At the crossroads of passive income

You are a top producing individual in real estate, how do you get to the next level? How do you benefit from the business you have created? The market is improving and how do you take advantage of it? Lastly,you want to think about an exit strategy. These are among the questions many top performers are asking themselves right now. In my travels and in my role, I have the opportunity to meet with many of the industry’s strongest agents, team leaders and broker owners. One thing I believe is certain, “there is not a one size fits all answer” to any of the aforementioned questions.

If you are an agent without an assistant, to me this is a no brainer. If you do not have one, you are one. Why do a task that you could delegate to somebody at a lower wage. There are two reasons I have encountered regarding that question; I cannot give up control because nobody does it my way,and I cannot afford it. I think I addressed the latter. As for control, they may be correct, but they will never get to another level without support. In fact, you could be doing the clients a disservice by not delegating the menial and focusing on the bigger challenges or opportunities. A doctor can see less patients if he takes the blood pressure. The dentist can see less patients if he does the cleanings. This still does not address the issue of getting to passive income. As an agent, you have a practice. Many people say that you are in business for yourself. In most cases, this is not true. I say that because you have to ask yourself, “If I stop making rain, does the business keep coming?” Eventually, it will dry up, this depends on how wide your circle of influence is and how many years you have been doing it. In addition, you still have to do each transaction regardless of how you gained the client. In other words, just because your business is almost all referral, you still have to do everything, but create the client. The tasks do not go away because this is a repeat customer. The transaction is time intensive and without support you cannot separate from the transaction, this makes it a practice. Much like a doctor, he can have a nurse practitioner, but you cannot leave the practice unattended for most visits. They can do some of the things a doctor does, but not everything.

Another thing to consider in deciding if you have a practice or a business is the amount of control you maintain. There are business operations that give you maximum control. The more the owner controls the business the less of a business you really have. Here are few qualifiers you should ask yourself:

Do they control referral and lead opportunities?

Do I get the businessI create?

Am I paying for my fair share, or am I subsidizing weak non-producers?

If I prepared it for transition, in this environment could I sell my practice?

Can I charge what I feel is fair to the customer, or do I have to work inside guidelines?

The one question that you may feel is missing is, “can I market myself accordingly or build my own brand?” I will not address this completely now, but I will say if you are spending money building your brand and not capitalizing on something bigger, you may be misallocating funds.  I think it is great to market yourself, but I see way too many times an agent minimizing their multimillion dollar affiliation by maximizing their own logo. Why would I own a McDonalds and not use the arches?

One option most consider at some point is opening their own office. Offices come in all shapes and sizes. If you open a small operation and the agents you hire do not cover the overhead, you still have a practice. Thus, you have to produce to cover overhead. You may have the control, but this is not a business. I believe this is more of a distraction than an asset. Let somebody else deal with the broken copier or hire the new secretary. There are enough maximum commission concepts out there that provide a platform to keep most of your commission income. Some agents opened a small office to gain bank business during the downturn, now it is time to re-invent yourself. It is time to build it or close it.

The reason opening an office can be appealing is that it allows you to hire others and create additional revenue from their efforts.This does not come without commitment and different responsibilities. Operating a company and selling real estate are two different skill sets. Just because you do not possess some of those skill sets or do not want to do those tasks does not mean ownership is not an answer. You can always hire for the tasks that need to be done. Realize as you do this, you are giving away part of your bottom line. However, if it allows you to do what you do best, you will be happier and make more money. Some of the biggest operations I have seen have day to day management coming from somebody other than the owner, while the owner is a producer. I find people gravitate to what they like. If you love the transaction, you will not recruit and manage because it is not your passion.

Another reason for opening an office is to prepare for the day when you want to sell less, slow down or stop doing transactions period.There is a point in some individuals careers where they just are done doing deals. Owning an office allows you to leverage your knowledge. This can be another reason to look at building a team. You can manage, recruit and delegate client face time to others.

So what is the upside and downside to team versus ownership?Ownership needs more capitol, has more risk and there is more to manage. The upside is that it is an asset that can be sold and can provide a wider level of passive income. The downside to a team is that there is turnover. If you hire outstanding talent, they will want to be just like you some day and build a team or be a top producer. Sometimes, they underestimate what you brought to the table and they struggle to create the business. In other words, they can work the business, but they cannot create it. Even if they cannot take their business to that next level and make this dream a reality, they will attempt it without you. You have lost them for now. Most of the time, if they fail, they cannot return. If they succeed, you do not benefit financially. What could you have done to keep them?  You could raise their split or make them a partner, but you can only be so creative and there is only so much of the pie to carve up.  You could consider a firm that offers a downline or bonus for this type of transition,but if they move their practice to another office, the downline goes away. Some decide to open an office to allow that individual to spread their wings. In my opinion, this allows you to look for stronger talent without the fear that they will leave you. There is turnover in a real estate operation as well. If you build a traditional model with splits, there will be a lot of turnover. The lower the producer you attract, the greater the turnover. Agent retention is critical if you decide to build an operation. If you decide to start an office,consider what your value proposition will be. Many individuals start with what their financial model will look like. Long before you look at your splits, look at what you will offer. To build passive income you must be able to stack on income versus simply replacing it. If you have the revolving door, it is not passive income. Building around your pricing model can be a big mistake. There is always a cheaper option out there.

If you have managed a team and owned an office, I would love to hear from your perspective and experience what is the upside and downside.