An Editorial?
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Editor’s Note: This article was first published in the January 1975 issue of the Real Estate News Observer.
The Real Estate News Observer will leave it up to you as to whether this offering is an editorial, forecast, or an advice and idea article. Guest authors in other pages will cover some of the same subject matter and give their views.
We should state at the outset, that we believe that if you thought 1974 was tough, wait until you see 1975. However, let’s see if that really will be true.
Tight money, redirected money, no money, high yield money, IRS challenges, SEC regulations, in¬flation, recession, investment neg¬ativism, bear market, full market or no market, and unusual alienation clauses, all of these are common “household” words in the real estate family. We saw them all in 1974, and yet, the real estate doers in 1974 enjoyed their best production year. Will it also be true in 1975?
We can see no real reason to believe 1975 will be much dif¬ferent from 1974. Some reces¬sion, yes, but a big depression, no. That doesn’t mean we won’t have to mentally adjust to meet the coming economic situations.
There are some who will not make the necessary adjustments, and will drop out of our exciting and dynamic business. This will eliminate them from a business that offers the highest compen-sation for extra effort. Others will make bold adjustments and reap benefits (and dollars) be¬yond their wildest dreams.
What kind of adjustments are we talking about? Let’s “think them out.”
1. This is the time to tidy up your own portfolio of assets. Get rid of the properties with little or no benefits. However, be sure to remember the IRS rules when you are restructuring your per-sonal portfolio. Don’t create a tax problem for yourself. Keep one eye on liquidity and one eye on cash flow.
2. You will want to make a careful review of your activities as a broker, and eliminate those not producing the best financial results. Are you spending too much time managing your own real estate and not profiting thereby? If you aren’t making money from this personal activity, you have the wrong manager, or own the wrong real estate. If you are putting in too much time for your service club, your real estate board, marketing group, etc., and not getting an adequate cash flow, you better change your time-use, and work for dol¬lars. Concentrate on money-mak¬ing projects.
3. Want to know about your 1974 cash flow? Take a look at all checks you wrote in 1974, and put them in several cate¬gories: Home Expense, General Office Overhead, Advertising, Travel, Entertainment, etc. Then, if for example, you find you have spent a large amount for adver¬tising, ask yourself if the results were worth the expenditure. If your check review shows you spent a certain amount on an em¬ployee, determine whether or not he produced enough to pro¬vide a return on the dollars in¬vested. This check review offers the real estater a survey of last year’s expenditures, and will help to achieve better results in 1975.
4. It is important that you review real estate trends in your community. Those who have the talent to recognize problem areas will be the ones who will enjoy the greatest benefits. Those who can handle problem real estate will do so using non-tradi¬tional real estate formula con¬cepts. This departure from tradi¬tional real estate (cash to loan solutions) will be made best with clients who have the cash to put down on real estate, but won’t. Often, the cash will be held up as a contingency fund to back up the investment, and ride out the storm.
This real estate review must be made to determine where you can get the best performance over a two-year period (Why work in certain areas of real estate that offer inadequate performance?).
One good way to test the formula concept for real estate performance is to take a look at what the large or sophisticated investors are doing to get a high yield. If you see institutional lenders buying regional centers for millions of dollars, selling off the improvements, and retaining the land on long-term lease backs at 12% (escaping usury), couldn’t this same technique work with single family resi¬dences, right in your own backyard?
5. Time must be taken for self-analysis, to find your own area of expertise and where you want to use your talents and energy. Look over your coworkers and competitors who are real “doers” in real estate, the in¬-depth specialists. They do not fool around in several areas. They concentrate on the real estate specialty that produces a high return on the time invested. If you are working in all areas of real estate, playing the real property field, you may be oper¬ating with too thin a concept. Ask yourself which real estate specialty will make money, and “up your time” in that activity.
