April 14, 2008

How a Commercial Mortgage Broker Survives Recessions

When the Music Stops in Musical Chairs, Will You Still Have a Chair?

If you're a mortgage broker, right now the recession is probably kicking your tail. If you happen to survive, remember the economic pain you're feeling right now and vow to be better prepared for the next recession.

The wise mortgage broker runs his mortgage brokerage business with an eye towards how he will survive through the next recession. For example:

Never sign a long term lease. Instead, get your landlord to give you lots of one-year extensions. This way you only have to survive for a few more months until your lease expires, and then you can move into smaller, cheaper space.
Don't over-expand during recoveries. Leave some money on the table. Yes, it's true. If you add ten more employees you might make a bigger profit during boom times, but what are you going to do if those ten employees serve you loyally and well? Fire them at the first hint of a slowdown? Naw. You'll try to carry them way longer than you should. In the process, you'll have to draw down heavily on your line of credit. By the time you are finally forced to cut them loose, you could easily be so far in debt that you've passed the point of no return. You end up losing your company and all of the profits you made during the boom times. So don't over-expand during a boom!
It is almost impossible to cut someone's salary. If if they don't quit, they'll resent you. They'll hate you, as if you caused the recession. Instead, keep your base salaries low and simply compensate your loyal employees with frequent bonuses and incentives, like $50 per closing, etc.
Don't hesitate to move your office back into your home. In fact, you should pay extra and buy a bigger home, just in case you do have to retreat to the home. Borrowers understand. Recessions are tough on their businesses too.
During boom times, get your bank to approve a big line of credit. Borrow on it regularly, but quickly pay if off. When your loan balance is zero, and when your profits are booming, apply to your bank for increase in your operating line of credit. This way, when the recession comes, your line of credit will already be approved, and you can draw down on it.
Remember, a real estate recession will hit you hard every seven to ten years. You can bet on it. Run your business as if you are preparing your ark for a massive flood.

If you can survive the industry shakeout every seven to ten years, you'll be in a great position to enjoy big profits during the next recovery. Your competitors will be long gone, and your operation will, by necessity, be lean and mean. BUT ... you have to survive.

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