Why the Southwest Airlines’ Business Model is my Real Estate Inspiration

You’re probably thinking I am CRAZY for comparing Southwest, a low cost airline, to a Class A property investment and management firm.

While I might be a little touched, the key I have learned from all the case studies I have read (yes I am a little nerdy) is to find a niche and exploit it. You won’t find the niches, they will find you and bash you on top of the head. The question is how well did you grab ahold of this opportunity and run with it?

Did you know that Southwest Airlines started off modeled after traditional airlines? Due to different pressures out of their control, their adaption to those pressures created their business model. This story isn’t new but found in many well know companies that all generations can recognize, such as Apple, Intel, Facebook, Amazon, UPS, etc. These are all  upstarts who started from rags and went to riches with considerable challenges.

That being said, Southwest Airlines’ business model is my favorite. The reason why I love Southwest Airlines’ business model is because of their background, history, philosophy, and their business model.

Get Inspired by Southwest Airlines’ Business Model

Background

They built their model by exploiting a niche that was discovered during extreme circumstances. They never started off as a low cost airline. They lost a plane due to “sabotage” so they had to make due. I never started off as wanting to be an entrepreneur. Honestly it took a couple of career moves (Thanks Navy) and a long unemployment that caused me to get very bored. This boredom made me realize that I could turn my passion into something I loved. It took a further push — a long ass deployment — to drive me to write (and maybe a little drinking) to get this blog from an idea to actually doing it. Like any great idea, there was tons of help along the way!

Philosophy/Business Model

Southwest became successful because they operated on smaller margins, less staff, believed in customer service and employee empowerment. They were able to work on smaller margins because they watched everything. They did many things themselves that were unheard of in this industry instead of outsourcing. For example, the CEO wrote cards to his employees, stewardesses cleaned up the cabins, and one type of plane was used, simplifying maintenance, part ordering, etc. It was about working as a team, doing it in house, and taking care of the customer. They did large bottles instead of cans, quicker turn around times, etc.

How I Operate Like Southwest Airlines’ Business Model

• Buy Distressed Property (Short Sale and Foreclosure) – While there is definitely a lot more hassle in the process we have managed to get some great houses at fantastic prices.
• Newer Houses or Updated Houses – We buy newer houses or houses that have updated systems. This allows us to have lower maintenance costs because we aren’t constantly replacing big ticket items (appliances, roofs, windows, cabinets, water heaters, furnaces, etc.)
• Better Areas – We invest in better, more expensive areas. While they cost more, we attract great tenants who take care of the place costing us less in the long term (no copper being stolen, houses sitting vacant for months, etc).
• Great School Districts – Allows us to rent the house out easily and quickly. This appeals to both families and professionals who want to live in safe neighborhoods.
• Provide Great Product, But No Loss Leaders – We do not add extras that do not add value to the house (ex. landscaping, alarm systems, etc) because this allows us to keep our costs down allowing our tenants to choose what to spend their money on.
• Market Rate – We keep the rents at or close to market because it allows us to continue to offer great products while maintaining our profit margin and emergency coffers.
• Self-Management – We self manage because it saves us over $15,000 a year AND lets us have better control over our properties. There is no middle man between us and our tenants.

We don’t follow the 1%, 2%, or 50% rule. We leverage these houses as much as possible through low down payments and distressed properties creating interest equity. We don’t refinance the money, therefore we try to put as little into the houses as possible.

We are in this for the long road. We are turning a stereotypical  negative, a transient career, into a way to provide a career afterward for our family. The point is adversity can breed opportunity. It’s not what you have but what you do with the gifts you are are given. How can you learn from Southwest Airlines’ business model?