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The Power of Scarcity

September 14, 2019

Scarcity is when something is in short supply. Doughnuts might be scarce in the office at 930am so get to work early. 1957 Chevys are not being made anymore, so they might be scarce. They say that land is not being made so land should be scarce. There is scarcity of land in Manhattan, but not in most of the country.

Sometimes things might seem scarce, when they are not. Scarcity is sometimes a marketing tool that companies and people use to get you to buy something. You have to have a certain item because there are not going to be anymore.

Get to the store early when the new Jordans come out because there are only so many and you HAVE TO have them. The companies use scarcity to make you want to buy something. They are valueable and of course, you deserve valuable things. Can you detect the sarcasm?

The New Jordans might not be your thing, but you can see how $50. shoes can get hyped up to become $500. or $5,000. shoes. When enough people believe in something, it becomes true. Scarcity of Jordans is a real thing. Or at least it is to them.

We hear radio ads everyday, at least here in San Antonio, about land that you have to buy “This weekend only” because they are not making any more land so it must be going up in value. Hurry up and get some now!!!

Some of that is true, no new land is being made. It is these catch phrases that just make everything sound so true. I must admit that land does go up in value. BUT if you buy some dessert property for $10,000 an acre and there is no well or any city water, you are pretty much screwed.

Just because land goes up in value, you have to buy it at the right price. If you pay $1,000 per acre and you are buying 100 acres, that might make a little more sense. You could develop a well for the neighbors, put in some roads, electricity, break up the property into 10 acre lots and create some value.

Maybe now those 10-10acre lots are now worth $10,000 an acre or 100k each. Extreme example, but you get my point.

It is when the companies are selling you on the item because there are only a few left. You have to have them. Dont be the only one on your block that is left out!! Get yours right now!!

The companies try to get you to buy something right now, for a limited time only, because they know if you come to your senses you will NOT buy the item. Buy it now before everyone else is what they are telling you.

I have seen this with the new model of car. There might be a new Camaro that has a new design. Each dealer is only going to get 3 or 4 of the fancy new Camaro. This way they can charge crazy high prices. After they sell 2 or 3 of them, they will get another one or two. Sell a few and get a few. The dealers want you to feel like you have some exclusive item. They only have 3 in stock!!

Of course this is going on in 5 or 6 dealers throughout the city and hundreds of cities across the country. So do you really have a limited edition sports car?? Not really. Companies are just hyping it so that you feel special and think you have some exclusivity, you dont.

Before you know it, Chevy has sold 1000s of the new Camaro, maybe even 10s of thousands. Not very exclusive. Not very scarce. Dont get fooled into thinking that you have the rare item that is sooooo valuable.

Diamonds is another thing. The DeBeers Company wants you to think that diamonds are a rare and precious stone. Not so. I know right now you are thinking that The Frugal Real Estate Guy has lost his mind. Everyone knows that Diamonds are rare. You hear it all the time. The companies keep telling us and now we believe it.

If diamonds were rare, why is it that so many wives have one on their finger?? There are 300+ million people in the US. I saw a statistic that said that there are well over 61 million couples here in the US. That means there are 30+ million wives. I would say that most of the women have diamond rings of some sort, size or fashion.

That would mean that there are probably about 25 million wedding rings with at least one diamond on them. Most women that I see have 5 or 6 or sometimes 10 diamonds on their wedding bands. That means there are 100 million to 200 diamonds out there in the world. That does not even include the other rings that are NOT wedding rings.

There are other rings that have diamonds on them. So how is it that something so common, that millions of people have, is so expensive?? It is because DeBeers Diamond Company has marketed the idea that diamonds are rare even though hundreds of millions of people have them. Isnt that crazy?? And they have gotten us to buy into it.

They have spent millions of dollars to get just about everyone on the planet to agree that diamonds are rare and therefore expensive. That is some super duper great marketing. Dont even get me started on the 2 months salary thing about the engagement/wedding ring. My head is on the verge of exploding every time that I hear someone say that.

Personally I think that you should spend about what you make in 1 week on a wedding ring. Lets think about this logically. $10. per hour comes out to be about $350. for the week after taxes. If you are an engineer starting out you probably make about $60k per year. That comes out to about $1,000 per week after taxes.

