S.E.C. Real Estate Observer

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Editor’s Note: This article first appeared in the February 1975 issue of the Real Estate News Observer.

An attempt will be made in this article to generate six simple ideas that will permit one to make money during the present monetary uncertainty. Many brokers formerly relied on the institutional loan as a means to generate funds for their transactions. They now find, however, there are few funds available for the standard real estate transaction. As a result “Died in Escrow” is the epitaph on too many transactions. This leaves many brokers with little cash to support their offices, homes, and inventory properties. Their short-term credit has been exhausted. Let’s try to spark a few ideas to generate greater cash flow.

1. Adios the Non-Cash Client
This is the time to work only with those clients who can financially swing the entire transaction. There is no point in working with clients who can scrape together just enough money for a conventional down payment if the balance of the transaction must be generated from new financing. Put these people in your “Client Warehouse” for attention “after the storm is over.”

2. Property Selection
List only those properties that require: (a) The easier down payment; (b) High assumable loans; and (c) Those that can produce reasonable benefits to your client. The typical West Coast Shopping Center is out! Also out-the property priced like a glamor stock-high price, 50 percent equity, and no cash flow. Find properties with a reasonable down payment that will also produce income. Actually, the cash flow will determine the price. A selective broker will expend his productive time on projects that make sense now. Why spin your wheels on an industrial lot where the Utility Companies will not provide service for five years. Now Properties Now.

3. Think Barter
Those brokers blessed with professional training in barter will do best in non-cash or non-institutional loan circles. When times are tough, and they are, it’s time to think exchange. If you are not skilled in real estate exchanging, it’s not too late. The non-cash time is when to exchange the land parcel (let the land owner take his profit) for the units (let the land owner get out of management). But do work with those who will solve your cash problems.

4. The Quick Transaction
If you believe the present crunch is short lived (will last less than two years), structure your transactions to capitalize on this event. Think of those normally popular properties, but which have lost appeal during the crunch. Example: A commercial lot or professionally zoned lot. No builder will buy it because of lack of financing for any kind of project on the lot. Under these circumstances, this is the ideal time to dicker for price and terms. The lot will appeal to the sophisticated and far-sighted investor if the terms and price are structured properly-and adequate consideration given to minimizing the two-year delay.

5. Think People Leverage
Those with minimum cash flow problems are those who will think about leveraging more than one buyer for one property. Multiple group ownerships are an important item in today’s financial situation. (Partnerships, Corporations, joint ventures). Example: Small office building valued at $75,000 with a $45,000 loan. Perhaps the easiest way to sell a small property like this example is to have five friends put up $6,000, or a total $30,000 investment. If you would stop right now, you surely could list five such friends-maybe six, seven or eight who would welcome this kind of venture.

6. Self-Analysis
Don’t be afraid to ask yourself if you are really working on money-generating projects. A quick review of what you have done over the past several weeks will permit you to evaluate your efforts. Have you generated enough cash flow for home expenses, office expenses, car, education, and your own investment portfolio? Are you using all the tools in your brokerage chest? These tools include installment sales, small office syndicates, options, exchanges, etc. Get with it. Correct problems-throw out non-money makers-improve working habits and mental attitudes. Be positive. Change to meet changes.