I want to share a lesson from my first years in real estate and then give you an opportunity to have record earning years while your competitors are starving out and leaving the industry to take a J.O.B. Take my lessons from the last recession to protect your business and get more real estate deals now!
My First Recession in Real Estate
This morning as I journaled, I realized that this week in 2007 was when I had the courage to leave my real estate position as the top salesperson at the ski resort. I was only 2 years into my career but my intuition told me to take an opportunity to move to a recession-resistant market, the Smoky Mountains, and it changed the course of my career. I didn’t know much at all about finance and monetary policy back then but I had cash going into the recession and was given transformational lessons coming out of it.
The economics of 2023 are different than 2007 for sure.
The #1 difference is the absurd amount of money supply due to habitual printing by the Federal Reserve in order to avoid paying the piper for businesses and households being over-leveraged. In 2001, the reason for economic pain was leverage in the tech industry. In 2008, it was too much leverage in just about everything…but mortgage-backed securities (derivatives in MBS specifically) were the pin that pricked the bubble. Regardless of the cause, the key indicators are when personal savings deplete and personal debt rise as things get bad and consumption drops dramatically…even in real estate. In real estate, I call this the “winter” season.
This “winter” period where buyers and sellers are frozen is THE HARDEST part of the real estate cycle for us professionals who rely on transaction volume to generate income.
Why Is This Happening?
In 2023, we’re looking at the beginning phases of what seems like an economic crisis: starting with bank failures, historically high vacancy and default rates in commercial real estate, and an owner-occupant housing market that just won’t move much due to the sellers being “stuck” with their LOW rates and buyers not wanting to be stuck with a HIGH rate for 30 years.
With more real estate professionals than ever competing for deals and the lowest transaction volume on recent record, both agents and investors are hurting.
The 2 charts below explain a lot of what you’re feeling in your business. Americans saved at an unprecedented rate in 2020 due to fear, uncertainty, doubt…and a shitload of money printing. The “saving spree” was short-lived and since Q1 2020 Americans have had to spend their savings.
What’s even more concerning than depleted savings is that Americans are having to deal with their stagnant wages (adjusted for inflation) and strong inflationary forces (due to money printing) by living off of debt. We can see below that debt decreased as savings (above) increased but now that the money printing isn’t resulting in stimulus checks, it has caused very high inflation. The average American has to choose between cutting costs or going into more and more debt just to live an average life. This has resulted in historically high consumer debt levels and even though we’ve seen wages increase due to labor shortages, when adjusted for inflation the average American is making the same or less than when they didn’t have this debt.
What Can You Do About It?
Of course, this is part of a business cycle and debt cycle. Eventually something will break and we’ll have more transaction volume among residential buyers and sellers. Until then, the best thing you can do is learn to find the most motivated sellers who don’t have debt and the buyers who are willing to take on high-rate debt because they get a house at a discount.
What I Did About It Last Time…
I figured this out in 2012 when I moved from Hawaii to Virginia and started a residential investment and brokerage business for the first time. I had sold over $100MM in ski-front and beachfront condos but never a single house so I had A LOT to learn. After a few weeks of analyzing the market, failing to gain traction doing what the expert real estate coaches said to do, and burning through quite a bit of savings I discovered my blue ocean in probate.
In the 2012 market, we had not yet found the “bottom” of prices so buyers were still waiting and sellers were trying to hang onto every dollar or equity they could…resulting in low volume. However, I closed 52 listing sides in my first year as an agent and did 6 wholesale and creative financing deals because I found sellers who were willing to price-to-market…probate sellers.
I found out that if I crafted a valuable offer that actually helped the family, they would list with me or sell to me at the price I suggested because the heirs already had homes of their own but they were low on cash and high on debt, just like today’s consumers are.
From 2012 to 2015 I MADE my market move and had multiple offers on nearly every house (unheard of back in that market) because they were priced to sell and the buyers were quick to act because they knew it was a good deal.
My Contribution To Your Best Year Ever…
If you’re ready to fill your pipeline back up with motivated sellers who will price to the market, not string you out for weeks or months of follow-up, then invest in what took me years to figure out and by next week you can leverage my decade of experience as one of the leading probate real estate professionals in the US.
Founder, Magnum Opus Project