But your a big-shot rich Real Estate Broker... right? Yeah sure, mentally I'm rich.
One of the biggest misconceptions I've run into as a Real Estate Sales Team Owner, Real Estate Investor and Real Estate Property Management Company Owner is, well, it looks like I own a lot of things that would surely make me a fortune. So people assume I'm "rolling in it." I can tell you that for most entrepreneurs and small business owners "rich" is a mindset first and the money comes later. As the businesses grow the owner experiences "growing pains" which is the ebb and flow of money. At some point, if the business is growing, you will hit a ceiling that can only be achieved by spending more money (investing) in the business. This comes usually in the form of purchasing some sort of system or software or hiring a new employee who will either generate more business or allow your current employees to handle more business by assisting them.
So what do the numbers look like in a Real Estate Sales Business?
First, I would tell you to read the The Millionaire Real Estate Agent written by Gary Keller, Dave Jenks and Jay Papasan (Gary you can thank me for this plug later). Now, if you work for another broker you may be thinking right now "Ohhhhh, I see, this is just some BS where this guy tries to recruit me." To that I say, If you don't read this book merely because it's written by the founding father of Keller Williams Realty and you're afraid it's going to be a recruiting pitch, you are an idiot. This book can teach ANY ENTREPRENEUR in ANY FIELD how to create and build a very successful business. The models work whether you sell shoes, nuts or houses.
Okay, back on track...
When you read the MREA book you will notice in the Budget and Economic model that the lead agent of a successful team is supposed to net around 40% (the key word here is "supposed"). That means that if your team grosses $1,000,000 in commissions, you as the owner should take home $400,000 before taxes. However the MREA book also assumes that your agents are preforming substantially above-average... we're talking Listing Agents selling over 100 properties a year and Buyer Agents selling 36-50 per year. In reality most of the top-performing Real Estate Teams in my region (NJ, DE, PA, MD) are closing anywhere between 12 and 18 transactions PER TEAM MEMBER. This shows that in reality you will not get as much production out of your team on average as the MREA model suggests. The original MREA model does not appear to be scale-able nor does it meet real world production numbers. I feel that with the release of the MREA 2.0 we may see some of these issues addressed.
If you would prefer to make the most of leverage sooner, you may find out that you are actually netting 30% or even 20%. If you work in a market where the average sale price is very low, you may find that you have to compensate your agents on a higher split than other higher-priced markets in order to ensure they are making enough to survive and feel fulfilled in their position. This also chews into the bottom line. I'm fortunate (sarcasm) to be dealing with both scenarios. I would rather leverage people sooner and earn more time faster rather than earning more money... I mean ideally I want both but when you're starting out you have to choose which you want first. I also happen to be in a lower market than most areas of the country (at this time the Pittsburgh average sale price is around $200,000 where as the national average is $230,000+). Our numbers show this as well. The profit margin on my sales team is running only around 20%. So on $500,000 in team commission I take home roughly $100,000 after expenses and before taxes if I didn't close a transaction myself that year. The advantage of this set up is that it is very scale-able and allows me to focus on more recruiting, training and system creation activities rather than day-to-day rat-race sales activities.
Let me know what you would like to hear about in my next post in the comments below!
The truth behind Real Estate business ownership- In a nutshell I can tell you "it ain't all it's cracked up to be"... and then again, sometimes it is.
Today a friend told me that her husband had just gotten into Real Estate Sales in another state and that he was seeking work-life balance and she was seeking advice from little ol' me. She thought it would be good for us to chat and that her husband likely could use an accountability partner. The mention of "work-life balance" kind of put a smile on my face. As a broker who has been licensed now for closing on a decade I am still seeking work-life balance every day. It's like a teeter-totter though, ... true balance is never really achieved. You're usually at one extreme or the other.
Many outsiders to the Real Estate world look at it and they only see the smiling face of it and it's very enticing. They watch the HGTV channel and see some young guy who woke up at noon, threw some clothes on and sold a $2,000,000 property to walk away with a $80,000 commission check and they say "wow, that looks super easy... I want to do that so I can make my own schedule and make a ton of money and have a ton of fun."
Real Estate can be very lucrative financially. It can provide you with a lot of money for the time invested which therefore can free up your calendar for fun and exciting ways to spend that money. When you hit your goals it can provide you with a very rewarding feeling at the end of the day, week, month or year. And what I've noticed is that the people who are successful at it tend to display those glowing aspects of this career to the public but they rarely address the hard work and failures that had to occur in order to make those achievements.
So here's a little bit of the truth...
The Real Estate business can destroy you financially. It can suck money right out of your pocket and your accounts before you even knew it. It can suck the time right out of your calendar until you become a slave to the business. It can break your spirit when you worked your ass off and it still wasn't enough to hold the deal together and your mortgage payment is already late. But it's just like the work-life teeter-totter, if you have the persistence, the will-power and the financial means to hold it all together and focus on the end goal, the good will overpower the bad. If you're smart, you learn from the bad and you don't repeat those mistakes again.
Here's what work-life balance looks like for a Real Estate Business Owner:
... So how did that all sound to you?? Work-life balance? Or total chaos?
It doesn't have to be like this of course. My 2016 example is an extreme of what happens when you lounge around in the "Life Quadrant" for too long. If you're trying to juggle you can't ignore the ball and then expect it to be where it was a minute ago, right? Is it ironic that hanging out in the "Life Quadrant" for too long can actually have serious negative impact on the "Life Quadrant" because it screws up the "Work Quadrant"? But it's a catch 22... spend too much time in the "Work Quadrant" and your "Life Quadrant" can suffer too... which will then come back to impact your "Work Quadrant".
Everyone has his or her own tolerance for risk and I would say that most people will not put that many irons in the fire. Whether you want to multi-task or not, own 12 businesses or just one, develop a real estate team or work alone, you will still face the everyday teeter-totter of trying to find that work-life balance. It's when you realize that equilibrium is never achieved, it's just a pendulum swinging back and forth between overworked and not enough work... and when you accept that and swing in stride... that's when you actually "feel" the work-life balance.
Interested in a Career in Real Estate?
Dustin Nulf is an Associate Broker for Keller Williams Realty in Pittsburgh Pennsylvania. He has been in Real Estate Sales and Investing since 2008 and has had his hand in over 500 real estate transactions since then. Dustin is the CEO of The Dustin Nulf Team and acts as a coach, trainer, mentor and adviser to sometimes hundreds of agents a year.