The Financial Lessons I Have Learned From This Recession and The Way It Changes How I Sell Real Estate

Have you ever been on a roller coaster? Then you know the feeling of going up, and up, and up... and then there is a point when you realize you are about to experience one of the most basic laws of nature: what goes up, must come down! Yes, I am a Realtor and this analogy is very real in my business. Since 1985 I have experience a few of those turns... this one however, is by far the most long lasting, meanest and most destructive business periods I have ever seen in my profession

I believe most Realtors are on a survival mode right about now, here in sunny northern California, the inventory of homes is still way too high, the banks are not helping anybody, the home buyers are scared and those who can afford and qualify for a loan are waiting to see what happens next. Not a friendly atmosphere for a self employed person who earns a living helping people buy and sell real estate. Looking into the future, my nest egg has been reduced to a couple of twigs...

In the past at this time, I would be planning my next year, I will have set goals, and plans and objectives to reach within the next 12 months, how many listings I need to take, of those how many could sell and based on that, what type of budget I will have, then where and how to spend that money to generate the listings and so forth... Now there is only one goal: Survive!I have enough listings, but they are not selling!

When I look back at where I am now, and how I got here, I can see that a few steps I took many years ago were very good, others, not so good. Here are the lessons I learned during this recession:

• Keeping Some of Your Hard Earned Money Must Become a Priority. I always thought that you should have at leas a 4 to 6 months reserves. In this recession, we need about a year or more. I once read a book where the author insisted that everyone of us should pay ourselves first. That we should keep at least 10% of whatever we earn and put it aside and invest it and make it grow. It was a good book, but I did not follow its teachings, I should have. Bad Move # 1
  

• There is NO Safety in Numbers. Not too long ago, I sold one of my rental properties and took the money, met with my "Financial Adviser" and bought some stocks. I was supposed to be "Diversified and Invested" Everybody had stock holdings and was making money in the stock market. A couple of years after my initial investment, my stock holdings had lost about 53% of the original value. Following the herd for safety only works in the wild. Bad Move # 2
  

• Buy and Hold Real Estate. Early in my career, I did listen to a couple of seasoned Realtors and bought a few rental properties, they went up and up and up in value, and then down and down and down some more. When I look at them today, they are still worth more than when I bought them, and they are producing precious income at this time. Good Move # 1
  

• Listen to Your CPA and Build Liquid Reserves. This one is a lifeline that a business person should not live without. Every year, my CPA insisted that I invest on SEP and/or Roth IRA's, reluctantly, I did, not even knowing the difference between the two of them. Today, even paying a tax of about 12% on some, I can access that money within a couple of days. when you are on a survival mode, this is the difference between the life and the death of a self employed Realtor. Good Move # 2

• Know That Your Financial Friends Will Betray You. For a business person, good credit lines are the blood of the business, without them, you simply cannot survive. When the going was good, my friends at Bank Of America, American Express, and Visa amongst others, were very happy to provide unsolicited lines of credit, check books will arrive with 0% introductory rates on a new line of credit. My credit scores have always been high and I made all my payments on time. They still reduced the amount of credit and froze solid the lines of credit. Just at the time when their help was needed the most. Because of the lesson learned: Good Move # 3

• Do a Complete Inventory and An Appraisal of Your Business. Just writing this blog post, made me think inwards. I started analyzing how I conduct my real estate business. I need to know where I spend my time and money while selling real estate. I started to look in more details at all my financing, We actually  got together with my wife and started writing down every single expense. I must confess, I was shocked to see how much we spend. Good Move # 4

This situation will change, and it can not get any worse than what it has been. I can see the dim light at the end of the tunnel. I have learned that I cannot write a check anymore without making a brief analysis: is this money well spent? Can I live without this item, or service? Could I save this money for a rainy day?

On the personal side, it comes down to economics, I truly enjoy and love what I do. I believe that what I have learned from this recession will make me stronger in better times. On the Professional side, however, I have felt the pain that some of my clients are experiencing, I have learned to be more compasionate specially when it comes to selling their short sales, I must work harder to help them ease that pain. 

I also realized that uncooperative sellers and buyers are very expensive, if they do not know exactly what they want, and work with me to put together a feasible plan to achieve their real estate goals. If I can not afford to lose time and money, neither can they. I cannot be the answer to their prayers until I know exactly what the heck they are praying for!