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.
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.
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.