How to Grow Your Real Estate Business in a Crisis

What's up, business freedom podcast listeners? I went for a long walk run today, did about 62 minutes, and I was thinking about how I could record this episode without sounding like a me monster. Meaning to kind of walk through my success in the biggest housing crisis. Well, easily that I've been part of the Great recession back in 2008, 9, 10, 11 and 12, and how it might apply to what's possible, getting ready for what's coming after this pandemic. Sort of the dust settles on it. So here's what I came up with. I want to take you through step by step, what I went through back in 2000. March 5, 2007 is when I left my corporate job. June 2007 is when inventory shot through the roof in Charlotte, North Carolina. And it wasn't until the end of 2008, September, October 2008, that it was the end of the financial world as everybody knew it. And so I got into real estate. March 5, 2007, unbeknownst to most people, three months later, the market shifted. And that year, 10 months in 2007, sold 27 homes. In 2008, with a part time assistant, sold 44 homes. And then I hired my first buyer agent late 2009, I sold 58 homes. I did 54 and my first agent did four that year. And then the opportunity was that everyone was getting out of real estate. And I think that opportunity is going to present itself. I don't wish harm on anyone yet. There are a lot of folks that have a real estate license that just need to go back to doing what they were doing before they got into real estate. And I mean that. I don't know how I mean it. I just mean it like the roster is getting set to do what it did back then. It went from 15,000 licensees here locally in Charlotte, North Carolina down to 5,200 at its lowest point. We're up to 17,000 licensees here in greater Charlotte. And it's probably getting set to go back to 6, 7, 8,000. You know, who knows what's going to happen? My point is that there's a massive opportunity for those that keep their heads in the, in the game. And I'm talking to top producing agents and team leaders right now. The opportunity is massive. So in 2009, 58 sides, 2010, I did 118 sides. I think I did about half those sides. My team did the rest. Then in 2011, we did 178. I, I did about a third of those. And then in 2012, we did 248. Then we went to 310 and over 400. The year we did 248, I did one closing in January 2012. I had this dream of building a business that didn't rely on me. And there's three things that I want to go through that could help you with the journey, no matter where you are in the journey. So I got into real estate with no sales experience whatsoever, no business building skills whatsoever. I came from a corporate job where I did acquisitions and strategy for an aerospace company. And I mean, it was an awesome job. So I was traveling around the world. A multiple six figure income, if I counted my bonuses to become a real estate agent. That first year, 2007, I think I netted $36,000. So I think I did about 250. Top line. I got 175 from my broker. My splits were not good. I didn't last too long at that broker because all my business was generated by me. And then I netted 36. So I calculated my dollars per hour. We call that the business freedom index at Real Estate B school, and it was less than 20. Less than 20 bucks an hour I made as a real estate agent, which I would imagine is actually pretty standard in the industry. Took me about five years. So about 2012 is when I went up to close to $500 an hour because I built leverage systems, empowered people, you know, sustainable systems. The whole mission of Real Estate B School now is what I was able to achieve. There's only three things that I really focused on and I want you to consider no matter where you are in your journey. This shift that we're going to have, there's no doubt that there's going to be a major major. Who knows what major is? There's going to be an economic consequence of what's going on now. Businesses are laying off people. You know, it's just a challenging time and it's not going to bounce back quickly. Businesses are going to reinvent themselves. I was joking with my wife Julie. She, she did her roots of her hair. Now my mom was the one that gave her the product. So my mom's a hairdresser and so she had a supplier for the goods and she showed her sort of on over the phone or told her how to do it. And my wife did her hair and it looked great. And she's thinking to herself, like, maybe I don't need to go into the hairdresser, you know, every month or whatever. So I think things are just going to change. Going forward in a lot of businesses and industries, and a lot of businesses, unfortunately aren't going to be able to make it through what's coming. And a lot of real estate agents are going to be able to make it through what's coming. So I'm calling the episode how to Grow during a Crisis. It is all I knew. In fact, I would say that those first five to six years, it was almost, you know, I went from 27 sales in 2007 to 2014, over 400. So in a seven year period, I would say that growth was easier because everyone had gotten out of real estate and then everyone got back into real estate and all these onesie 2Zs, 4 or 5 deals are just being disappeared into these thousands and thousands of agents that came into our marketing, got their license. So three things that I want you to consider, no matter where you are in your journey, if you're going to build a leveraged real estate business. And the first one, I'm going to name all three and