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Running a Successful Real Estate Business Part Deux: Multiple Profit Centers

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A Tale of Two Niches

As the real estate market took a turn for the worse in 2007,  foreclosure filings across the country spiked heavily and like mushrooms after the rain, REO brokerages appeared on the scene almost overnight. The new contingent of hastily put together firms joined the handful of brokers that had been selling bank owned foreclosures for decades. It reminded me of out of state roofing contractors flocking to the shore just hit by a hurricane. But as it turned out, experience did not make much of a difference – Even the noobs were pushing out the door anywhere from 20-60 properties a month, every month. What had been a relatively dormant niche, was now the place to be.

During the same time, seasoned real estate agents that had made a great living by listing and selling in a particular neighborhood or part of town, found themselves trapped in the quicksand of immobile inventories and no alternatives. They could still list with the best of them but for a while there it seemed like all buyers had evaporated in the shadow of a bursting bubble. Working what pipelines they could manage to put together, they either squeaked by waiting for the returning tide, got second jobs to supplement their income or simply fled the business.

Story behind the stories

The two tales above share a common reason for being: Both businesses were based on a single profit center model. Do one thing and do it well. Specialize in an area and become the expert – is the mantra we often hear. But this lack of diversification, makes your business very susceptible to market movements. It is akin to having all your money invested into the stock of a single company: If they flourish you are set for awhile but if they faulter, they’ll take you down with them. But this is your business we are talking about here, not Las Vegas. That REO broker can count on continuous business for another year on the optimistic side. Afterwards, that gravy train ain’t showing up to the station. By the same token, what happened in the past few years is bound to happen again in the future and neighborhood agents can’t let themselves be caught by the same trap yet again.

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RASREB 2: Think Multiple Profit Centers

In order to have a successful real estate business long term, it must generate revenues from multiple profit centers.

Think about this for a second: Coca-Cola arguably makes the most successful soft drink in the history of the product. Why do you suppose they have Sprite, Fanta, Dasani in addition to their flagship product? In addition to supplying market demand for alternative flavors, they are effectively hedging against the possibility that their main product might become obsolete or undesirable as some point. The sales of alternative drinks pale in comparison to Coke. However, the Coca-Cola company is much stronger because of them. I often hear agents mumble statements that start with: I don’t do ______ or Working with _______ is not worth the effort or even Dealing with ________ is beneath me. Ninety nine percent of the time, those statements come from a place of ignorance. Case and point: About four years ago my wife kept trying to suggest that we should start working with HUD owned foreclosures only to be turned down by me. I told her HUDs were too complicated, not worth the effort etc etc. Thank God she finally succeeded. They were not complicated and in these past four years that profit center alone has accounted for over 30% of our total revenues. So before you dismiss a niche that could make you thousands, do your homework.

Implementation

In the first part of the Running a Successful Real Estate Business series, I showed you how to trim the fat and kill overhead to succeed in real estate. Ideas without implementation are a waste of cranium RAM. So here’s some specific actions you can take to add profit centers to your business to enable it to survive and thrive the ebbs and flows of moody markets.

Adding a foreclosure component

I can already see your eyes rolling in the back of your head and hear your sighs. Foreclosures can be a pain – if you don’t know what you are doing. If you do take the time to educate yourself about bank REOs, HUDs or short sales you might find that once the right expectations are set in there can be some structure to this niche. And there’s definitely money to be made. Remember, the goal here is not to become an agent that exclusively does foreclosures – you are just adding this component to the mix of what you are doing already. If not, you can join the ranks of those agents to supply me and others with clients because “their agent didn’t handle foreclosures”. Your choice.

Don’t take the poison pill of strict specialization

If you are an Exclusive Buyer’s Agent or Exclusive Lister, it might benefit you to dip your toe on the other side as well. Buyers Only Agents: Keep handling your buyers but start taking some listings from time to time. And i’m not talking about handling any listings that fall on your lap either. Seek out listings, market for them and earn the business. Or add a partner agent that handles that for you. You will find that not only will you see added revenues from the newly added profit center, but you will also add steam to whatever you are currently doing. Same thing for listers.

Diversification of marketing methods

Some of us take pride in never using any “old methods” of marketing – We don’t doorknock, cold call, direct mail, print marketing etc. We constantly boast that this medium is dead or that medium is obsolete. On the other side, old schoolers hide behind statements that social media is a “waste of time”, blogging is not for me and internet prospects don’t work. No matter which side you are on, my advice is: Try something different and you might be surprised. Those cheesy letters you despise so much might just turn into listings and that blog post you reluctantly wrote might start bringing you real clients.

Houston Real Estate Rainmaker and Uberproud Father/Husband (not necessarily in that order). When I'm not skinning cats or changing diapers you can find me on Twitter or Facebook. I blog about marketing, social media and real estate. I might not always be in agreement, but you can rest assured I'll be honest. Oh, and I can cook a mean breakfast...

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17 Comments

17 Comments

  1. Portland Condo Auctions

    December 17, 2009 at 6:42 pm

    The ones who fear the internet are going to lose out on a lot of money. As soon as the baby boomers are gone their direct mailing business is going to be gone too.

