and then a piece of paper is divided into 4 squares - strengths, weaknesses, opportunities, and threats. It answers one particular question: do you have what it takes to achieve your business goals? A SWOT analysis should not be confused with a business plan - it is part of a business plan, it creates a strategy for the business.
In real estate, a swot analysis can help, on the one hand, real estate brokers and agents, and on the other hand, investors or developers.
For Realtors who want to increase their sales, for example, a SWOT analysis will help them understand what is the path to follow in order to have more happy clients and more money in the bank account.
Strengths will reveal what the real estate broker excels at and what makes him better than the competition. Weaknesses are areas that need to be addressed soon in order to overcome the competition.
Strengths and weaknesses refer to the business itself, are interior aspects that can be controlled.
Opportunities and threats are external forces, usually hard to control, that could make a business plan to succeed or fail if not recognized and addressed in a timely manner.
Among the strengths, a real estate broker may list:
What weaknesses may a Realtor have?
Threats for a broker:
What opportunities are there for Realtors?
For real estate investors, a SWOT analysis may be performed when evaluating a new investment. Investors will find the missing pieces of their strategic puzzle.
A good capitalization and a loyal customer base are important strengths - a foundation to build on. However, wealth generation means teamwork for both real estate brokers and real estate investors. Without a good team of attorneys and of experts in accounting, marketing, and rental management, you should be more reserved. When it comes to opportunities, investors must look at consumer’s unmet needs and demand and use those to come up with new product ideas. But new opportunities could come through mergers and acquisition as well.
External threats could be regulatory (higher taxes, legislation), environmental (air pollution, water pollution, radioactive pollution), social (urbanization, globalization), and operational (liquidity risk, credit risk). Risk management in real estate must be taken seriously, whether it’s only a small residential building or a commercial property.
SWOT analysis is a tool that must be used as often as needed, so take the time and be honest. Then you will have a clear understanding of your business, where it is and where it should be headed.