Surviving In A Tough Market

Well, so I finally get around to posting my first blog on the RECyber Network and I guess I have to admit my Title is a bit deceiving. It should be titled "How to Prepare Yourself to Survive for the Coming Tough Market" and I should have posted it two years ago. But wait, there was no RE Cyber Network Blog two years ago...oh yes, and I didn't have a clue what a blog was two years ago. But I digress...

First, a bit of disclosure. I am in Alberta, Canada, and while our markets, both residential and commercial, have had downturns, they are nothing like what some areas of the U.S. are experiencing. I am a commercial agent and our commercial market is in a bit of a doldrums at the moment due to significant speculation recently .Okay, disclosure done.

I am no guru, I am not the biggest producer in my area, I don't wear Armani suits, but I do a lot of business with minimal effort. My business has been about 99% referral for the last few years, I like it. These are just my thoughts.

I would like to divide this into two trains of thought. The first is on client management. Real estate is a long-term investment and, surprise, building a real estate business is also a long-term process. When the speculators came out of the woodwork in 2006 and 2007 I made a conscious choice to very carefully weed out those clients who exhibited several of the following characteristics - inexperienced, highly leveraged, looking for big money fast, business plans that relied heavily on rising prices/rents to keep cash flow positive - and I chose to cultivate relationships with clients whom I considered to be, shall I say, more long-term thinkers.

Now don't get me wrong, I can't afford to turn business away, and I tried to build business relationships with many of the first group, but the relationship relied upon us agreeing on business models - and I am not changing my business model. Turns out neither were they.

I paid the price when many of my colleagues were turning quite a few more deals than I was. That was then, this is now. Many of their clients are gone, faded into the annals of yesterday, relegated to noisy barrooms telling grand stories of their brief dance with success. I now have more buyers than I can handle, they have significant amounts of money to invest, can easily qualify, and they are for the most part, very loyal. They are solid financially, and I will have a steady stream of business for many years. Best of all, I don't have to spend a ton marketing.

The second train of thought is, how to get those nervous investors to buy real estate now? Well, this topic either requires a ton of analysis or very little because a moderate amount of analysis won't do. Since I don't feel too much like analyzing at the moment, I will just cover some points that many of us are likely to agree on. Well, the first question to ask a client (someone who has money and is motivated) is, "What else are you going to invest in?" There are no screaming conventional investments at the moment. Assuming they have a moderate to long time horizon, we can still work with them. If their time horizon is short, send them to a qualified Financial Broker who can get them into wealth preservation vehicles like Money Markets, T-Bills and the like.
Okay, so their time horizon is moderate to long term. Regardless of where they put their money today, nothing is going to get them rich quick. Those days are gone for now. But what if an investor's only choices were to lose a little, lose a moderate amount, or lose a lot of money? Of course they would pick to lose a little and that would be their investment. Well, our current investment climate is kind of like that, only better. You can still invest in real estate and earn positive returns...just not as positive as recent years. Big Deal! The question in any investment environment is NOT "Where can I get 22% annual returns?" The question is "Where can I get the best returns for my money today?" (The key is that the "best" is not always pretty - but it is still the best) And the answer is still real estate - it's just going to take somewhat longer than recent years and it's not going to be as pretty ...for a while. But the worm will turn. And when it does turn, the old adage "You don't make money in real estate when you sell, you make money when you buy" will be proven true again.
The key is that people need to accept it's a different world. They will need much larger down payments to get financing (it's probably tougher for my American friends at the moment) and to keep cash flows positive, so they will lose some of the benefits of leverage - for the time being. Remember real estate has four sources of revenue; cash flow, capital appreciation, mortgage paydown, and tax benefits. All things considered, it's still the best investment around. I have three basic presentations; one for listing, one for buying, and one for investors. The investors' presentation relies heavily on (conservative) projections, and even in this environment, the long-term picture is rosy. Prospects just need graphs and projections to help them see the future.
Buy people, buy. This is a once-in-a-lifetime opportunity to buy real estate at bargain basement prices.