Admit it… many of us of a “certain age” grew up with the idea that one day we would make more money than our parents. Some of us—cough, cough—even said this out loud once or twice. It drove us forward and motivated us to do well in school, to get a good job, to reach a certain stature in life.
People that study this kind of thing call this idea “upward mobility.” It defined the American Dream for many people: the idea that by earning a higher income than our parents we would able to climb the economic ladder and live a better life.
Don’t mean to burst your bubble, but that idea may no longer be true. Well, at least not in the way it used to be achieved for most Americans.
Data from Opportunity Insights show that fewer people in lower and middle classes are climbing the economic ladder. In fact, if you were born after 1980, your chances of out-earning your parents by your 13th birthday stands around 45%, compared to 93% for those born in the ’40s.
Quite a change, right?
But this isn’t all bad news. It’s an invitation to re-write the formula for the American Dream.
Knowledge Is King
The process begins with knowledge-building. As a builder and developer, when you are aware of these kinds of economic changes, you become a stronger partner to your clients. You are able to help them better plan and prepare for maximum value in their next real estate venture. In some ways, you are providing them a new route toward their own American Dream by putting them on the path to homeownership.
Financial investment guru Suze Orman had it right when she said, “Owning a home is a keystone of wealth… both financial affluence and emotional security.”
Not everyone will be able to afford a mega-mansion. But with proper planning and guidance, homeownership is more realistic than many expect. Your role is to know as much as possible about your potential client so that you can present them with their best options.
That’s why every real estate project needs to begin with a knowledge-gathering phase. Whether you have entered into a fast and furious fix and flip or are on your way to building something wonderful from the ground-up, it should always start with the same important piece of information: Who is your client?
Are they going to buy or rent? Are they first-time homeowners or retirees? Have they owned a home before or only rented? What are they willing to break the bank on and what will they consider frivolous or ridiculous? Do they have big or small families? Will they be staying put for a while or is this a short-term investment?
It’s in the Details
Fleshing out your client understanding provides knowledge that will help you make the best decisions when building or developing a project. It will also allow you to provide the best guidance when selling the finished product. Keep in mind the following factors when building out client knowledge.
1. Understand Buying Power
Now that we know that people aren’t climbing the economic ladder in the same way as they used to, we have to be conscientious of real buying power. This doesn’t always mean that people can’t afford more luxurious homes. It just encourages us to do a better job at setting expectations.
A new couple with $150,000 in buying power will not expect a steam shower or other high-end finishes in a new home. But a couple with $700,000 in buying power is going to expect numerous jets and maybe even an antique claw-foot tub, too!
You might have read my previous article that mentioned how shifting expectations among generational cohorts are changing the way people approach home buying. A lot of the first-time home buyers on the market today are millennials with a lot less access to the 20% down payment needed for a home purchase. Their reliance on an FHA loan means they will have less cash up front and need more of your guidance on how to maximize what they can get for their dollar.
This is probably true of many Gen-X buyers, too, who tend to carry more debt and fewer savings.
Let’s face it though, every buyer wants to feel special. Defining buying power is one of the most difficult aspects of real estate planning. It’s our job as builders to incorporate the elements that will stand out in a build without breaking the bank (at least not too much!).
Pro Tip: I make it a point to tour new construction homes and condos in upscale neighborhoods or new developments to know what new buyers find appealing. I ask a Realtor friend to set up a day-long inspiration and education tour across Chicago’s nicer neighborhoods. We look for design trends that might help me infuse a little more pizzaz into my homes. We also look for unique amenities that people ask for, as well as the unique building elements that are being used.
This kind of research helps me price out projects for my clients with a stronger understanding of what their budgets might be able to afford.
2. Understand Age Preferences
Preferences on the types of home desired are also distinctly different among generations. For millennials, aesthetics and environmental impact are big deals. This means we have to keep building materials in mind, as well as cool upgrades and amenities. They might appreciate less external maintenance, too, so think about smaller backyards—but perhaps find a way to incorporate a jacuzzi.
Gen-X buyers usually want a home that is designed to fit their needs, which means the focus isn’t on bells and whistles but more on functionality. They want to move into a home that works right away for families. Stage these homes to demonstrate their turnkey nature, highlighting things like an in-law suite or a finished basement.
Older boomer clients usually have a bit more disposable income and a lot higher expectations of being able to reap the benefits of a life of sacrifice. They’ll appreciate some sophistication and will look for quality materials. They might also appreciate having everything in a one-story ranch-style as they look for hassle-free living and money-saving automation.
Keep safety and security amenities in mind for this group, too.
Pro Tip: I like to look ahead. I spend time surveying the community I’m looking to build in to see the population trends. Who is moving in with more frequency? How long has the community been around? Are the amenities in town targeting older or younger populations? Are there any civic projects coming up that might change interest levels of buyers, like a new highway or a trendy restaurant or coffee shop?
3. Understand Family Structure
Knowing your clients means knowing their needs, even before they understand them themselves. This kind of knowledge will save you a lot of headaches and heartaches when it comes to selling your property. Think about the life stage of the client you are targeting. Are they single, recently married, parents, or retired? This kind of knowledge can immediately inform your floor planning.
How many bedrooms and bathrooms will you need? Should you include a home office? Will a playroom drive up value?
It will also inform where you buy property to develop and how big or small your project needs to be. Think about things like proximity to schools or access to nearby hospitals. Are there good restaurants or gyms nearby, or is a more rural environment more beneficial for your targeted clients?
Pro Tip: During my day-long inspiration tours, I not only pay special attention to trends and amenities, but I also make note of the different layouts being used and consider ways of adapting these spaces into smaller footprints or within multi-use spaces for the more affordable homes I like to build.
Instead of settling for cookie-cutter approaches, you’ll get stronger value if you take the unique needs of your clients into consideration even before you break ground. Pay special attention to the factors that will contribute toward maximizing your clients’ financial capabilities, enabling you to deliver successful real estate outcomes.
Laser Targeting for Bigger Opportunities
Knowledge-gathering narrows your field, which is a good thing. One-size-fits-all projects may be fine for the masses, but you can often find more success and expand your profit margin by building with the laser focus of fulfilling the dreams of someone very special. Scale your projects to match your clients’ at whatever level of success they find themselves as they pursue a recalibrated American Dream.
As I said, the decline of upward mobility doesn’t have to be all bad. It’s forced everyone to re-adjust expectations and, for many people, to steer away from material trappings. Hopefully, this means a new focus on experiences and relationships that have strong emotional value and places to live that are more about the quality of life and not always tied in directly to the hustle and bustle.
Do your research and don’t be afraid to develop projects that will attract the exact kind of buyer you know will love your new home. It’s time to learn how to charm a bird out of a tree to stop limiting your profits. Stop selling and start helping your clients find the home they’ve always wanted.
What needs and wants have you noticed among certain cohorts? How are you accommodating them?
Join the discussion below.