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Hedging Your Bets Against a Downturn … Now?

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Business Management

Hedging Your Bets Against a Downturn … Now?

Why home builders shouldn't wait to seek out and establish new revenue sources and profit centers


April 7, 2021
Ace and king cards with poker chips
The housing market is cyclical. So, while the going is good, hedge your bets for the next downturn—it's a sure bet it will come. | Photo: Pixabay
This article first appeared in the March/April 2021 issue of Pro Builder.

In a sales market like the one we’ve experienced since mid-2020, it may seem odd to suggest you seek out and establish new revenue sources and profit centers … that is, unless you think the current conditions will go on forever. 

Not to be a buzzkill, but having witnessed boom-and-bust cycles of varying degrees since the late 1980s, trust me, they won’t. I just don’t know when. 

The Best Time to Explore New Revenue Streams

What I do know is that builders often dismiss advice to explore new revenue streams when times are good (“I’m too busy/rolling in cash to do anything else!”) and are equally—if more understandably—hesitant to invest in new ventures during down times (“I’m too busy trying to keep the lights on!”). Of the two, good times are obviously the better time to look for and carry a few lifeboats. 

And to the excuse that you’re too busy or too successful to consider it, I only ask: Is that success based on gross sales revenue or actual net profits? Because my guess is that the latter is starting to wane under the increasing pressure of higher labor and materials costs and delayed closings (and maybe a fair number of canceled contracts), even as sales and sales prices remain attractively high. If so, that’s a red flag for a course correction if there ever was one.


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Whether I’m right about that or not, consider the advantages of hedging your bets against a downturn driven by market factors (not a pandemic): steady work for your employees and perhaps your best trade partners; new and faster growth tracks for talented young employees; opportunities to test technologies and discover untapped market segments; the chance to grow something from an idea into a legitimate business and profit center that serves a need. What’s so wrong with all that … especially when you have the cash (so you say) to invest in it now, before your current (only?) revenue stream runs dry?

Besides your appetite for investing in a side hustle, the only question is, what will that business be? Poll your team, review your warranty service log, look at your competition, and scour your surveys and reviews for customer pinch points and questions that may signal an unmet opportunity. What about an in-house trade crew or handyman service, a partnership with a connected home installer, or a more traditional route, such as a mortgage or real estate brokerage? The answer is out there, and there’s no better time to explore it than the present.

 

Written By
Editorial Director

Rich Binsacca is editorial director of Pro Builder Media, Custom Builder, and PRODUCTS. He has reported and written about all aspects of the housing industry since 1987 and most recently was editor-in-chief of Pro Builder Media. [email protected]

 

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