One Door Closes, Another Opens

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One Door Closes, Another Opens

• Nashville Association of Realtors
• September 9, 2008

Anne Randolph, Publisher Lore Magazine
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My Momma always told me

• Where there is trouble there is opportunity
• You just have to keep your mind open to
  possibilities
• And get yourself ready to take advantage of them

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Today

• Put the current situation in a proper and
  OBJECTIVE perspective
• Talk about two opportunities that are inside that
  troublesome market.

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The fundamental market trouble is a combination
of desiring homeownership, a culture of must
have it now, media excessiveness, and plain greed
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The media has focused on the foreclosure rate and
falling home prices
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Its so bad, that many people feel like the
majority of the country will soon be homeless or
on the bread line
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The indexes, reports and economists refuse to see
the light shining in MANY of the markets

• Case Schiller only covers 20 markets and most
  of them are the heaviest hit markets and they
  extrapolate that to the rest of the country
• OFHEO (a government agency that tracks changes in
  homes previously sold, AND that conform to
  Freddie and Fannie guidelines
• None of these tell the total story

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Surprise all the white states have positive
housing price changes for the quarter ending June
30, 2008
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And those includes the fine state of Tennessee

• Tennessee Price Change Q2 2008 over Q2 2007 is
  2.7
• California is -15.80
• Nevada is -14.12
• Florida is -12.41

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The mess in Florida, California and to a lesser
extent the upper midwest (MI, OH, IN) is the
biggest issue Real Estate is Local

• 2.75 of all mortgages are in foreclosure
• A total of 9.2 of all mortgages are one month
  late or in foreclosure
• 39 of all loans in foreclosure and
• 59 of ARMs in foreclosure were in two states CA
  and FL
• 58 of all Prime ARMs in foreclosure were in the
  same two states.
• National Median for prime ARMs is only 1.06

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The ABSOLUTE NUMBERS and the credit crunch are
the issue.

• The absolute numbers of homeowners that this
  represents is one key issue
• 78 million homeowners
• 2.15 million homeowners are in foreclosure
• About 7 million are late (9.2) or in foreclosure
• Which means that 64 million people are paying
  their mortgage on time

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Historically, about 4 of all households made a
purchase each year that is until the early
2000s when they exceeded 5, and even higher in
2005, when they exceeded 7
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What encouraged this excess was a confluence
of high employment rates
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Historically low interest rates
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An apparent excess of demand over supplywhich
caused builders to overbuild and prices to rise
unrealistically
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And lax underwriting which allowed loans to be
made where they were really unaffordable
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The net effects

• About 5 million people got into homes they really
  could not afford
• Demand that would have showed up normally about
  2-4 years later was pulled forward into 2003-2007
• Which means that even without a credit crisis, we
  would have had a period of lax demand because we
  already used it up
• As we were taking people out of apartment
  buildings and putting them into homes,
  multi-family development declined significantly

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Andwhy do we care?

• Because it sets up an opportunity
• The Real Estate Investor

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Most people think of investors as smarmy
speculators
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That buy fixer uppers that need a little work
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and flip them into gold
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In reality, the true real estate investor

• Buys homes in good neighborhoods because thats
  where good tenants want to live.
• Buys typically at or just below market rate
• Uses buy-improve-hold as their most important
  investment model
• Buys at least once a year and hold for an average
  of five years

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Yes, there was a peak in speculation in 2005..but
it has fallen to a more normal rate
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So why such a good opportunity?

• Lower home prices
• Low interest rates
• Rental rates increasing significantly across the
  country
• More people renting
• Tighter lending standards
• People returning to renting from homeownership
• Multi-family rental development has been flat
  so there is high demand and low availability

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Example from Nashville

• 119,000 asking price 4 bedroom 3 bath
• 1897 square feet (63/sq.ft)
• 20 down
• 6.5 interest rate
• 7.5 vacancy rate
• 2 appreciation
• 2 rent growth
• 1 property tax
• 956/month rent

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Returns

• After income tax deductions, cost 772 monthly,
• Over 150 in cash flow
• 12 IRR
• 10 year hold - 60,000 in equity

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• Big Market(over 300 billion) that uses your
  services
• Repeats (every year, year after year versus
  every 6 years) business
• Looking for an expert team
• Needing training and expertise
• Currently underserved
• A Big Opportunity

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Big Opportunity 2

• Getting Positioned for the Future

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The hot market taught consumers some not so great
things

• Real Estate agents were not experts and had
  rarely seen the house that they showed the
  customer
• Real Estate agents were not experts in any
  neighborhood, segment of customer, or type of
  property
• Real Estate agents didnt really represent the
  interests of the client it was about getting
  the deal done

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Consumers will pay for expertise not for
processing
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Future Agent Study

• 3,500 CRS agents
• Skills and Capabilities for Success in Future

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Key skills

• Targeting and becoming an expert in a consumer
  niche
• Learning how to get response and measure return
  on investment from mailing and other marketing
  efforts
• Knowing the implications of all aspects of the
  contracts so that they can be defended
• Understanding mortgage offerings and the pluses
  and minuses so that the consumer can be prepared
  to ask the right questions
• Learning to serve investors, REO properties, and
  other non-traditional buyers and sellers. The
  Red Door Group option.

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Getting comfortable with data sources

• eRealInvestor.com
• Cyberhomes.com
• Zillow.com
• List sources First American Core Logic
• USAData
• Tracking different marketing efforts through
  email or telephone numbers to measure response

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Questioning and Listening

• If there is only one practice within the scope
  of the professional salesperson upon which you
  can focus, let it be to gain mastery in asking
  better questions Dave Kahle, Question Your Way
  To Success

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Questioning and Listening

• Deeper information about your client allows you
  to meet their needs better at both an objective
  and emotional level
• Relationship between depth and quality of
  relationship with the client and your ability to
  ask deeper questions
• The deeper and more penetrating the questions
  the deeper the relationship can be
• Better sales questions are NOT manipulative of
  the customer

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My broken car
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Lead Generation and Management
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Asking the right question is also helpful in
the broader brokerage business

• How can I get my sales people to follow up on
  leads
• Vs
• How do I get these leads followed up on
• I am always ready to steal great ideas and
• Dave Kahle is a good source of great material

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Time to get off the dead horse and get yourself
ready for riding a new one.