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After two consecutive quarters of a reduction in GDP — the definition of a recession — Fannie Mae has finally predicted a “modest recession” for the fourth quarter.
While there may not be public acknowledgement that we’re currently in a recession, I am personally counting this as my seventh recession since I started in real estate. Over my 50-year career, I have learned a thing or two about how to navigate such a market shift.
During the recession of 2009, I realized that while there are plenty of resources out there about how to build a business, I was not aware of anything that spoke to what to do during the good times to prepare for the tough times. I started jotting down ideas for a book, then during the summer of 2022, I realized that I had to write the book.
This spring, I achieved that goal and published Success Through A Recession. Here are a few highlights with my best insights on how your business can survive throughout a recession and other tough times.
Pay attention
I’m sure most of us in the real estate business pay attention to the national economy, but it’s also important to go wide and deep by paying attention to your local economy and local business drivers that impact your real estate market. It’s possible for the national economy to be in a recession and a local real estate market to be booming – or vice versa.
One of the ways I pay attention is to listen to other real estate professionals. I go to national conferences. I belong to several brainstorming groups which meet regularly to discuss the business. While we come from all over the country and have different specializations and we always learn from each other.
In fact, I had insight into the start of the Great Recession of 2008 six months before it was actually called. I noticed that my colleagues in Michigan and Florida were reporting contraction in their markets, and then eventually we saw it tip nationally.
It’s never too early to start preparing
Many people have asked me, “At what point in a real estate cycle do I start preparing for a recession?” Typically, my answer is start today. And what do I mean by that? That even in the good times, we should be preparing for what we know will eventually come.
Real estate is a cyclical business after all. In fact, it’s best to prepare for the tough times during the good times. For me, preparing for the tough times means having on hand a minimum of cash reserves for six months of operating expenses.
Prioritize expenses
When a recession hits, our company’s leadership starts looking at ways to reduce spending. We go chart by chart.
The first chart is trimming in areas that don’t affect our agents and their ability to do their job. That could mean eliminating tools that aren’t used or are under-utilized or consolidating office space to reduce lease expenses. The next chart outlines deeper cuts and the third chart represents even harder tougher decisions. Laying out the plan of action in advance is an important part of the preparation.
During the Great Recession, we went as far as seven charts but I’m proud to say we didn’t lay off one person. We combined offices, we let leases on office equipment run out, we went to every landlord and successfully renegotiated our leases.
Our leadership team took voluntary pay cuts – in fact, my sister and I didn’t take one penny from the business for five years. When we were finally making a profit again, we paid back every penny that people sacrificed for the company in addition to an annual bonus.
Cash is king
One of the reasons why we were able to negotiate with our landlords and other vendors is that we make it a point to pay our bills on time — and usually early. We have excellent credit and are low risk, putting us in a strong position to ask for short-term accommodations.
I was transparent with my finances, and I wasn’t too proud to ask for help. In all but one of our leases, our landlords agreed to use our deposits as rent, allowing us to use cash that was sitting there doing nothing.
I also don’t believe in debt, so we don’t pay any interest. That money goes right to the bottom line. We have a strict formula for how to allocate profit. The first 37 percent goes to pay taxes. Anything else goes toward the six months of operating funds.
When we hit the six months of cash on hand, we pay out 50 percent of our profits in company incentives and put the rest into reserves. When we hit 12 months of reserves, we pay out 75 percent and invest 25 percent into the company. Adhering to the discipline of saving puts us in a position to acquire companies, upgrade our offices and invest in new tools.
Mindset matters
My father used to say, “Never go to lunch with anyone until you have seen their 1099!” In other words, surround yourself with like-minded people, people who are making money. The most common threat to brokers and agents is their attitude. You have to have a plan, a long view goal that you want to work toward. That’s why we are big on agent business planning, and we invest a lot of time in coaching them.
In addition to being choosy about the company you keep, fill your head with positive thoughts. I’m a big fan of reading books and articles, listening to podcasts and watching videos on YouTube. For the most part, this is all free content. I make it a point to spend an hour a day ingesting positive content and one day a month sitting in a classroom learning something new.
Words of wisdom
My parting advice is this: make a plan, consult the plan every week and make adjustments to the plan. Being focused on your proactive approach to the tough times will help you maintain a positive outlook and the belief that you will succeed.
Jim Fite is broker and co-owner of Century 21 Judge Fite in Dallas, Texas. Connect with him on Facebook and LinkedIn.
