The Real Estate Market is Cyclical, Don’t Panic, Adjust!
The Real Estate market is cyclical. The data shows, and it’s clear that we are experiencing one of the toughest real estate markets in the past decade. As bad as it is, there are certain agents who do well, there are some who do ok and get by till the better times roll around, and there are some who suffer and get knocked out of the business. The latter are the ones who may have started in a good market and never learned to adjust their business practices to survive tough market conditions as it is today. Remember, the world is dynamic, and everything changes with time. If we don’t change, we will stay behind. Aside from that, change is good, change brings new opportunities. Change is necessary for personal and financial growth.
Here are a few tips on how to adapt to and survive the current market conditions.
- Change Your Target Market
In the current market, investors are more likely to buy or sell a property than mom and pop homeowners. When it comes to acquisition, investors look for the bottom-line figures. If the return on investment meets their minimum targeted ROI, they are game and ready to play ball, as long as they can afford the purchase price, the repair and renovation cost, plus the holding cost. Investors will not pass on opportunities. When it comes to resale, most investors have short term loans on their properties and are either forced or motivated to sell, meaning they present a much higher listing opportunity than the typical owners occupying their properties as their primary residences.
- Adjust Your Expense Budget
Operating as a realtor in an independent contractor position is one of the least expensive businesses to get into and maintain compared to starting other businesses. However, during slow times, every penny counts, especially if you are new in the business. You have fixed expenses such as the MLS dues, NAR dues, broker dues, and E&O insurance, etc., that you need to maintain if you want to stay in the business. But there are expenses that can be negotiated and reduced. One that comes to mind is the commission split with the brokerage. Starting agents and those with less than superstar status, often pay too much to their brokers from their commission. Depending on the brokerage they work with, their split with the broker is no more than 60% to 65%, leaving 35% to 40% on the table for the broker and sometimes more. Numerically speaking, on a $20,000 commission, the broker takes between $3,500 to $4,000 from each closing. Some brokers justify that by claiming they offer facility, training, and tools to their agent. I don’t deny that, but in this day and age, many people work virtually, meet their clients at Starbucks and restaurants. All the tools and training the brokers brag about are available to everyone at a fraction of the cost the agents pay out of their commission to their brokers. Negotiate a better split with your broker, and if you don’t get what you deserve, change. Remember change is good and will open new doors to you. There are many virtual brokers who for a small monthly fee, offer 100% commission after a flat fee deduction for their E&O and admin cost. The extra money you make on each transaction, can be placed into marketing and business origination. Embrace change, be bold.
- Look into Passive Income Opportunities
Starting a new job, or even taking a part time job while the market is slow, is common and practiced by everyone working on commission. After all, we all must pay the bills. As a realtor, taking a job outside of your industry will take away from your focus in real estate; it will delay your success in real estate. Instead, consider looking into passive income opportunities. With a small fund, you can get into real estate investment with the investors you trust. That could be investing in a flip opportunity or a non-performing note. You can also take part as an employee on their investment projects. Should you decide to do so, be sure to do your due diligence and not to risk your funds with the wrong people. There are also affiliate programs available that don’t require much capital investment, if any, and provide a steady residual income in time. These are just a few examples of solutions during slow times.
- Be Smart
To wrap things, remember, the real estate market is cyclical, don’t panic, adjust. Be smart, focus on and spend more time on marketing, prospecting and origination and less time on frivolous activities. Focus on prospects with higher potentials and probabilities for repeat transactions, cut expenses, negotiate for more and don’t be afraid to and of change.
I do believe in real estate being the only vehicle providing ordinary people the opportunity to achieve extraordinary financial success, whether working or investing in it. As long as you work smart and apply prudent strategies, once the down cycle is over, the good times will roll and the sky is your limit.
Saeed Ghaffari, Founder
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