then I want you to take notes and really sort of consider what I'm going to go through. The first one is economic model. The second one is value based commission splits. And the third one is team structure cadence. And I've done podcast episodes on these things before. I'm going to do it in the context of the opportunity that exists right now. The first one, and this is assuming that you're going to do more than be a solo agent. If you haven't heard me talk before, there's 12 jobs that a real estate agent needs to do to be successful. I would say 10 of those jobs you could get someone at a much lower pay grade. And that's not a dis against anyone that's at a lower pay grade. The reality is, most of a real estate agent's job, you can train someone to do that job at 15 to 20 bucks an hour. 25 to 30, maybe 40 to 50. Buyer agents in our market are making 40 to 50 bucks an hour, showing agents are making 25 bucks an hour. So maybe 30 bucks an hour, you know, runners are making 10 to 12 bucks an hour in our market. Administrators are making 15 to 20. A good administrator is 15 to 20 in my market. So the amount of leverage that's available if you really sort of consider what you do on a daily basis is massive. And all you need to do is design the system, train someone to run it, make sure they're a culture fit and off you go. And so first one is economic model. Most folks that look to Go from solo agent to bringing an administrator on the team and then a showing agent, a buying, a buyer's agent, more buyer's agents, a second administrator. They don't really consider what the economic model is. And by economic model, I've covered it before in another podcast episode, so I'm not going to go super deep on it. How much do you pay your broker? Number one, how much do you pay your agents? Number two, the total GCI from the team. Less those two numbers, what's remaining is your real revenue or gross margin. That percentage of total team GCI has to be. Your gross margin has to be as high as more than 60%, you know, closer to 70%. Anything, you know, 65 to 70% is really where it needs to be. If you look at most teams, they pay their agents more like a brokerage and then they struggle to provide services which come below gross margin and they just can't do it. They can't figure it out. They're overpaying their agents and they're providing a whole bunch of leads, administrative staff and overhead. And the math just doesn't work. The good news about a shift and what's coming is that agents can't provide any of that stuff. And they're going to be willing to see the value, to open their eyes to the value of a well run real estate team. That is the opportunity. And the opportunity exists even if you already have agents on your team. And the splits are wrong. So I'll get into value based commission splits here in a second, but gross margin and then past gross margin. So hopefully there's, let's call it a third. You pay your broker and your agents and let's assume you're out of production. That's another assumption. Most team leaders miss the mark on what they pay their agents. And I'll cover value based commission splits here in a second. They miss the mark and they have to produce at a high level in order to make money, to make the whole thing make sense. And that's a failed economic model. I see that more than half the time with the team doing 100, 150, 200 units. When I dig into their financials, it's all wrong. So there's a whole recruiting process, a whole recruiting packet that we follow. We really do a great job of explaining the value of the team set up. Not in a way where we're trying to convince someone that a team is best for them, just for them to know that there's different ways they can get paid in real estate and that Brings me to the second. Well, let me finish my first point. So economic model, gross margin after gross margin is the money you spend on advertising. That's the one operating expense bucket. The second operating expense bucket. Bucket is what you spend on your administrators. The third is all your other overhead, your phones, your rent and all those other things that needs to be about a third so you can pay. A third is cost of sales, your broker and your agents. A third operating expenses and a third is left assuming you're fully out of production. If you're in production, you're selling a lot of homes. You're 50 to 60% net margin is possible. And so I don't want to get any, you know, why would I take 33% when I can get 100% of, you know, my own production? The reason is because if you're selling a lot of homes, you're in living hell. You're working every evening, every weekend, you're stressed all the time. It's not sustainable. So you could do 750,000 GCI and have $250,000 of expenses and do all the production yourself and net 500. Or we can teach you how to scale to 1.5 and you can work less than 40 hours a week, do no production and still make 500. Which would you rather do? So anyway, a little bit of a soapbox there. So that's number one. Number two is value based commission splits, regardless of if you're just starting a team or. So let's assume you're a top producing agent. You've already figured out how to sell 40, 50 homes a year and you're going to bring an administrator on. This is the time to do it. I brought my administrator on in 2008 and I hired my first agent in 2009, the first year of the Great Recession. I hired three or four agents the second year of the Great Recession, and then my second administrator later that year and then more