This Issue: Winning Real Estate Strategies for Uncertain Times

It doesn’t seem that long ago that people looked at age 65 as the golden age of retirement. That’s when workers dreamed of a little condo on the beach, maybe spending their days golfing or fishing or hanging out with the grandkids.

Not anymore.

As baby boomers are hitting their 60s, most expect to delay retirement longer than their parents and their grandparents. And that’s smart because according to a couple of new reports, many of them can’t afford to stop working anytime soon. And that’s sad.

Blame everything from higher divorce rates to longer life expectancies for greater financial hardships that mean people have to work longer than the generations before them.

In addition, many of them want to keep working just because they like to work. The idea of just sitting back and doing nothing isn’t very appealing to people who have worked hard at jobs they’ve loved. I have friends in the real estate business who are in their 90s and still going strong. Kirk Kerkorkian is incredible and he just turned 90!

Many companies recognize this and offer smart incentives to keep their best people working longer because motivated people with experience are irreplaceable.

I can’t even imagine retirement. If you hate your job so much that you can’t wait to stop doing it, you definitely need to find a new line of work.

My father used to have an expression: To retire is to expire. I believe in that 100 percent. My advice? If you love your job, keep doing it.

How do the smartest real estate investors minimize their risks in uncertain times?

“Five Ways to Reduce Commercial Real Estate Risks” an article by Will Moore from Pacific Security Capital offers some excellent ideas. Although Moore writes from the perspective of a company that specializes in commercial real estate, its strategies apply to most any real estate investing tactics you can make.

Here is a summery of the five of the risk-minimizing strategies it recommends:

1.      Buy or build from the market’s perspective. Understand what product type and demographic location the highest market demand is seeking and how you appeal to it.

2.      Know market costs and dynamics, as well as market prices, so you can position your project in the most favorable light with lenders and investors.

3.      Know what your own financial capacity truly is, not simply what you’d like it to be.

4.      Form your team for the value they bring, not the jokes they tell. We all like working with friends, but your team should be made up of people with proven knowledge and accomplishments.

5.      Don’t fail to ask the basic questions. How much cash are you willing to risk in a purchase or project?  What is your net worth, aside from the project? How many of the assets on your balance sheet could be liquidated for cash if necessary?

There is another very sound idea behind this article, although it is never stated openly. It is that successful investors don’t hide from challenges.  They have the expertise to stay active and profitable, even in uncertain times.

An article in yesterday's Miami Herald provided more evidence that to be successful in real estate today, you have to keep your eye on a number of trends at the same time:  

• Slowing construction. Construction of new apartments and homes dropped by 2.1 percent in May to 1.474 million units -  24.2 percent below the level of a year ago.
• A lingering surplus of available new homes. Thousands of new homes are unsold and homebuilders are offering new sales incentives to buyers, including kitchen upgrades and free decks.
• High interest rates. Freddie Mac's national survey of interest rates for 30-year mortgages hit an 11-month high of 6.74 percent last week.

And then on the same day, a Reuters article reported one more big aftershock from the subprime lending crisis: 

• H&R Block, which is selling its money-losing subprime mortgage unit to Cerberus Capital Management, saw the takeover value of the unit fall to $300 million - a drop of 21 percent since the deal was announced on April 20^th.

It is an odd combination of trends - a housing glut, rising interest rates and a widening foreclosure crisis. But through it all, fundamental principles of real estate investing still apply:

• Develop realistic objectives as an investor.  
• Know the actual market value of the properties you buy  so you do not overspend on the purchase price or on renovations.
• Know everthing you can about current mortgages (and other borrowing options) so you know the real cost of any deal you put together.

 So, how should you invest in this uncertain market? The only certainty is that the more you know, the more you stand to make - and the more you can minimize your risk.

You can't hide from the trends. You need to master them.

I had a conversation last month with the programming director of a radio station in Boston. He was complaining about how difficult it is to convince companies to advertise on his station.

“Why is it so tough?” I asked.

“Because we have no way to document how many people actually hear the ads we are trying to sell,” he replied. “So when a company advertises with us, they have very little idea what they are buying. There’s a missing link in our business, which is the direct and measureable connection with listeners. Cable TV has it, the Internet has it, but we don’t.”

He went on to describe all the tactics his station uses to try to create that link.  He runs contests to get people to visit his station’s Website and join a listeners’ club. He does phone surveys. He conducts focus groups of his listeners. He urges advertisers to include toll-free numbers in their radio ads, so they can measure customer response. He does everything that any radio station manager could do to gather statistics that would help sell ads. But with nothing but empty air between him and his listeners, it was a pretty tough sell.

This guy is working really hard to use all the tools that are available to him. That got me thinking about business people I know who, unlike him, have tons of advanced marketing tools at their disposal - but who never take advantage of them.

• I know an Internet retailer, for example, who never monitors site traffic or takes any steps to increase it. She has hundreds of diagnostic tools at her disposal for monitoring and increasing sales, but doesn’t use them.

• I know a retailer who has inventory-tracking systems in place in his stores, but who never takes the next step of using that technology to measure customer response to his advertising and marketing efforts.

Both those people have tools at their disposal - advanced tools that would be the envy of that radio-station manager - but they just don’t use them.

So, are you lazy about maximizing the way you use technology in your business? If so, technology is not your problem. You are the missing link between your company and your customers. Maybe it’s time to take a new look at all the available marketing tools you aren’t using and to add the advanced marketing skills that can help you get the job done.