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Running a Successful Real Estate Business Part Un: Kill Overhead

The Series

In reading the title, you are probably thinking that I am about to go all Deepak Chopra on you and unleash some infomercial guru wisdom. But I am no guru, nor am I trying to be.  I am just an avid student of good business. While in the presence of a successful enterprise, be it a small restaurant, a Mom and Pop print shop or a multi national corporation, I often find myself wondering about what makes them tick. In between CNBC specials on Walmart, Coke or Home Depot, I ponder whether there is a  set of principles that they all follow to one degree or another. What I am about to share with you are lessons being learned as we speak in running our own real estate business. And since AgentGenius hosts some of the brightest minds in the real estate landscape, my hope is that in our discussion, my own education in the art of running a business on all cylinders can be furthered as well.

RASREB Series Part 1: It’s what you keep

Most keys to success in any business are very simple, bordering on obvious. So much so that they are often followed with the obligatory “duh”. But as simple as they are, you’d be surprised how many pros do not (can not, will not) follow them. Instead they will do everything in their power to complicate things just so they don’t ever have to cross that ever dreaded line to actually do something. The first key to running a successful real estate business goes a little something like this:

In the real estate business, it’s not what you make, it’s what you keep. Kill all the overhead that’s not necessary to run your business and you will see it flourish and last.

Overhead is the ultimate double edged sword in any business. If kept slim and under control, it gives your revenues room to breathe and grow but if not, it can become cancerous and lead to the eventual demise of the business. When business is good, revenue wise, overhead operates under the radar and goes mostly unnoticed as the business owner is concentrated on counting all the cash coming in. So all the excessive rent space, useless money pits that are some marketing campaigns, and admin employees that are working full time for Facebook are rationalized by the money windfall into the company’s coffers. But when the times get tough and business slows, the business owner gets in a cost cutting mood but it’s often too late as the business bleeds money on a monthly basis.

Get it together

Enough with the generalities – What can you specifically do in 2010 to get your overhead under control?

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Rent

I know I’m going to raise some eyebrows with this one, but since that’s never stopped me before, here I go. In my opinion, 80-90% of actively practicing real estate agents pay way too much for rent to the tune of 40-50%. They say it has to do with “what their clients” expect of them but that’s pure BS. Most of the clients agents do business with don’t even see the office of the agent. You typically meet Buyers at the property you are going to show them and Sellers at their home. It’s not about the clients’ expectation – it’s about their expectation of themselves. That’s how overhead typically gets rationalized through entitlement mentality: I deserve to have a ______ or I’ve earned the right to drive a ______. The quickest way to put 5-10 grand in your pocket in 2010 is to take a long hard look at your office needs – step outside of yourself for a second and view the situation as a businessperson. Do you really need 2000 SF or could 1200 SF do the job just right? Are you really getting any walk-in traffic in that high rent area or could you move out a little farther and cut your monthly rent significantly? On the flip side, I am not a believer in swapping for a home office. The economics of it make a lot of sense but the logistics doesn’t. As you become more and more successful, you work with more and more people and your probability of running into a weirdo grows. So, keep business and home separate if you can help it.

Marketing

This is a tough one, since we are constantly bombarded with new and improved ways to market ourselves and our companies. The urge to try the latest and greatest all the time is real and quite frankly, we wouldn’t have found some of the greatest products we leverage today if we hadn’t taken a chance on them first. But that does not mean that you string nonperforming tools and services along every month just because some work and some don’t. Cutting your overhead is about eliminating waste. Give products just enough time to prove themselves but remember that you don’t owe them any loyalty if they don’t respond with performance.  One disturbing phenomenon I have noticed in real estate is what I call “defensive spending”.  When posed with the question “what do you do to earn your commission”, agents get into a defensive mode that leads to hourly employee thinking. They start offering “marketing services” to Sellers that they know damn well don’t do anything to sell a home but justify it by stating that “although it doesn’t work, Sellers like it”. Newsflash: Wide majority of Sellers, pay for results, not effort. If you spend every waking hour of your day at the Seller’s home trying to sell it but couldn’t, you’re as useless in their eyes as the agent who did nothing and didn’t sell it. Those people that don’t think you are worth the money you earn, will not change their opinion regardless of how much you do. So focus on marketing that produces tangible results and cut what does not work. Depending on what your monthly marketing budget, this could save you from $1200-$5000/year or more.

