John Knight: How to make hay while the sun shines

The predicted pandemic doom and gloom hasn’t eventuated, and the real estate market is flush with sales and profits. Instead of just basking under the rainbow, BusinessDEPOT managing director John Knight says now is the time to invest and save for the next rainy day.

With most real estate businesses performing better than they expected – many cannot help but make money at the moment – it is time to start talking about what to do with this ‘once in a lifetime wealth event’ and set yourself up for an enviable future.

The industry is the beneficiary of an extraordinary phase in the economy and property market, but as I always say, whether it is good times or not: “sales are vanity, profit is sanity, cash is reality”.

What you do with the abnormal amounts of cash flowing through real estate businesses will determine what your life looks like in 10, 20 or even 40 years.

Depending on where you are in your working life, retirement, investment strategies and superannuation will rate with varying levels of importance. 

But, everyone, no matter how old you are, should be using this surge in profits, cash and wealth to set yourself and your business up for whatever lies ahead. 

Here’s a summary of some of the discussions we are having with real estate principals and salespeople to secure their futures now.

It doesn’t matter what you earn. If you spend more than you make you end up in the same position.

What you do with this cash that is flowing is critical. 

Please do not spend it on Lamborghinis, Rolex watches and Jimmy Choos.

Yes, give yourself a treat, but spend most of it on things that provide for your long-term wealth or strengthen your business for the future.

What can you invest in, other than repaying debt, that guarantees to increase your wealth?

Many are taking the opportunity to repay debt and free up assets. 

Debt is cheap at the moment, but repaying debt (whether it be a permanent pay down or using more flexible options) frees up assets and equity, so you have a choice where you spend it in the future.

There will be tough times again. Now is the time to provide for the next rainy day

Build strength in the good times to access that equity in tough times and take the opportunities as they present themselves. 

This could include keeping some cash aside, repaying debt, freeing up assets, investing in passive income-earning assets or building a property portfolio. 

Invest in a reduction in your breakeven point

An investment in rent roll growth will grow the reliable income of your business, but what other investments can you make that significantly increase the efficiency of your business? 

Maybe it’s time to invest in the technology integration or system changes that fundamentally redirect how you do business.  

Industry disruption has been on the agenda for years

This surge in profitability is only going to make it even more appealing for the disruptors to target the market.

Whether disruption comes from technology, regulatory changes or business model innovation, one of the appealing drivers of disruption is the profitability of the subject industry. 

I expect to see a surge in new models, brands and choices for the consumer. 

It won’t spell the end of the traditional real estate agency; there will just be more choice. 

Time to invest into the long, long-term wealth bucket

We are already seeing a surge in inquiries to set up self-managed superannuation funds (SMSFs) – especially by business owners. 

Putting money aside into super can be appealing because of the lower tax rate on earnings, and it is probably the safest structure to invest through.

Always seek advice specific to your circumstances.

Your team may be stable now, but when it turns, will they stay loyal to you? Leadership still matters

Often, team members only move when they are dissatisfied with something going on in their office or desire change.

When the sales are flowing, they are either too busy to look around or earning good money, and don’t want to risk that. 

But what if the tap is turned off?

Invest in your team and invest in your leadership skills for the good times and bad.

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John Knight

John Knight is the Managing Director of businessDEPOT, a team of energetic accountants and advisors.