While in Boise for a couple days, I’m spending as much time as possible meeting with builders who might like a BawldGuy to take out a bunch of their homes for them. You know, we pay low, low prices for well located product, with perks built in for our clients, and a nice premium for the guy with no hair and the company with the redundant name.
This is a great time to be buying property in growth regions — and Boise sure qualifies.
During our last visit we met and made a deal with a builder for his last seven townhomes. All the appraisals are in now, and say our clients bought under market — considerably in some cases. All their closing costs were paid as part of the deal too. The management company is cutting them a great price — 30% off if they pay a year ahead. Our investors said yes almost in unison. 
They’re happy campers, and the builder can now proceed to his next project (breaking ground this year) without the anchor of seven unsold homes. Everybody wins.
Today however, we didn’t run into a builder who has figured out his position in the market. First, he sent his dad to front for him. Then he wouldn’t answer our phone calls. When we gave up and told his father what we were trying to accomplish, he looked at us as if we were the ones smoking the funny smelling tobacco.
Tomorrow we’ll be talking to yet another builder who is sending us a spreadsheet on what’s available and what’s possible. We like this guy, even if it ends up without making a deal, because he’s not pretending it’s 2004 with the world as his oyster. Fear, and the anxiety that follows, can sometimes spoil the chance for clear thought, especially when one has to think of the consequences of facing the reality of losing money on a dozen homes.
The way the first guy looked at it was with a clear eye toward cutting his losses, turning the page, and moving to his next project. I’ve seen his next project, and he has an incredible winner on his hands. He’s also a magnificent old school builder who is proud of his work — and should be. It’s gorgeous. He’s not like others who think turning the page will lead to worse endings.
When I return next month to talk with more builders, I’ll give a call to the guy who wouldn’t return our calls. By August he’ll want to talk to anyone who will be serious. And we’ll be very serious — for less money per home than we’d of paid today. And he’ll also have lost another month’s carrying costs. Of course, we can’t buy everything out there, so we might not even have him on the A-List on our next visit. Who knows?
When you find yourself needing to cut your losses, facing reality is the cheapest way out — and there’s no substitute. Building homes is one thing, but building your own reality, especially one that the world doesn’t recognize, isn’t the way out. It’s the way to dig the hole deeper. This builder is a good guy, with a stellar reputation. This is something that happens from time to time to all of us. We’re in a little bit of a bear market. So What? It’s not the end of world — unless of course you make it worse by repeating to yourself and everyone else who’ll listen — “We’re just fine.” When the bear gets a little too close, it can get scary.
Losing everything can be scarier. Live to build another day. I’ve always wondered why builders don’t have massive Sominex accounts. Where would some of them be today if they’d had one? I’ll wager they’ll at least think about it next time out — though I’m thinking for some of them there won’t be a next time.
Next month he’ll be another $16,000 in the hole. He isn’t fine. And I forgot to mention, he’s pulled more permits. No kidding. You can’t make this stuff up — nobody would believe you.
I feel a tremendous sense of empathy for the builders who find themselves in this position, because for years they’ve been providing a product much in demand. What some of the smaller ones are learning now, is that the trend isn’t always up. Sometimes Murphy decides it’s your turn in the barrel. I speak from experience. I’ve been to the ugly side of the rainbow.
Just because one investor’s problem is another’s good deal, doesn’t mean it’s not hard to watch. So far, every one of these builders has been a very hard working and straightforward gentleman. (fantasy reality aside) They’re just caught in some bad timing as a result of their crystal ball being unreliable this time out.
Repeating the mantra, “We’re just fine”, doesn’t make it so.
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About BawldGuy
St. Peter rolls up to the gates one morning to find three recent candidates for admission to the pearly gates: Ronald Reagan, Pope John Paul II, and Bill the Builder. In order to determine their worthiness, St. Peter asks them the question, “If we gave you $5 trillion, what would you do with it?”
The Gipper rails about his plan to preserve California coastlines through acquisition in the private markets through land trusts without costing the taxpayer a dime. St. Peter is impressed and gives Ron a pass.
The Pontiff describes his vision to eradicate AIDS on the continent of Africa. St. Peter embraces him and offers him admittance.
The builder sheepishly glances away. “Have you no plan whatsoever?” booms St Peter.
“Oh, I guess I’d just keep building and building until all the money went away”
Sales Tip, Jeff: Don’t tell them that joke.
Yep, I was overextended in the 80′s during a bear market. I had a beautiful townhouse (“my baby”).. 12% mortgage, no renters to be had…. noone was buying just like now in San Diego. I felt like someone had stabbed me in the heart but I took the offer. It takes allot of humble pie to sell low, but as your article says, better to sell one or two low than lose the whole portfolio. And so I lived to tell about it.
The trick is to be liquid during one of these downturns.
Buy low, sell high. And have a big fat sominex account.
Cher – Couldn’t have said it better.
By the way, I’ve found in giving seminars in and out of California, that if somebody is under 40 they don’t have a clue what Sominex is! With them I have to use Ambien. Geez
Josh thinks it’s hilarious, as I had to tell him what Sominex was when I first wrote it. He TOLD me, (his eyes rolling) that the younger folks wouldn’t get it.
Brian – That’s priceless, thanks.
It reminds me of the real estate agent’s prayer:
Oh Lord, please bring us another real estate boom – and this time I PROMISE, I won’t blow it all on cars, clothes, and cruises.
What’s Sominex?
OH- Ambien, I get it!
My hero Martha Stewart noted this spring, “if you’re done changing, you’re done.” Some builders forget to examine their product because they can only see backwards (what worked then should work now).
Some sink, some float.
I’m out of metaphors, analogies and I have no jokes.
Geez – YOU’RE under 40 too?!
Martha Stewart mentioned on my site – another first.