How to keep your income coming
These days, there are many people wondering how to maintain their income. After years of a hot housing market and steady appreciation, the positive side of the cycle is over and the negative side is at hand.
In recent months, many thousands of lenders and real estate agents have begun to experience the first market shift of their careers. Retail home sales are falling and thousands of lenders are being laid off or losing their jobs altogether. Agents are not fired in the classical sense. They just stop making money when things go wrong. But the good news is that there is a way to keep income from your income, regardless of market conditions.
As an agent and investor, I have experienced first-hand the challenges of maintaining income in a changing market. I know from hard-earned personal experience that there is only one way to survive when you fish for your own dinner. That is always knowing what to fish.
You see, some type of fish will bite all the time, but no type of fish will bite all the time. A good angler knows how to read water and weather conditions to determine what to fish and what bait to use. Real estate is very similar. In fact, all businesses follow this principle to some extent. To sum up from my TREA training program, The Real Estate Investor’s Guide to Buying Right, it boils down to one thing …
ESTABLISHMENT STRATEGY
To be successful in the long term in any business, and especially in the real estate business, you must learn to adapt your business strategies to align with the fundamentals of the current market. Today, we have a buyer’s market driven by high foreclosure rates caused by overfunded properties and depleted homeowners. In 2004, if you were a real estate agent working for a builder selling new subdivisions in Las Vegas, you were probably dropping 6 figures a year in commissions. Today you may be lucky that you can afford your car payment.
In many areas, the retail strategies that produced high returns in the hot market from 1996 to 2005 no longer work. The market change we have experienced since early 2007 has made the retail real estate and loan businesses a survival game for many.
Personally, I am experiencing high growth in my business activities as a real estate agent. This is because I am targeting the market where all the current buyers are … The investment market.
Basically, my strategy is aligned with the current market conditions. There is always a strategy that works in any market. The key is to recognize it in time to take advantage of the changes before you are caught asleep at the wheel.
Given the price spikes of the past 10 years and the glut of high LTV loans, it was only a matter of time before the fundamentals began to manifest in the form of higher foreclosure rates.
I saw the trends begin to develop in late 2005, when I first realized that we were no longer looking for leads in the typical repairman top properties, but began to see many more houses that had been renovated in a few months. a foreclosure had occurred.
I began to realize that price appreciation had finally outpaced earning potential in most areas. In short, the costs to enter were too high. By 2005 it was becoming almost impossible to produce adequate cash flow. I knew we were headed for disaster if we continued to buy homes at prices too high to produce enough income for our investor buyers. So, I changed the strategy of buying anything at the time to address this fundamental situation.
The professional real estate media has (finally) caught up with this 2-year trend and, for the first time, Realtor.org is touting the benefits of working with investors in its current issue. NAR and others are realizing that “hot” market sales models don’t work in most markets. As a result, they are promoting trading strategies that used to be discouraged and even prohibited by some brokers, specifically, working with investors.
Why? Because given today’s market fundamentals, it makes business sense to avoid or reduce sales in retail markets in favor of investors who have been waiting for these great buying opportunities to manifest. Make no mistake, professional investors have been closely following the market trends and know that now is the time. But those who don’t read the fundamentals well enough to see the need for strategy changes have been caught with their proverbial pants down, wondering how to keep a job or maintain an income as the recession grows more serious and protracted.
Fundamentals always dictate strategy. There is a place that is “hot” in every market cycle, the trick is to know where that place is and to get in the middle of it.
What are the fundamental conditions in your local market? Can you read them and make assessments on how to adjust your clientele to take advantage of current market conditions? Do you know what conditions will promote the use of short sales instead of retail sales?
Do you understand the critical differences between building an investor clientele and retail owner-occupying buyers? Otherwise, you may not survive long-term in the real estate business, whether as an agent, lender, or investor.
Most market cycles last around 5 years on the upside and on average around two to three years on the upside. This market has had a 10-year career. There are big adjustments in store for the near future.
If you’ve been in real estate successfully for over 15 years, then you know exactly what I’m talking about. You must follow the flow of market fundamentals and make adjustments to your processes to accommodate these fundamentals. A market with high appreciation is drastically different from a market with high foreclosure rates. Understanding how to adapt your trading strategy to market conditions is key to your long-term success.
Anyone can be successful for a while, but it takes adaptability and insight to be successful throughout life. ***