|
Who Turned Off the Spigot in the Sky?
By Joel S. Pate
As the end of another year approaches, I would like to begin a new short series on the current mortgage market, on how you should be thinking, and on what actions you should take to survive and hopefully thrive in the next year. I would like to help you understand the long-term market, but also what to expect in the short-term.
The mortgage and real estate business is controlled by a spigot in the sky. (A spigot is a valve that turns on and off business). And while you have absolutely no control over what happens with this spigot,
You absolutely can control the amount of impact it has on your business.
In helping you understand this phenomenon, I want to relate a story to you. A friend of mine, Greg Frost, one of the nation's leading mortgage originators and trainers, and I are partners in several mortgage related businesses. Last week, Greg and I had a planning meeting for one of these ventures, The Daily Communicator(tm). During our discussions, while comparing notes, we discovered that during the week of October 16th, we both had a tremendous response to our marketing for all of our business interests. Then, for the next three weeks, we both had nearly zero response. Greg said, "That's amazing. During the exact same period, I saw my sales decline as well." Why? I don't know.
Fortunately, the week prior to Thanksgiving and so far this week, we both, independently of each other, are having great success, again. Have you noticed these cycles within a cycle market?
In 1997, I experienced the same thing. At that point, I owned a homebuilding company. During that year, our volume was very consistent. Surprisingly, during the last three months of the year, I didn't sell anything. I offered 8% and 9% commissions. I offered the real estate agents a bonus. I even offered to pay the buyer's closing cost. But nothing worked.
Suddenly, one of the first Saturday's in January, potential buyers were everywhere. In the next nine days, I sold 15 houses at a 5% commission, no closing cost, full price, etc.
Why? I don't know. But, I sure wish I did.
I've always said if I had enough sense and enough money, when the market "collapsed," I would go on a long vacation. Apparently, I still don't have enough sense or enough money because I typically find myself sitting at my desk wondering and worried because the phone is not ringing.
How about you?
While we are on the subject, let's discuss the word "collapsed." We are experiencing a market adjustment. It will last for an undetermined amount of time. You should expect your market to go down or be flat in relationship to the number of banner years you have experienced. Keep in mind: your market will change, it will improve, but, it may get worse first.
The questions you should be asking yourself are:
- What am I going to do in this market to earn a living in the interim?
- How am I going to operate?
- How will I cut expenses?
- How will I increase transactions or at the very least maintain the number of transactions I need to stay afloat?
I would like to dedicate the remainder of the year to helping you answer these very important questions.
I will begin by making the following suggestions:
- The market may be worse than you think.
- You should reduce expenses more than you think you should.
- You should work harder than you think you should have to.
- You should consider a new niche market.
- You should create a "worse case" budget.
- Again, you should reduce expenses more than you think you should.
Remember, the market will change, but I don't know when.
One more time, it is probably worse than you think it is, you can not advertise up a down market, and you may need to drastically reduce overhead more than you think you should.
Now is a prime time to consider entering a new niche market. This will enable you to keep your finger on the pulse of the current markets that are not working for you while bringing a new idea to market. You need something to discuss with industry sources that is unique, innovative, and of substantive value.
As you know, I concentrate on small to medium size builders. Over the years, these builders have found a way to continue operations in down markets. Yes, they cut back too. They layoff their superintendents and they reduce profits, but they always find a way to build something. And guess what, their buyers will need a loan.
I met with a financier today. He told me that the banking regulators will be telling the banks to reduce their exposure to real estate construction loans in the coming weeks. I'm not surprised. Regulators always go too far and over correct too much.
As this change in the market begins to impact homebuilders in your market, you may consider entering the world of off balance sheet financing. Builders, more than anytime in the last 10 years, will need to find a new source to finance their operations. This is a great time for this niche market.
Consider this too: It may be a great time to build a house. It may be a great time for investors in your market. As I write this article, I am on a Delta Airlines flight. Donald Trump is advertising a wealth seminar in the airlines magazine. The ad says, "Donald is buying, should you be?"
Remember, real investors buy contrary to the market. Real investors are buying. Why? Prices are off. How much have they declined in your market? Maybe this is another niche to consider: off balance sheet financing for builders selling homes to investors. Not pretend investors, real long-term investors.
While other originators in your market are running scared, you need to implement a plan. You need a plan for success more than you need anything else. What plan will you implement? How much should you reduce your expenses in the interim? Do you need a new niche market to survive and thrive during this market? I hope you answer these questions as soon as possible.
If you would like to receive additional information regarding off balance sheet financing for builders, register for one of my conference calls by visiting www.vadiumgroup.com/cpexpert.php.
Dedicated to coaching YOU to CP Loan Success!
Joel S. Pate
Joel S. Pate, a dedicated entrepreneur, has spent more than two decades in the building, mortgage, and real estate industries and has been involved in over $100 Million in construction loans and over $1.3 Billion of residential lending. As the CP LOAN EXPERT columnist, Mr. Pate provides straightforward, unbiased advice about every aspect of construction permanent lending. If you ever wanted to unravel the mystery surrounding new construction lending, then you should tune in.
More stories by Joel S. Pate
| 
