Part One: Do you have house to sell?
A few days ago electronic media and press were reported that “The Standard & Poor’s 20-city housing index fell a record more that 16% in July from the year-ago month. This is the largest drop since its inception in 2000. The 10-city index plunged 17.5 percent, its biggest decline in its 21-year history“.
This is an alarming trend and you as a Real Estate professional most likely are scrambling to stay afloat. You’re digging deep into contacts, asking friends for referrals and feverishly searching for any opportunity. Some of you may even consider putting your real estate career on hold until better times come. Some of you may even call it quits, once again proving true the grim real estate statistics stating that almost 70% of agents will leave our industry within two years.
The question that needs to be answered is not how to weather the storm, but rather how to turn a profit during these difficult market conditions. Let me postulate several simple principals.
First postulate: There are plenty of customers with money to invest in Real Estate.
Second postulate: There are lots of properties at bargain price ready to be purchased
Third postulate: The right marketing strategy and tactics will match customers with properties.
Let me explain by expanding on these. Yesterday the Dow Jones lost a record 777 points. Behind every share that was sold on the New York stock exchange there was a buyer that though this is good time to buy. To make a profit on the stock market you will need to buy low and sell high. Warren Buffet is one who buys low and sells high and also invests in things that are simple and well understood.
This is a simple enough rule, but very few people follow it. Most people buy shares when they are rising and sell them on a decline. The public who are trading proceed exactly opposite of common economic wisdom.
About a year ago Wachovia Corp. (NYSE: WB) was hovering at roughly $50 a share. Yesterday, September 29th, it was about $1 a share. If you would invest $1000 into Wachovia Corp. at $1 a share and sell it for $3 a share next day you would make a gross profit of about $2000. This is not bad for one day of work. I am not advising you to change careers and start trading on NYSE, but rather let this example illustrate how to turn a profit in the real estate market. The only difference is that you will not sell shares you will buy and sell houses.
A few years ago houses were listing for $500,000 and you were receiving multiple offers for it. Six months ago the very same houses were listing for $400,000 (may be little bit more than the original mortgage amount) and the owner could not sell it. Today these same homes are owned by the bank. The bank will take $300,000 just to unload it as soon as possible to cut their losses to a minimum.
What happened during that time span? Did the roof fall off or did one of the walls collapse? Nothing of this sort occurred. Wachovia Corp. lost capitalization due to bad business practices. As a direct result, its shares went into free fall. All that changed in housing market was supply, demand and perception. A few years ago the perceived value was $500,000 and today it may be $300,000 and only because of low demand. Demand for houses will pick up again as the need for houses did not evaporate overnight. The same number of families will need houses today as that needed houses a few years ago. The US population continues to rise at a steady pace.
Prices are extremely attractive now and just like in our stock market example, for every house that will be sold, there will be a buyer. Your job as a real estate professional is to find and identify lucrative investment properties.
First: Identify qualify buyers and present them with a good deal
Second: Do your homework by investing in marketing and research. Demonstrate why your property will be valuable in years to come and the expected ROI.
If you will follow these simple principals you will succeed. Some will say “Easier said that done. I have a bargain property. Where will I find the buyer?” Before I answer that in my next article, make sure that property you are about to offer to your potential client is the best investment on the market. Run a simple and honest mental check. Will you risk your life saving to buy this property? If answer is yes then maybe you are on to something. In the next article we will talk about “How to find buyers”
Boris Gruzman, CEO