6. Harry Browne, author of “How to Profit Out of the Com¬ing Monetary Crisis,” very frank¬ly scared the heck out of most everyone. If you believe the U.S. and/or world economy is about to collapse totally, go out and buy a bag full of dimes, the silver kind. By taking one or more steps in this direction, the real estate practitioner may clear his mind of a mental fog. Some real estate agents read the book, then used the concept provided in the book, and quit. They quit making money in real estate or any¬thing else. Others, fearing nation¬al or international disaster, have converted some of their holdings to coins, stamps, and other com¬modities, and then have gone back to real estate, and made money. Still others who believe the Browne philosophy have con-verted some of their own assets to silver, etc., and then have worked with “Browne agreeing” clients, and for a fee helped them move out of U.S. real estate.
The point is, if you are con¬cerned about the possible col¬lapse of our country, take steps to cover and then forge ahead. Retreat or surrender are not the answer. A lateral move might make you feel mentally better¬, and for 1975, you must have a totally clear mind and be free of negative thoughts. If the na¬tion should go into a full-scale 1930s depression, wouldn’t the truly creative real estate agent be in a great position to make money? The most valuable com¬modity in the world is talent. Use it to your best advantage.
7. It may sound strange in “no-money” times to say, “Those in cash position will enjoy great real estate opportunities in 1975.” However, this statement is true! Many innovative real estate operators will be spending time in 1975 to syndicate cash in small private syndicates to fund real estate transactions.
This syndication of money will be used in all areas of real estate, including residential properties. The syndications formed will be buying ground leases under exist¬ing projects, and building properties free and clear of loans, thus elim¬inating need for construction loans and long-term financing funding home guaranties, and providing junior financing in states that allow high interest rates. Seek out and create sources for cash; these small syndica¬tions will enjoy a healthy increase in 1975.
8. In the continuing quest to eliminate cash-flow problems, many agents will join others in brokerage ventures during 1975. Others will share offices to re¬duce overhead. An added bene¬fit will be when several creative brokers are settled under one roof. There will be more and more transactions made.
9. Money makers in 1975 will not be fooling around with marg¬inal properties. There are a great many properties for sale, as many owners want out of ownership. The wise agents will be the most selective. They will make money by working on better quality real estate, which will produce above average yields (based on the knowledge of cash injection and return).
10. Those agents who do no counseling, or only pseudo coun¬seling, will be lost in the 1975 marketplace. Those clients who will do business in 1975 will be realistic. Each will want to know about the market conditions, trends, facts, and will rely on counseling information, as 1975 is going to be a difficult year for brokers who “talk” a good game, but do little to prepare
them¬selves and their clients for a tough 1975.
11. Credibility in 1975 is not only necessary in 1975, but 100 percent credibility is an absolute must. Those “doers” you will want to make transactions with will not accept “puffed” income statements on properties. The “P&L” statements on real prop¬erty will have to be completely realistic. You will remember last January, we outlined the cash on cash rules for 1974. We were right! However, some brokers for¬got to put in their statements such items as “Reasonable Mainten¬ance Calculation,” “A Reasonable Vacancy Factor,” and “Profes¬sion Management Calculation.” The statements are going to have to be fully accurate. If not, reduce your offer to your assistant to consolidate all re¬marks for each property, and dis¬tribute one copy for each sales-person. Each will have a com¬posite story to sell prospects while showing a property. A big side benefit is for the agency ad writer ,who can use the ideas generated. As a result, you can expect the appointment phone to ring hap¬pily and profitably – for you.
“Luckmanship” and lost your credibility in transaction making, 1975.
12. To stay in business, the impossible dream in 1975 is go¬ing to have to be the realistic dream. Nothing will be easy. It’s really “back to work!” However, this hard work will have to be channeled into areas of good planning.
“Where can I make good money?” is going to have to be an answer, and a defined plan as to “How can I make money?” will have to be determined prior to your 1975 commitment. Frankly, if you can’t take time out to develop a road map plan for 1975, you are laying waste to your own survival.
RECAP
There are fewer top produc¬ers in real estate than any other profession. This means there is plenty room at the top!
1975 will offer grave chal¬lenges to the real estate in¬dustry, the United States, and the world. We are going to have to adjust our thinking to meet the challenge, and create profitable solutions.
It’s not going to be easy in 1975, but who promised us anything was going to be easy?
The simple fact remains that many real estate transactions will happen in 1975. It’s just a question of who is going to make these transactions hap¬pen.
