homebuilding, I wonder “How can I help them keep building but take less risk?” The spectrum of risk and reward for a $3 million spec home is wide. It spans from an extremely high ceiling (potentially seven-figure paydays) to a very, very low floor (i.e., bankruptcy). If builders’ livelihoods depend on building homes, would they be willing to stay in business in exchange for narrowing that spectrum (i.e., lowering the ceiling and raising the floor)? After surveying several builders, I learned their answer is “yes.” As a result, we developed a Build to Rent loan program that keeps them building and gives them multiple, plausible exit strategies. Unlike a single-asset $3 million spec, the Build to Rent program is intended to build multiple houses that serve a much broader spectrum of the community—the middle market. By building, for example, 10 rental homes for the same price you build one luxury, speculative homestead, you position yourself to exit the investment multiple ways—rent and refinance (if you are looking to build a legacy portfolio) or rent and sell. This new product is just one way that we will innovate. How will you? EDUCATING Education comes in all shapes and sizes. Some people learn by listening (hearing the facts), some by seeing, and some by doing (guided trial and error). All three approaches are effective. Exactly how you will educate those you serve or who will support you is (again) up to you. Suffice it to say, when you are innovating in a changing market, education is necessary. Without education, your
creative juices flowing, I’ll share some product innovations that will position my firm and my clients on stable ground not only to weather the storm but also to grow within the uncertainty. In the market run from 2012-2022 (a big bull market we should all be grateful for), many of my clients took big risks to earn big rewards. One of the more common strategies my clients deployed was to build high-end spec homes, especially in my home market of Austin, Texas—the crown jewel of appreciation for a long period. It was not uncommon for $3 million spec homes to not just sell but sell faster and much higher than initial projections. Although the luxury spec build market segment may not be long gone, it’s certainly under attack. Luxury homes, for a multitude of reasons, are more volatile as
INNOVATING It’s a fact that many, if not most, fortunes are made during a softening or depressed market. Why? Because the markets reset asset values from previous highs back to “normal” for future growth. Consider this akin to burning a field only to yield stronger crops in future harvests. How exactly these fortunes are made can generally be traced back to two things: 1 The well-capitalized buy at the new market deflated values. 2 Those who dare to innovate take giant steps forward. The credit markets are tighter than they have been since 2008, so it is safe to assume most are not in the position to be so well capitalized that they’ll be going on huge cheap buying sprees. That leaves us with innovation. What innovation means is something only you can determine. But, trust me: Where there is a will, there is a way—and somewhere inside of you innovation exists. To get the
they relate to values, market acceptance, and a very real
tendency to sit on the market for far greater periods due to shrinking buyer pools. As I consider helping my clients, whose livelihood is
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