Real estate is sometimes portrayed as a profession in which your earning potential is limited only by your ambition.
That is, to a considerable part, correct. Becoming a real estate agent or starting a real estate firm has the potential to be extremely lucrative.
Too often, though, the quest of success becomes more about vanity metrics than personal business sustainability somewhere along the road.
It's a situation I've witnessed many times before, and I've previously addressed it with the expression "volume is vanity, profit is sanity."
To summarize, this occurs when an agent pursues a large volume of listings or an increased rent roll without considering the impact on their bottom line.
It's a simple error to make in an industry where success is measured in listing numbers and rent roll size.
It's also one that you may easily avoid by asking yourself a series of ten easy questions. But first, let's look at why more listings or a larger rent roll doesn't always imply increased profitability and a higher financial return.
The Rule Of Reduced Returns
Whether you specialize in property management or sales, there comes a point in every real estate firm where increasing the volume of what you now do would either need more spending or result in a decrease in profitability.
This can happen in several ways. A property management company, for example, might lower its management fees to attract more clients.
Sure, they now manage more properties, but each one is less profitable.
Alternatively, an agent may want to expand their listing volume and hence hires additional team members.
Each listing is now less profitable if the volume of listings does not cover that expense and more.
That said, let me be clear: growing your business by expanding your crew is not a terrible thing.
However, when you grow your staff, you must carefully analyse the KPIs you need to achieve and keep your company's profitability in mind, which is where the following 10 questions come in.
Can You Tell Me About Your Fixed Expenses?
Every real estate company has fixed costs, which include anything from office space to staffing, marketing, and more. Because this is the foundation of your firm, you should know exactly how much your fixed expenses are each year and month.
Are All Of Those Expenses Required?
Take a close look at your monthly spending and ask yourself if they are truly required.
Some expenses are unavoidable, but others, such as a subscription or software that you no longer use, may be able to be eliminated.
Which Of The Following Is Your Break-Even Point?
When you know your business expenses, you can figure out where you'll break even.
You know how much money needs to be brought into the business each week, month, and year before you can start making money.
How Do You Engineer In The Wrong Direction?
Reverse engineering is when you start with the desired outcome and work backwards to figure out what needs to happen next.
Reverse engineer the actions you and your team need to do to get the profit you desire after you know your expenses and break even.
What Can You Source Elsewhere?
Are there any chores in your business that you might outsource to free up time to focus on other money-making activities?
Compare the cost of outsourcing to the money and time you would save if you completed the activity yourself or in-house.
Which Of The Following Is Your Most Effective Lead Source?
Every agent and property manager should know where most of their leads originate from, whether it's through word of mouth, social media, letterbox drops, or other methods.
If you don't know where your leads come from, go through your listings from the previous year and trace each one back to its source.
How Can You Expand That Lead Source For The Least Amount Of Money?
Once you've identified your most effective and cost-efficient lead sources, double down on that technique and look for ways to amp them up at a low cost.
How Does The Profitability Of Your Business Compare?
Look for other successful and efficient operations to model yours after. What techniques do they employ, and why are they effective?
What Is The Capacity Of The Market?
This is a crucial point that many agents and property managers overlook: is there enough business in your area to meet your company objectives?
Who Can Assist You With Business Operations Knowledge?
Business is not a trip you should embark on alone, therefore seek out people and professionals who can assist you in achieving your objectives.
Mentoring, professional assistance, or a network of peers, who have been where you are now, can all help.