EP 14 | Running A Brokerage (Day In The Life)

Hey now! Hello!

Hello! We're live. We're live on YouTube right now, and you're live with us at The New and Experienced Investor Podcast. I'm Alex Barnett, one of your hosts, the new guy.

My name is Joe Homs, and I am the experienced guy. Investing for over 40 years.

Good for you. And today we're going to be talking about, um, you know, your, your experience as an investor, um, and being, uh, running a brokerage, an investor-friendly brokerage.

An investor-friendly brokerage.

And we're gonna do a day in the life because I don't think people realize, you know, um, you told me something, um, interesting the other day. You only need 2 years experience To become a broker?

Yeah, uh, the laws keep constantly changing in California, but basically you need 2 years as a salesperson.

Okay.

Experience. Um, you know, there's exemptions to that. If you're an attorney, you can get your broker's license right away. If you have college education, it just It just really depends, you know, check on the DRE website for that information. But for most people, for most parts, yes, you are licensed under a broker for 2 years, then you can get your broker's license.

Okay, so would you say that the bar is low?

Can you imagine? Yes. The bar is very low.

Okay.

Um, it's almost, you know, very similar to just getting your salesperson license. It's, you know, the bar is really low. It's not brain surgery.

Yeah.

Uh, if you, you know, learn how to memorize the questions that they're asking and the answers, and you can pass that test, uh, you know, with flying colors. And it's funny about, uh, passing the real estate exam. So you need, I believe it's 70% right now. It used to be 75, but I believe it's 70% right now. And if you go take it, they will tell you you've either passed or failed. If you failed, then they'll tell you what your percentage is, you know, like you've missed it by 2 questions or whatever. They won't tell you the questions, but they will tell you that you missed it. And so I always tell people when, you know, when anybody ever asks you, well, What you got on the real estate exam, just tell 'em 100%, you know? There's no way to prove it.

Right.

You know, you passed. There's no way to prove it. So yeah, I got 100% on it, you know? I'm a genius. I know what I'm doing. So yeah, I got 100%.

No, that's great. And the reason I'm bringing that up is because, you know, if the bar's relatively low, you know, you could be working under a broker that has very little experience, or you can go to someone like yourself that has 40 years of experience. And maybe you could give us a rundown of, you know, the benefits of that, of having a broker that actually has experience. Because what— I mean, what does the broker do? What does the broker facilitate as an agency?

Uh, great question. Um, so the, the brokerage that I am associated with is called PelleGo, P-E-L-L-E-G-O.com, and it is an investor-friendly Brokerage. And you can get your real estate license and then 2 years later you can get your broker's license. That's not a problem. It just basically tells the public, your fellow agents, if you have a broker's license, that you've taken that test. So maybe you're a little bit more educated than them, but experience comes with actually doing things. Being in the trenches, doing deals, dealing with the problems that come up with every real estate transaction, no matter what it is. There's always issues. And as a real estate agent, that's what you, you do all day is you deal with these issues that come up.

Mm-hmm.

And they're really no different in a brokerage. I currently have about 250 agents that I have underneath me, and then I supervise. And it is just a matter of responding to whatever questions that they have. I have training videos and training websites on how to write offers and, and how to negotiate this and all that stuff that they can take to educate themselves. But until they actually get into the game and actually have a listing or actually have a buyer that they're working with, their, their knowledge about real estate is very limited. And so sometimes the newer kids on the block, so to speak, are the ones that are calling me most of the time or emailing me, or we'll jump on Zoom, whatever it is to get them past that hurdle that, you know, they need to be basically clear on. And the other big thing about being a real estate agent is all the disclosure and all the paperwork, and that has to be correct. And a lot of agents, when they're just starting out, hire transaction coordinators Because the transaction coordinator shuffles the paperwork back and forth between the buyer and seller, and they make sure that all the paperwork is done correctly. That gets uploaded into a broker system, transaction coordinating system. So if anything arises along the way or even later on, all the paperwork's there. So it's very easy for me to go look at the paperwork and see, you know, what happened during the transaction, if anything. So putting all those systems in place is what you need to do as a brokerage. And if you're decided, let's say you got your license 2 years ago and you want to be a broker and you want to open up your own shop, more power to you. But, you know, you have to really be careful when you do something like that because you need to have that experience behind you, especially when you start to hire other agents underneath you and supervise them.