If you are a near minimum wage person and $350 is about what you take home every week, you should be able to save up that much money in about 5 or 6 months. You can get about a 1/4 carrat solitaire ring for about $350. The engineer is going to save for the same amount of time to put $1,000 away because his lifestyle is a little more expensive. Hence he will pay a little more for the ring.

He will probably get half a carrat ring. Now I know the ladies are saying, “I dont want some little quarter carrat ring or even half a carrat.” If that is the case, you need to get a little more creative in your shopping habbits.

Try the pawn shops. I have bought my wife a number of diamond and gold rings at a substantial discount at the pawn shop. I have never used it, but they even have lay-a-way. You can get something a little bigger than what you think you can afford for a better price.

Even though the world is telling you that diamonds are rare, they aren’t. There are plenty at a Cash America near you.

Something else that SEEMS scarce is the release of the iphones. When they first come out you would think that the last few drinkable gallons of water here on earth was about to be given away. People line up and are ready to pay their $1,500.+ for a phone.

Now I know that there is retinal display and a super gold case, high resolution cameras, but do you really want to be indebted to Apple for a year or until the next limited edition item comes out that you just have to have?? Now it seems that everyone is leasing their phones. OMG. You pay $40 something to $50 something a month so that you have the privilege of using an iphone for a year or 18 months. This is of course in addition to the $80 or $100 that you pay for monthly service.

I mean really, my Samsung Galaxy J7 works just as good. I have a 12 or 13 MP camera just like the newest iphone. AND my phone was free for moving over to Metro PCS where I pay $60 per month unlimited WITH a hotspot on demand.

It seems that the marketing is getting to most people and causing them to lose their minds. They HAVE to have the first iphones, the first cars that come out, buy their diamonds from Tiffany and Co. because they are so rare. Please Please Please pardon my soapbox speech about the iphone. I just think that it is crazy to wait in line for something that you can get next week and probably for a little cheaper. Or maybe buy something else that works just as good, has just as much versatility and costs 10% of the price.

Yes, if you have not looked lately, there are phones that work just as good and they are $100 to $200. How do I know?? I bought one a few years ago and still have it. It was $150, but free because I left Sprint.

I am all about getting a good value for the money that I spend. That means paying a reasonable price for a good or service. Actually I like to be able to find things at bargain prices. That is why I usually take a little time to search for the best deals before making purchases. Lots of times I loose the shopping bug by comparing prices or searching for the best deal. I end up not even buying the item that I HAD TO HAVE.

One thing that made me laugh so hard was the Beanie Baby craze of some years back. Marketing told you that there were only limited edition production of certain little stuffed animals. People thought, “Well if there are limited numbers, they must be a great value. They are only going to go up in value over time.”

That was true for a little while. But as Americans we tend to be a little fickle with our purchases. We love pet rocks one day, beanie babies the next. Bitcoin was the rage for a while and still comes and goes. And then we have to stand in line for hours or days at a time for the new iphone that costs $1,500.

As far as real estate goes, I try to buy the same way. I never try to buy because I am in a hurry. If someone is trying to pressure me to hurry up because someone else is very interested, I usually tell them to go ahead and let them buy it. I can find a better in less demand house at a better price.

Keep me in mind the next time someone is trying to get you to buy something. Listen to their words. They are usually trying to tell you that there are only so many left and you dont want to be the only one who doesn’t have one. Don’t fall for it. Nothing is in that short of a supply that we have to pay outrageous amounts of money for it.

The same holds true for real estate. When prices are going up so fast, like right now, I am selling what I have, not buying. As prices get a little high, what happens?? They build more. This kinda eliminates the whole scarcity thing. There is only a limited number, then we build more. Then we tend to have too many. OR we bought at the high and prices come down a little or a lot and we are stuck at the higher price and have negative cash flow.

In real estate like business in general there are cycles. We tend to have 10 year cycles. We are several years past where the cycle should end so I am more convinced than ever that it is NOT the time to be building up the rental portfolio. This is of course if you are buying houses that are only a little below market value. If you are finding super duper deals, keep at it. I am always ready to hold a property that is a super duper deal with a 3.5% interest rate that I can get sub-to.

Keep looking. There are deals out there, they are just a little harder to find right now. You have to see more deals and maybe even get a little more creative to get a great deal. I know that I have been much pickier than usual. Keep your focus and remember you dont have to buy something today.