They say that you should always hope for the best and plan for the worst, and when it comes to Australia’s real estate, experts are warning that this is what exactly you should be doing now. This means that should something good happen, you will be there to receive it; should something bad happen however, you can withstand the shock because you had planned for it anyway. Seth Godin, the author of Linchpin warns in his book that those who survive and thrive are those who see the market as it is and not as it used to be or as they would want it to be. It is those who embrace the current conditions and work out a way to get through successfully who win. This is true of real estate in Australia, whether you are talking about Melbourne, Sydney, Brisbane, Adelaide or Perth. That means that in the next 3-5 years, real estate investors will fall into 3 categories: those who made things happen, those who saw things happen and those who saw things the way they wanted.
It means that to be successful as a real estate investor in this market, you will always have to be prepared. Information will be everything in the next few years. Those with the right information are the ones who will make things happen. If we were to assume things at their best and assume that nothing changes in the property market, the worst best scenario is that people would be working to largely finance their mortgage like they are now, which is not realistic on a long term basis. People need to play in an economy that is fair if they are going to be encouraged to invest. On the other hand, bad things may happen in the coming 2-5 years and we will be looking at a worst case scenario where the rate of mortgages drops by between 10% and 20% but investors, scared by what they have seen in the last 5 years, are wary of buying. They are not comfortable with the drop in mortgages and they decide to hold off until the rates favor them.
Let’s Take A Look At How Would This Affect The Economy?
Let’s see a typical scenario where an agent earns a commission from a percentage of the sale value. For the purpose of this argument, let’s assume that there are 10 agents in an area that has made sales worth $50,000,000. This means that a commission of 10%, which is to shared between the agents works out to $5,000,000. Then the rates drop, people stop selling and buying and that means that the commissions that the agents take home, that %5,000,000 which they split is reduced in the same proportion as the drop in sales. In some places, this is already happening; falling prices has led to real estate agents earning less. The best agents, those who made between 3 and 4 sales a month are already selling just 1 or 2 sales. The weaker ones, the ones who made the 1 or 2 sales a month are having to rethink their lives and their career choices. Who are the ones who are going to survive? Who will come out of the change in real estate prices unscathed? There are some basic reactions that you can choose from, and depending on what you choose, you will survive or you will die. Let’s look at them.
- You can jump ship and look for a career that is headed the other way. There are some sectors that are booming, such as healthcare and pharmaceuticals.
- You can decide to join the big shots of the real estate trade and improve your skills to match theirs. Don’t forget that when they saw trouble coming, it is likely that they banded together to keep the smaller agents from making sales.
- You can decide to work for more than the average week, almost 60 hours a week without the commute. This is hard especially if you have a family.
- You can combine working for longer and adding to your skills which means that day and night, you will be breathing real estate. If you are thinking this option, you need to weigh it against other obligations, like family.
- You can decide to look for a scenario where you get a higher commission that you are now. There are models online that provide you with information on how to do this and direct you to where you can find such deals.
- You can decide to widen your prospect pool so that you can increase the chances of making a sale. This means that if you talk to 40 prospects so that you can make a sale, you have to talk to 80 prospects for you to sell one more house that constitutes the additional 50% that you are looking for. Prospecting is a tough job; in most cases, you have to do it in the home and because most homeowners are out looking for a way to increase their income themselves, you are left with very few people to talk to.
That’s a bunch of very frustrating and even scary choices. They all back real estate agents in all parts of the country into the corner with almost no option to get out. Melbourne, Sydney, Brisbane, Adelaide, Perth and other local economies that thrive on real estate have to do something or they will die. This is where change and preparation become critical. You can already see that things are not going very well. Will you wait for the worst to happen before you do something about it? What if you embraced change and started to do something about it right away? It doesn’t mean that you leave real estate as a career; it means that you prepare and brace for the tough times. Looking for alternative income in a different sector is a great way to start. You already have skills that you don’t use. How about you check to see if any of them can come in handy now? If you think you don’t have anything that people will pay you for, how about learning something new so that all your eggs are not in one basket?
Economic hardship is inevitable, but the great thing about it is that it is cyclical. It comes for years and then everything corrects itself. That means that if you can find something that will supplement your income when things are not so good in the real estate market, you will make it through the depression and when things are back up, you can go right back to selling property the way you did before. All this may sound like it is very tough to do; it is. It’s not easy to have a decline in income and still keep the same old disposition that you had when everything was good. All you have to do is make a plan and do something. Many people get stuck because they don’t do anything when things happen to them. Sometimes, when the chips are really down, you have to keep moving to stay alive.