Yeah, I could see how that could maybe present a problem if, you know, you're working in an office, something random comes up and you're like, hey, what do I do here? And the guy's like, I don't know.

Yeah.

So let me call Joe.

Yeah. And it used to be, you know, the big box brick-and-mortar offices where agents used to go to. That really doesn't happen much anymore. I mean, we have a small office here. I've got 250 agents, and if I see 1 or 2 agents during the week here at my office, it's really kind of surprising. Most people work from home, and, you know, they're on their phones, they're on the computer, or wherever they're at— at Starbucks, or, you know, having— I was having lunch with one of my agents today, and he's on the computer asking me questions while we're at lunch. By the way, I like to work during lunch. So if you're interested, let me know, reach out. Um, so it's, you know, the real estate game is, is kind of changed along the way. So, you know, 250 agents sounds like a lot, uh, and yes, I'm on the phone a lot, but it's not overwhelming or anything like— it's not like somebody can't get a hold of me. They, they can always get a hold of me.

Yeah, and that's— I think that's one of the special things about, you know, um, Working at Pelago, having you as their broker, because you guys sort of present, present it as low commissions, number one, which is great. And then also, you know, you get the help that you need because I've heard stories of where agents, they're reaching out to their broker and they're not even getting a response. And when you're working on a transaction, you kind of, you know, you're expecting the broker to answer some of these questions just because you don't know. So have you heard a lot about that where other agents working at other brokers maybe—

Yeah, no, absolutely. I hire agents and that's the reason that they leave other brokerages is just they're not getting the handholding that they expected. And that's really kind of my number one priority is when somebody calls, I answer the phone right away. If not, then if I'm busy, you know, like I'm busy now, I'm not answering my phone. I'm looking at my phone, I'm not getting any calls, but Leave a message and I'll get back to you. I'm very old school, so if you leave a message and tell me why you're calling so it kind of prepares me, that'd be a lot easier when I call you back. Hopefully have an answer by then. I know that there's a lot of younger folks out there that, you know, like to use text and other methods and they don't like leaving messages. I like people to leave messages. So if you're calling, please leave a message. Let me know why you're calling. Um, so yes, that's, that's very important to me. I hear that all the time. Our fees, because you were talking about it, um, $85 a month. You keep 100% of your commission, and we charge a transaction fee of $850, and that includes your E&O insurance. Okay, so E&O is errors and omissions, in case— we're all human— in case you make a mistake. Um, either an error, mistake, or you forgot to add something or you omitted something, the insurance company will, you know, pick up those. And believe it or not, overall, you know, I can't remember really the last time that I've even put in an E&O claim. It must have been 20 years ago.

Wow.

Because the technology is so different and like I said, We've got transaction coordinators and you have me available here to answer your questions and move you forward in a transaction. So that doesn't happen as often as, you know, people might think. But again, we're all human, we all make mistakes. So there could be some honest mistakes out there that are made.

Yeah. And especially in the very beginning, I mean, it's pretty overwhelming. I know just learning to invest and all that stuff, I was blowing up your phone because you, gave me permission to ask questions, so I took advantage of it. And I see you on the phone sometimes literally walking people line by line through a, um, an offer sheet, or, you know, um, just filling paperwork out, or, you know, something that may seem very trivial to you is to, to some people—

Yeah, but to them is the most important thing of the day because, you know, without getting that help or the answer to their question, they're kind of They're stuck, they're frozen, you know, there's nothing they can do. I mean, I had an agent last night texting me, you know, 8:30 at night, you know, my client needs to know this, my client needs to know that, and I'm answering all her questions for her. And obviously she's relaying that to her client, but it was 8:30 at night.

Yeah, you know, yeah, that's— I mean, that's very generous of you, I would say. Um, break us down, or, or break it down like a day in the life of You know, being a broker, you mentioned some things, but maybe you could start with, um, like Monday. Is that like a very busy day for you? Do you have regular meetings with your agents or how does that—

Mondays are actually a very busy day. I have a Zoom meeting with all my agents on Mondays at 10 o'clock. And so whoever wants to show up, it's not mandatory. I get that question a lot too from agents that I hire. Do I have to go to the office? Do I have to be at meetings? No, everything we do is voluntary, you know. And but I do tell them, the more you participate, you know, at the end of the day, the more knowledge you're going to gain and, you know, the more helpful it's going to be for you. But it's your business. And I tell them, you know, treat it as your business. So if you want to put zero time in, guess how much income you're going to get?