    -Tyler

  2. BawldGuy

    December 18, 2009 at 10:13 am

    Hey Erion — Your points are well taken. Allow a Boomer/RE dinosaur to make a distinction as it relates to ‘specialization’.

    I don’t mean to offend anyone, especially house agents, as some of my best friends do that. 🙂

    In teaching agents various parts of the biz, I’ve often pointed out the difference between specializing in neighborhoods and the like, and specializing in a relatively complex niche. You mentioned REO’s for example. To do that well requires marginally more knowledge/expertise than farming & becoming the ‘specialist/expert’ in a particular neighborhood — something you and I could train a high school freshman to do well.

    We can discern the actual level of know how & expertise required for expert/specialist status in any particular niche by how many ‘flock’ to it — and succeed at it almost immediately. So let’s not be too quick to label REO agents ‘expert’ or ‘specialist’. That’s not in any way to damn the whole group, as I personally know a couple local agents here in San Diego who easily merit expert status.

    I guess my point is that much like the description ‘great’ has been relegated to meaningless in sports, so has specialist and expert in much of real estate.

    Multiple sources of income? You never cease to amaze me. Your ability to adapt on the run is more than impressive. Combined with your obvious skill & aptitude with the 2.0 world, and your continued success is no surprise. Bet you’re glad your wife is persistent. 🙂

    • Erion Shehaj

      December 18, 2009 at 4:39 pm

      “Specialization” in this post refers to an agent that focuses exclusively on one aspect of the business not so much their level of expertise. God knows many who flocked to the REO pasture made money while having zero clue. If you need proof, take a look at REO listings on the MLS – that’ll be a lesson in how not to market a property.

      I’m certainly happy about her persistence. Our bank account, even more so 🙂

  3. Pete Skoglund

    December 18, 2009 at 10:30 am

    It’s unbelievable that most seasoned agents refuse to break the mold yet are shocked at their financial stauts (or lack of any financial status).

  4. Mark Eckenrode

    December 18, 2009 at 12:14 pm

    erion, nice article to help stretch the mind of many. and i agree with what Jeff says above, especially about the varying degrees of specialization. there’s also a lesson in specialization to be had from Coca-Cola…

    a number of years ago they thought their business was “drinks” and so came out with wine. yes, it flopped miserably. they then realized their business was “refreshments” and, well, they do a damn fine job of that. so, diversification for diversification’s sake ain’t the way to go. you point to that in your article. the point is, if you’re going to diversify or add profit channels, make sure they complement what it is that you already provide.

    • Erion Shehaj

      December 18, 2009 at 4:42 pm

      Mark

      As fate would have it, CNBC ran a special on Coca-Cola last night. A line caught my attention: “Coke realized that now it’s not as much about the drink as it is about selection”.

      Diversification for the sake of diversification is uncontrolled chaos. But, it’s hard to know whether a profit channel would complement your existing business if you don’t know anything about it.

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Business Marketing

How a Facebook boycott ended up benefitting Snapchat and Pinterest

(MARKETING) Businesses are pulling ad spends from Facebook following “Stop Hate for Profit” social media campaign, and Snapchat and Pinterest are profiting from it.

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Phone in hand open to social media, coffee held in other hand.

In June, the “Stop Hate for Profit” campaign demanded social media companies be held accountable for hate speech on their platforms and prioritize people over profit. As part of the campaign, advertisers were called to boycott Facebook in July. More than 1,000 businesses, nonprofits, and other consumers supported the movement.

But, did this movement actually do any damage to Facebook, and who, if any, benefited from their missing revenue profits?

According to The Information, “what was likely crumbs falling from the table for Facebook appears to have been a feast for its smaller rivals, Snap and Pinterest.” They reported that data from Mediaocean, an ad-tech firm, showed Snap reaped the biggest benefit of the 2 social media platforms during the ad pause. Snapchat’s app saw advertisers spending more than double from July through September compared to the same time last year. And, although not as drastic, Pinterest also saw an increase of 40% in ad sales.

As a result, Facebook said its year-over-year ad revenue growth was only up 10 percent during the first 3 weeks of July. But, the company expects its ad revenue to continue that growth rate in Q3. And, some people think that Facebook is benefitting from the boycott. Claudia Page, senior vice president, product and operations at Vivendi-owned video platform Dailymotion said, “All the boycott did was open the marketplace so SMBs could spend more heavily. It freed-up inventory.”

Even CNBC reported that Wedbush analysts said in a note that Facebook will see “minimal financial impact from the boycotts.” They said about $100 million of “near term revenue is at risk.” And for Facebook, this represents less than 1% of the growth in Q3. However, despite what analysts say, there is still a chance for both Snapchat and Pinterest to hold their ground.

Yesterday, Snap reported their surprising Q3 results. Compared to the prior year, Snap’s revenue increased to $679 million, up 52% from 2019. Its net loss decreased from $227 million to $200 million compared to last year. Daily active users increased 18% year-over-year to 249 million. Also, Snap’s stock price soared more than 22% in after-hours trading. Take that Facebook!

