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

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.

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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.

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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.

Written By

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...

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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