Zero.

Zero. If you want to put a lot of time in, then, you know, that income level is going to go up. So Mondays are busy that I do that. And also Monday is kind of my recruiting day, and I am constantly recruiting for agents. And so I, I'm on the phone Monday mornings pretty much till noon talking to agents that are thinking about changing their license over to Pelago because they see our commission structure. We advertise on Google. We always use our website to advertise, pelago.com, and you can find out all the information on Pelago as well. We also, believe it or not, we— and this was a kind of a surprise to me when I started this 3 years ago— the owner advertises on Craigslist, and we get a lot of calls from Craigslist.

Wow.

Lots of calls from agents. It's like— and I think they're on there because, again, our Brokerage is investor-focused, so the agents are looking for deals, and then when they do keyword searches, our company comes up and they go, oh well, that looks interesting, you know, $850 per transaction, that— are these guys crazy? You know, so we do get a lot of calls from that, then they set up appointments, and, you know, and then I reach back out to them. So yeah, pretty much non-stop recruiting, and those are the sources that I use all the time. to recruit new agents. And again, pretty much the same questions is, you know, are you there? Am I— are you available? Uh, can I come into the office? You know, even though they're not close by. Yeah, sure, you can come in anytime you want. But, you know, they're just asking to see the availability and stuff. Um, the, you know, the other thing that's kind of different and unique about me is I've been doing this for over 40 years. I started out buy and hold, uh, Then I got into fix and flips, and I still do fix and flips. When you came on board, we started doing wholesaling together, and we do teach all that stuff. And if you're an agent, I'm happy to teach you all that stuff as well. I have an agent coming to our meetup this coming Monday, and it's a local meetup here in Laguna Hills that I hold every month. And he's coming to learn about fix and flips, which is what my son-in-law is going to be talking about.

Awesome.

This Monday. So if you happen to be in the area, reach, reach out to us. We'll let you know where it's at and the times. And, um, it's, it's live and in person. I've got about 90 people signed up right now that are coming. So, um, yeah, very interesting.

Yeah, that's great. Okay, so it seems like, um, you know, your, your day is primarily filled up with just sort of being available Um, teaching, and, um, I guess whoever it makes them— makes themselves available will, you know, I guess get most of that knowledge. Or tell me a little bit about the hiring process. Do you ever turn people away, or I mean, what does that look like?

Um, never. I'm gonna say never to this date have I turned anybody away, whether you just got your license yesterday or you've had your license for many years. Um, there are people that have gotten themselves into trouble, let's say, done some things wrong. And, you know, nowadays, if you don't pay child support, you can lose your real estate license.

Oh.

If you've been arrested for DUI, you can lose your real estate license for a while. And all these records are public records. And when I look at an individual and if that's something like that pops up, it's like, Well, that really wasn't real estate related, but, you know, those happen to be our laws here, so that's what happens. And so I would never turn down somebody that had something like that happen, um, and I haven't yet. Are there people that have come in and maybe done something, you know, incorrectly? I had an agent come in the other day and immediately got a call from the previous company he was with. That, um, he owes some money to them. And I said, okay. I said, you know, I'll let him know. And he was aware of it. I'll let him know. And if there's any commissions that come in, that I'll let you know, and you guys can fight over that commission if you're owed something. Um, so things like that. you know, appear every once in a while. I had another call from another broker one time that one of my agents was possibly committing fraud, and I did my own, you know, kind of due diligence and research on that and found out that he possibly was. Okay, so I called him and I terminated him that, that day.

Whoa.

Um, the one nice thing about, uh, Real estate agents is you're, you're all basically independent contractors. You know, you're not hired on a W-2, you're hired on a 1099, and you're kind of like what I would call an at-will employee. And, you know, if for some reason you're not working out, I can fire you, or vice versa. If you don't like where you're at, you can literally leave the next day. You don't even have to notify anybody. You can just say, adiós, I'm out of here, and you're gone. So—

Wow.

Okay.

Um, how about if they get— if this, if this person gets caught for fraud, you terminate them, are they allowed to go to another brokerage? And—

Yeah, they, they are.

Is there some database that shows these things?

You would think that there was, um, but there isn't.

Oh.

There's no database unless unless they get caught.