In a prepared statement, Chief Business Officer Jeremi Gorman said, “As brands and other organizations used this period of uncertainty as an opportunity to evaluate their advertising spend, we saw many brands look to align their marketing efforts with platforms who share their corporate values.” As in, hint, hint, Facebook’s summer boycott did positively affect their amazing Q3 results.

So, Snapchat and Pinterest have benefited from the #StopHateForProfit campaign. Snapchat’s results show promising optimism that maybe Pinterest might fare as well. But, of course, Facebook doesn’t think they will benefit much longer. Back in July, CEO Mark Zuckerberg told his employees, “[his] guess is that all these advertisers will be back on the platform soon enough.”

Facebook isn’t worried, but I guess we will see soon enough. Pinterest is set to report its Q3 results on October 28th and Facebook on the 29th.

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Business Marketing

Cooler temps mean restaurants have to get creative to survive

(BUSINESS MARKETING) In the midst of a pandemic and with winter approaching, restaurants are starting to find creative and sustainable ways to keep customers coming in… and warm.

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Outdoor eating at restaurants grows in popularity.

Over the last decade we have seen a change in the approach to clientele experiences in the restaurant business. It’s no longer just about how good your food is, although that is still key. Now you have to give your customers an experience to remember. There are now restaurants that feed you in the dark, and others who require you to check all your clothes at the door. Each of these provides an experience to remember alongside food that ranges from good to exquisite, depending on your taste.

Now, however, the global pandemic has rearranged how we think about dining. We can no longer just shove people into a building and create a delectable meal. If you’ve relied mostly on people coming into your restaurant, you may struggle to survive now.

The new rules of keeping clients safe means setting things up outside is the easiest means of keeping large numbers of them from crowding inside. Because of this, weather has become a key influence in a company’s daily income. Tents that were a gimmick before, only needed by presumptuous millennials, are now a requirement to keep afloat. People are rushing to make their yards into lawns that bring some in some fancy feeling.

The ties to the sun in some areas are so strong that cloudy days have been shown to drop attendance as much as 14% for the day. This will become the more apparent the colder it gets. For me, I always mention hibernation weight in the winter, when all I want to do is curl up and eat at home. Down here in Texas we are already finding cooler weather, drops into the 70s even in August and September. We are all assuming a cold winter ahead. So, a bit of foresight is finding a means of keeping your guests warm for the winter ahead.

San Francisco restaurants have started with heat lamps during their cooler evenings. Fiberglass igloos have also been added to outdoor seating as a means of temperature control. A few places down in the Lonestar state keep roaring fires going for their outdoor activities. While others actually keep you running in between beverages by encouraging volleyball matches. This is the new future ahead of us, and being memorable is the way to go.

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Business Marketing

Healthcare during pandemic goes virtual, looks to stay that way

(BUSINESS NEWS) Employment-based health insurance has already been through the ringer with COVID-19, but company healthcare options are adapting for long term.

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Stethoscope with laptop, showing healthcare going virtual.

Changes in employment-based health insurance may end up costing employers more, but will provide crucial benefits to workers responding to the healthcare challenges presented by the COVID-19 pandemic.

According to a recent survey by the Business Group on Health, a member-driven advocacy organization that helps large employers navigate providing health insurance to their employees, businesses will increase access to telehealth, mental health resources, and on-site clinics in the upcoming year.

Besides the obvious impacts of the coronavirus itself, the effects of the COVID-19 pandemic have also rippled out to affect other aspects of public health and how we engage with medical care. With so many people staying home to reduce their in-person contacts, there has been a significant increase in the use of telehealth services such as virtual doctor’s visits. According to the survey from Business Group on Health, whose members include 74 Fortune 100 companies, more than half of large employers will offer more options for virtual healthcare in the upcoming year than in the past.

The pandemic, resulting economic fallout, and dramatic changes to our lives have inevitably exacerbated peoples’ anxieties and feelings of hopelessness. As we move into cold weather, with no end in sight to the need to socially distance, this promises to be a particularly dreary, lonely winter. Mental health support will be more necessary than ever. In 2019, 73% of large employers provided virtual mental health services. That number will increase to 91% next year, with 45% of large employers also expanding their mental health care provider networks, making it easier for employees to find the right the therapist or other mental health service provider, and making it easier to access those services from home, virtually.

In addition, there will be a 20% increase in employers offering virtual emotional well-being services. Altogether, 9 out of 10 of the employers surveyed will provide online mental health resources, which, besides virtual appointments, could also include apps, webinars, and educational videos.

There has also been a slight increase the availability of on-site clinics that provide coronavirus testing and other basic health services. This also included an expansion of resources for prenatal care, weight management, and chronic health problems such as diabetes and cardiovascular disease.

These improvement won’t come free of charge. While deductibles will remain about the same, premiums and out-of-pocket costs will increase about 5%. In most cases, employers will handle these costs, rather than passing them on to employees.

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