Before the 2008 crisis, the real estate market was booming. For years, you could have bought the worst property and ended up reselling it for a greasy check, yours to drag all the way to the bank. The scary part is, nobody thought the system would fail. Banks lowered their lending standards, trashy loans were being assembled as investment packages, and since the biggest rating companies would assess them as safe, they were selling lightning fast. Then, the inevitable happened. The bubble burst, and just like that, regular joes lost anywhere from 30 to 50 percent of their asset values. One second you’re rich, the next… Well, welcome to hell.
Today, investors sense the next big storm might make landfall. In fact, after printing mountains of cash and undertaking stimulatory measures to keep the economy strong during the pandemic, the fed has been forced to pump the brakes in 2022, and raise interest rates from 0.25% to 4.5% (Forbes). To make things worse, inflation doesn’t seem to have been tamed yet, so it can be assumed that the money supply will continue to shrink, and spending to go down. What does this mean for real estate brokers and investors? Only time will tell. More importantly, how can they prepare for the next real estate crisis?
According to Scott Sterling, and founder of Sterling Real Estate Services & Dreamweaver Design and Construction Inc., there are three things every professional should be doing right now, so the next crisis doesn’t hit him like a hammer.
- Understand Basic Economics
“Don’t just live in a box like average brokers do, get in touch with everything that affects your life”, Scott mentions. As a savvy broker (or investor), you must understand basic economics to fully grasp how the economic machine operates. Why? Simple: real estate and the economy are heavily intertwined. When the former is strong and healthy, people have more money to spend, demand goes up, and the market booms. However, this also leads to rising inflation… and the fed hates inflation. So it will likely shrink the money supply by hiking interest rates (just like we’re seeing now), which lowers overall spending. Since one person’s spending is another’s income, people (and companies) will have fewer disposable resources to spend on real estate.
- Expect Cycling in Real Estate
Just like the economy, the market constantly goes up and down every few years. Hence, don’t get too hung up on the highs, and prepare yourself for the inevitable lows that are coming. It goes back to what Buffet says: “be fearful when others and greedy, and greedy when others are fearful”. Expecting the highs and lows takes away the element of surprise life might have on you and allows you to make sound financial decisions to protect yourself, your business, and your clients.
- Do NOT Be a One Trick Pony
Being good at only one thing is like putting all your eggs in the same basket and waiting for that basket to get run over by a train. For example, if you’re only good at selling properties, swinging markets will crush you. What Scott advises you to do is the following: “Look at other elements of your business. The easiest is property management for individual clients. Some clients need management for their day-to-day tasks, and that gives you a lifeline to hang on to while everything is flooding. Property inspections are also good. Some other options include getting credentialed as an appraiser, or doing down marker time in mortgage brokering.” Yes, diversifying can be hard, but it serves as a cushion against the inevitable punch. More than that, it gives you experience few other brokers have, and valuable insight into navigating the market.
In conclusion, we all are subject to things we cannot control. This is why we must always be prepared to face the unknown so that it doesn’t destroy us. By educating yourself, being aware of the cyclical aspect of real estate, and diversifying your field of work, you can protect yourself, your loved ones, and your clients from any financial behemoth that awaits us.