Right.

You know, committing fraud, and then, then it'll come up. It'll show that they have a license to sell real estate, and if it's real estate related, or even if it's not, you can't have a real estate license if you have a felony, you know. So if that comes up, then, you know, the DRE is going to hold a hearing, and, you know, they're going to go through their due process, and they're going to, at the end of the day, suspend your license or revoke your license. For a period of time or even forever. It just depends on what the violation is.

Wow, okay. And that's your responsibility to be up on, I mean, how do you keep track of 250 agents and all the ins and outs of what they're doing?

Yeah, believe it or not, that's my responsibility. So, you know, whenever they're in a transaction, I have them, you know, upload all the paperwork, whether it's a listing or a buyer, they upload all the paperwork so that at least I have some paperwork You know, that knows that I know that they're doing something. Can people get away with it? Yeah, absolutely. I mean, you know, we're human. We all know how to get away things when, you know, we don't want somebody to find out about it. But, you know, those people eventually get caught at the end of the day.

Yeah.

Yeah. Yeah.

There's a lot of eyes, I guess, on each transaction. So someone's going to call you out for something.

Yeah. Somebody's going to call the, you know, the party that they're working with or the party on the other side of the transaction. I'm just gonna call and say, hey, Joe, do you know what your agent's doing? Well, no, tell me what they're doing.

Right.

You know, go into your side of the story. And then I'll call them and find out, you know, hey, what's going on here? What's your side of the story to this? And then try to deal with that issue. Okay.

Is there any incentive to be like the highest grossing agent or does the broker do anything for that or?

Oh, we do an annual get-together and do an award. Every year to recognize the top producer in the office.

Okay.

Every year. So yeah, you know, that's just a that-a-boy type thing.

Right.

But anytime somebody closes a transaction, I always call them and congratulate them. And I think the biggest congratulations is your commission check.

Yeah, that is nice.

Yeah.

I guess that is the incentive.

Yeah.

Money. So how does that work? After the commission's paid out, does it go to you Or, right, it goes to you first and then you take the fees out, or how does that work?

So it goes into my Vegas fund and, you know, I use that to go to Vegas.

Nice, okay.

All the monies are basically deposited at the broker's trust account. And then once that they're there and they've cleared, then we pay our agents their commission minus the $850. And then that goes directly to them. These days it's all electronic. You don't get any paper checks or anything like that. And at the end of the year, we provide them with a 1099 on how much they make, and no taxes are taken out of that. They, they're responsible for paying estimated taxes during the year and, and then doing their, their own personal taxes at the end of the year. So yes, legally Any money that's earned during the commission is paid directly to the brokerage.

Gotcha. Okay. And I know you bring up the commission a lot and a lot of people say, wow, that's really, that's a good deal, I guess. Um, what, what are they comparing it to? Like, what are other brokerages sort of, what is, what's the split?

Um, if you're like super experienced, you could probably get a 90/10 split. So you take 90%. And then vice versa, if you're like not experienced at all, there's companies out there that'll do 50/50.

Wow.

And that's a lot of money at the end of the day. So it really kind of, you know, for other companies, they kind of hire you on your experience level and they pay you accordingly. And so, you know, when, when you have a flat fee brokerage like we do, Obviously we, we don't have the big fancy offices, um, you know, and things like that, but if that's what you're looking for, then go to a big fancy office, but know that you could be paying, you know, half of your commission to that office just for having a big fancy office.

Yeah, might be better off just getting your fat commissions and then renting an office if you absolutely need it.

Yeah, absolutely. Yeah.

Yeah. Oh, interesting. Okay. And where do you see the brokerage sort of heading into the future, or what do you—

Um, I think, I think the brokerage model is going to be more like Pelago than the, you know, big brick-and-mortar, um, offices. Uh, you know, I can't, I can't imagine. I mean, I've never worked at a brick-and-mortar before. I've been very independent my entire life, so I've never worked there, so I can't really comment on, um, you know, what that is like. But I can't imagine a lot of agents with the technology that we have today and the ability to do everything from your phone, basically, that they need something like that anymore. And I think in the future you're going to see more brokerages going to our business model. And our company started in Washington, the state of Washington. It expanded out here to California about 3 years ago and to Florida as well about 3 years ago. And the owner is trying to expand to the other 50 states. It's just literally just a process. He picked the, the 2 biggest markets, California and Florida. I know he's got a few agents that He's looking to hire in Texas. So that's probably going to be the next state that he moves into. But this is kind of what we're looking to do in the future. And I think a lot of other brokerages will head that direction as well.