Staff

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Have you ever heard a business owner very proudly state they have X number of people working for him/her? I call that headcount ego and I learned to disregard it from The Millionaire Real Estate Agent. Most of the agents featured in that book didn’t have a huge staff – they just had a very efficient one that new their role and executed it perfectly. During boom times it’s easy to get carried away and overhire. Soon, you have positions overlapping and double the amount of people doing half the work. If you are a soloprenuer and thinking about adding an assistant, do so when it’s absolutely necessary. And don’t add to your staff until both you and your assistant are up to here with work. If you already have staff in place, take a look at the structure of your business and look for ways you can have the same people do more or less people do the same amount of work.

Debt

Last but not least, whatever you do, don’t become an “If only” agent. This is the pro that constantly states: “If only, I could have enough money to do that huge Adwords or Radio or TV campaign”. What eventually follows is debt and behind the corner from there failure resides. Here’s a simple rule of thumb: If your business has not generated enough money to purchase a marketing campaign that would send it to that next level, it’s not ready to handle that next level. The only thing worse than not having any clients, is having lots of them that think  you ‘re an incompetent douche. Take my word for it – Never take on debt to further your business because it will cause the opposite effect more often than not. If you do have business debt, think about a strategy to take care of it and step off the rat wheel.

Thoughts?


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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...

18 Comments

18 Comments

  1. BawldGuy

    December 4, 2009 at 11:10 am

    Any thoughts? Are ya kiddin’ me? You’ve essentially chronicled my professional learning curve. Though some of what you say doesn’t apply totally to the investment side of the biz, conceptually you’ve hit ground zero.

    Almost all local clients visit my office, as it should be. My office, therefore, must meet a minimum standard of what clients expect. We do that, and with a budget.

    Marketing? OMG have I ever screwed the pooch on there. Mea culpa. But gimme a pass on that one, as I was an Old Schooler doin’ his best to make the transition from 1969 to the 21st century — not to mention while trying to operate in the new virtual world. No kiddin’, I’ve sent over a quarter million over the falls for bupkis results. I speak broken internet-speak now, so I’ve learned where to spend for what results. Still sittin’ in the front of the class though, as I’m barely passin’ with a C- I think. 🙂

    Good stuff, Erion.

  2. Janie Coffey

    December 4, 2009 at 11:15 am

    Great great blog post!
    Last year we chopped our office rent by 2/3! This accomplished 1) less stress, 2) more flexibility, 2) more money for the things that really count (ie marketing and debt reduction). It was the best thing we ever did. I tell everyone I see struggling, that you need to just cut what isn’t necessary for the end result. Kill the fluff. I am glad you pointed it out so clearly! Just in time for 2010 business planning.

    Oh, and Bawldguy, you made a stunning transition!

  3. BawldGuy

    December 4, 2009 at 11:28 am

    Thanks Janie, but you only see the shiny paint and gleaming chrome. 🙂 It’s the power train I’m workin’ on now.

  4. Rob McGuirt

    December 4, 2009 at 1:02 pm

    Good points. I opened my own office, via a virtual “pay as you use” office space. Fully staffed with reception, conference rooms, break area, color copier, etc…. Cut out my former brokerage fees for office space. Went from $1000/mo to $65/mo.

  5. Josh Ferris

    December 5, 2009 at 1:34 am

    Having gone from a traditional office brokerage to a virtual one back to a traditional office again I can say that offices are a huge waste of space. I meet my clients at our office occasionally but more often than not I meet them at the sales office of my builder clients. Great article Erion!

  6. Ken Brand

    December 5, 2009 at 2:03 pm

    WISE counsel, especially the part about, analyze and act as an offense not after fit-as-hit-the-shan, gangrene has set in and it becomes a defensive amputation.

    Great stuff!

  7. JR of Sun City Real Estate

    December 6, 2009 at 10:10 pm

    “don’t become an “If only” agent” This is what greatly struck me in your post. Thanks for all the insights!

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