agents the third year of the Great Recession. So while everyone was getting out of real estate, I was a safe haven for those agents that can sort of come in, come in line with our structure and cadence, which I'll get to here in a second. So value based commission splits means that just think of the value that the team provides versus what the agent provides. We have a very specific way that we teach this and you just have to think. So the real estate agent thinking for someone on your team, they think that listings and buyers are the same. You know, I need to get paid as much as possible on my soi they don't understand unless you know how to explain it. Why would you pay me 15, 20% on a listing that you generate that's so low, you know, and obviously it's market dependent. In our market, there's a $10,000 commission check on average for every listing. So we pay about $1,500 to a listing agent if we set the appointment. Or it's sort of a gimme opportunity. And there is no such thing as a gimme opportunity. But you sort of get my point. So they may have 10 hours, 15 hours in the deal and they're going to get paid 1500 bucks. That's about 100 bucks an hour. It's really good pay in my market for real estate agent services. So I'm talking real estate agent services. There aren't many agents in my market that could get paid 100 to $150 an hour. And this is business owner thinking, this isn't real estate agent thinking. So you've got to take off the real estate agent cap, put on your business owner cap to start to have these conversations. So just think, that's the mindset behind it. I want you to think about the mindset behind value based commission splits. Think about it. If you need to get to only paying out 33% of total GCI, let's say you couldn't do any production and the team did a million GCI, you had $333,000. Let's say that was 100 transactions, to use a $10,000 per transaction example. So 100 transaction. Let's say you had four agents on your team and you could only pay them and your broker $333,000. Let's say you paid your broker $333,000. You had $300,000 to pay four agents to do 25 sides each. That's good pay. That's $75,000 per agent to do 25 sides, that's $3,000 per transaction. It blends out at 30%. You have a little bit of money to give to your broker. That's the math. If you provide the value and you have the lead gen, you have the administrative staff, you're giving the agents the opportunity to work on their 20% that they're really good at and that they get paid well for. And you're going to take the 80%. You know my example that the 10 out of 12 activities that a real estate agent does that they don't get paid well for, you take all of those off their plate, you can make These numbers work. It's just a mindset shift. And I'll go into teams that are running 2,3 million GCI and they've set it up completely the wrong way where they're giving away 50% or more to their broker and not even the broker is not the big deal, but their agents, they have just everything wrong. So a million dollar team giving away 500,000 to their agents and their broker and, and then they're probably spending more than 11%, 11% and 11% on the three buckets and then their single digit, maybe low double digit profit. And they're wondering like, hey, what's going on? They just didn't think with the end in mind. All right, so that's value based commission splits. Number three, team structure and cadence. This is the just awesome opportunity. What's going on right now if you're running a team or if you're not running a team, but you're going to start a team. So let's say you're going to put yourself in my shoes and you're going to take advantage of this market and you're going to be the light in the darkness. You're going to get an administrator and you're going to launch your business. You have to establish a structure and cadence for yourself before you bring others into your world. This is just sort of being a really productive human being. 101. And in real estate, I heard this from Tim Heil, so I'm not going to claim it as my own. He said I do it, we do it, they do it. And so the I do it is that you need to prove that you are able to sell a lot of homes on your own with an administrator helping you. So I went from 27 size in 10 months new to real estate to 44 with a part time assistant who went full time that year to 58 sides. So 54 I did with that one administrator and I brought on my first agent. Right. You need to be in that sort of game or that level of play. Which is top 2% in the industry. Maybe top 5%. No, I think it's only like top 2%. I heard a statistic that there's 43,000 agents that sell 25 homes or more a year. So 43,000 out of 2.4 million in the US which is getting ready to go in half by the way. So the stats will increase from 2 to 4%. Hopefully. I say hopefully because I'm a warrior. Like this is wartime and I'm going into the battle. And so we're looking to pick up tremendous market share. And so team structure and cadence. The I do it part is that you are on your game like you are. You're protecting time on a regular basis to generate new business. We call it new business development. Are you actually doing the work? I did 12 to 15 hours a week religiously when I was coming up 2007, 8, 9, even into 2010. And then 2011 did 178. I probably shifted more toward recruiting than I did lead generating. I did it and then I brought folks into my world. My first buyer agent, we did it. And then in January 2012 when I stepped out of production altogether, really 2011, I