Yeah, I like that. What about— Pelago is sort of famous for being an investor-friendly brokerage. What does that mean as far as the agents? Like they have—

75% of our agents are investors themselves. So, you know, they do fix and flips, they buy and hold, they do rentals, they do wholesaling. A lot of these things the brick and mortars won't even let you do at all, especially wholesaling. We let you do all that stuff and we're investor friendly, we're investor focused. That's kind of what our niche is, but we also hire brand new agents. I teach brand new agents how to wholesale, how to flip properties. Um, and it's— I think it's very important that every agent out there, because I call people all the time and, you know, do you offer leads? Well, not at $85 a month and $850 per transaction. You know, it's like, you want me to offer you leads, then I would, you know, need to take probably 20% of your commission so that I can pay for that. Um, but no, we don't offer leads, but I can teach you how to get leads. Okay, that's what wholesaling is all about.

Yeah.

And because you have a real estate license, your goal is to, you know, put this property under contract and wholesale it to somebody else or flip it yourself. Or if you can't put it under contract at a wholesale price, then you put your real estate agent hat on and say, hey, I'm a, you know, licensed real estate agent. How about we just list your home? Well, what's the difference? Well, the difference is on a wholesale deal, I pay for all your commissions and closing costs. This number I just offered you, $200,000, that's what you put in your pocket. If we decide to list it, then you're going to need to pay a 6% commission and closing costs. At the end of the day, it's probably another 10% on, um, on a deal. So, you know, add another 10% on whatever that deal is. Can you still make more if you do that? Well, then yes, if you can make more, if you answer yes to that, then yeah, then let's put it on the MLS. You know, let's let all these people that aren't experienced like we are go crazy and bid up the price on this house even though it needs a lot of work. They're going to bid the price up on this house and we're going to earn you more money, and I'm— you're still going to earn a commission on that, on that deal.

Yeah, and I think that's a great mindset to have when you're an agent because you do meet a lot of agents that never even think about, you know, buying and holding or flipping or anything like that. They're just obsessed with the commission, which is just one, you know, aspect, I guess, to, you know, being in real estate. And, uh, that's pretty nice. So it's— I guess it's the difference between—

Yeah, I mean, I work with real estate agents, and, um, in a real estate industry, when you have a listing, your goal is to always represent the buyer. Doesn't happen all the time, but you can. And if you do, it's called double-ending. So you're getting a commission from not only the seller, but the buyer as well. Seller pays both commissions, but you're representing the buyer. So that 6% that you're charging the seller, you would normally give 3% to another buyer and buyer's agent that comes in. But since it's your buyer, you're going to do both. And that's their goal. And I don't have a problem if it's— if there's a deal that's presented to me by a real estate agent and there's enough room in that deal where I can pay them their commission and make a profit at the end of the day— we actually just closed on one a couple of weeks ago.

Mm-hmm.

The agent double-ended it, but at the end of the day, we're going to make probably $90,000 to $95,000 on that deal. Why would I turn that down? Because, you know, yes, I'm a real estate agent, and yes, I could have wrote the offer, but what had it been accepted? Okay, because the listing agents, you know, their goal again is to double in that transaction. So, you know, we convinced, we convinced the listing agent, well, you know what, just go ahead and represent us if we can get this deal and close it up right now. And they did.

Yeah, yeah, that's going to be a good one. Um, wow. So being a broker, okay, there's a lot, a lot more that goes into it than just, you know, having your license for 2 years and yeah, and then teaching the next newbie, um, whatever you learned in the those 2 years. So I would definitely have all of you guys reach out to Joe if you are an agent or thinking about getting your license and find out more about Pelago. We also did an episode, um, our last episode where we kind of showed— showcased the, the site.

The website.

Yeah, the website and all the things that it can do if you're an investor as well. So it's— I definitely check that one out. Um, thank you for joining us. Make sure to share this with any new and experienced investor in your life. Subscribe to the channel. And anything else?

No, I'm good.

Okay, right on. Thank you guys so much. We'll see you guys next week.

See you next week. Thank you. If you want some more advice on real estate investing, reach out to us one-on-one.