Earlier this week I made a presentation to a local real estate office about a concept I called “Finding Demand or Creating Demand”. The basic premise is this, rather then developing sales leads by “turning over rocks” to see what opportunities you may find lay underneath, seek to manufacture business by educating people about opportunities that will benefit them.
In other words there is a difference between the passive model of getting in the way of business so as to find a transaction – getting a referral because you tell people what you do; versus the proactive of creating a transaction by understanding the opportunities that exist in a particular market and vigorously communicating them to those who “don’t know, what they don’t know.” Now let me be clear, a salesperson may be very active and successful in their efforts to turn over rocks, but at the end of the day that was a transaction that was going to happen regardless of their effort, they just happen to find that sale. What I am talking about is a paradigm that rewards everyone and was the foundation for the growth of our economy – manufacturing or creating something new to the benefit of society.
Rather than just offer up a fancy set of words, here is an example of how this might work in our struggling real estate world. Like any other market real estate follows the laws of supply and demand. Currently, there is an overabundance of supply and it is likely to get larger. When this occurs values/price must drop in order to meet the demand for real estate. The problem right now is that we have two significant forces in play curbing consumer demand for real estate – 1) very unstable and lean employment market and; 2) significantly tighter and restrictive underwriting standards to acquire financing for real estate. Opportunities, however, still exist and we, as professionals, just need to create them by educating the sub-set of consumers that can benefit by what is available.
Here is one idea: With current 30 year fixed interest rates on owner occupied properties in the low 4% range (a historical low), homeowners are in a refinancing frenzy to lower their payment and save a couple of hundred dollars a month. Within this group are families who are fortunate enough to have equity remaining in their homes, but are struggling to grow their wealth for things like college and/or retirement as rates of return have gone flat. So, rather than packing the marginally lower monthly cash flow into a savings account (earning maybe 1%), why not take some available equity, while refinancing, and relocate it into an investment of real estate. From a long term perspective the positioning and timing couldn’t be better – historic low interest rates, depressed values and motivated sellers, displaced homeowners looking for rentals, and solid prospects for both higher values and increasing lease rates over the long-term.
Therefore, if we can truly educate this group of consumers to capitalize on the long-term benefits of investing in real estate at this particular time we all will win – increasing demand for real estate will stabilize (or increase) values, which will alleviate pressure on banks who are holding excess real estate inventory, which will loosen underwriting parameters, which will facilitate more investment (create more demand), which will create more consumer wealth, which will create more consumer spending, which will cause businesses to expand and create jobs. And, at the end of the day, when we feel confident in our employment the whole economy is optimized.
There is certainly more to come on this topic, but hopefully for now it strikes a cord with you and helps generate some new ideas for you to educate your clients. Now go out there and Create Demand!
Guest Author Dirk Walker, CMPS® with Affiliated Financial Group, is a regular contributor to VanEd News. Find all his posts at vaned.typepad.com.
Written and Published by: VanEd