had a main operator in the business and I had a main. My inside sales person stepped up into sales management. So I had an operations manager and sales manager. They stepped up and then it was, they did it. And so it took me five years, less than five years to go from new to the business to fully leverage. And I have those two key people into it and running operations. So I probably had four administrators at that point, seven or eight agents that were, you know, two listing agents and you know, five or six, maybe not even buyer agents at that point. So it wasn't a complicated business. We never had, you know, big overhead and we were always on the economic model. So the cadence with your meetings, your one on ones with your salespeople, your team meetings, your personal development, your daily huddles, reporting numbers, all of that stuff, if you don't have that structure and cadence in place. I went down the path a second ago and I lost it. The opportunity now for some of you that don't have the cadence in place, is that you can use this event, what's going to happen as an excuse to get a cadence in place. You'll have to be ready to new business develop at 8am and you've got to go for as many 50 minute, 10 minute cycles, 50 minutes on, 10 minutes off, as you need to to generate the appointments set to meet the right amount of appointments, to sign the right amount of clients. Regardless of what happens with this pandemic, you need to be able to stack buyer and seller clients for the next four, six, eight weeks, however long it takes. So that's I do it, we do it, they do it. So hopefully this is helpful for you and you can't do any of this without the mindset. You know, back in 2007, I got married in October 2006. We had Anders in November 2007. So I was a new husband new dad. We had two failed miscarriages, Julie had two miscarriages, and then Kendall was born in April 2010. And so I was new to business, new to real estate, new to growing a business, new to being a dad, new to being a husband. And. And a lot was on the line. And for me, I only focused on what I could control. So my advice here, as everything is hitting the fan and everything seems uncertain, is focus on the things you can control. I'm going to do future podcasts on marketing. I'll probably do the next one on marketing. How to shift your marketing in a market shift. That's a good one. How to shift. I got to write down that one. Shift marketing in a market shift. I'll do that next. I'm going to record that right now. So much love and respect. You know, for those of you that are going to fight your way through this, I'm going to be there right with you. And this shirt, if you're watching the video version, is be comfortable with the uncomfortable, y'. All. We're getting ready to get really uncomfortable. And there's going to be less transactions available for a lot of agents. There's going to be this weird time where folks are sort of bowing out. A lot of agents are going to scrimp and fight and claw to survive, and a lot aren't going to make it. And so just know that if you focus on the things you can control, you are going to be ok. The things you can control are your physical health, your mental health. Right. Talked about morning routine. If you missed that one, definitely dig into that. Your spiritual health, you can control your activities that you do every day, the way you show up in your home as an encourager, don't bring the drama. You can control your mindset in terms of just staying off of social media, staying off the news. I've covered some of that already. I'm probably going to mention it over and over and over and over again. And so be a bright light in a really dark place right now and make yourself stand out because you're doing something different. I can't tell you, back in the day, like people, I was the newest agent to this small brokerage. There are about 10 of us in an office and I was the top producer that in 10 months, I sold more than anyone did in 12 months. And they're like, what? And it's what I did with my marketing and the message and shifting it because of the shift. And I'll get into that on the next episode here. So much love and respect. We'll talk soon. Oh man. If you're at the point where you are struggling and you know it and you don't know what to do about it, and you're a top producing agent or you're running a team, a small team or a large team, we Coach anywhere from 500,000 GCI to 5 million GCI. If you're in that sort of that and even if you're close, maybe you're on a run rate of 500,000 and you don't know what to do. All we could offer you is a conversation. So just go to real estate B school there is in the resources or you'll find a strategy session or you can hit apply now just gather a few bits of information. There are some really good resources sources over there, the podcast episodes, some giveaways, some masterclass training that you can get access to. Just some cool stuff. There's a 15 minute training I did on how to break up your business into drivers and accelerators and how you can sort of evaluate where you need to focus on next to scale your business regardless of what the market is. A lot of awesome resources over there. And there's the orange button. Everywhere on the site is a next step if you know you need to have a conversation with one of our business coaches. So if that's you, take action. Right now the conversation is just to serve you, to see where you are, where you want to go, what's holding you back. Be well, we'll talk soon.