How to be a Million Dollar Broker (Pt2)
In my previous lesson I discussed the importance of moving into a building you can work and being in constant contact with the owners to brand yourself as the expert.
One of the great things about being a real estate broker in a vertical city like New York is the amount of territory you can cover in a short amount of time.
See the Inventory
Perhaps you’ve already thought of this, but another fantastic thing about brokering real estate deals in New York is the sheer number and variety of homes out there within a 30 minute train ride or cab ride. It is impossible to thoroughly educate yourself on what's really happening in the sales market by sitting at your desk and surfing real estate sites. Yes you can get a decent handle on general pricing, but until you hit the streets and see a lot of inventory you won't be able to differentiate between an underpriced gem and a bloated barge. That’s what your clients will pay you for and yes it’s a part of your job.
When you are first starting off, you will likely not have any listings and maybe no buyer clients. What you should do with this down time is go see every possible apartment possible thats for sale. See a 3 bed in Tribeca, a studio in Tudor City, a Classic 7 on Park Avenue and an AIR Loft in SOHO. See New Construction on the highline and on the Upper East Side, see a fixer upper in the Bowery, see the best buildings in each neighborhood and the worst. Flesh out a picture of the market in your brain so you will be ready with suggestions when you meet your next client.
A funny thing is that the more properties you see, the more clients will come your way. You will inadvertently hear about busted deals from the couple at the bar next to you one night or from someone sitting next to you on the 1 train. You can immediately recall something you recently saw and shoot it to them within a few minutes from your phone. You will be at your wife’s holiday party and her boss will corner you next to the pumpkin cider and tell you he’s close to buying an overpriced unit in a new development he should avoid. You will kindly steer him into something much more appropriate for a man of his stature and possibly land your wife a raise as well.
Sundays you will work
Yes it stinks, but so does being poor. While the upside to a successful real estate business is unlimited upside and tons of personal freedom, the downside is evenings and weekends will not stop you from working. In the beginning of your real estate career its imperative that you find clients however you can. When I started out I would go see Sunday open houses of every sort and inevitably run into buyers who were looking on their own. I would strike up a conversation in the elevator or in the lobby and tell them I was previewing properties for a client. It didn't matter that I didn't know whom the client was yet. I was out there regardless. If you stick to let's say 2 bedroom open houses under $2,500,000 in Chelsea you will likely run into the same people at each open house and very possibly share some common observations about the units you are seeing or the building or the weather. A frequent conversation I would have would be something like this…“If you guys can tell me a little more about what you're looking for I can keep an eye out for you as I'm constantly looking at new listings everyday”. Many people would be open to such an offer if they are not already working with an agent.
The fact that you are already performing this service for others relieves them of any guilt or obligation towards you for doing this. Get their cell or email and be sure to follow up that evening with a short recap of their criteria and a promise to stay in touch. Maybe 1 out of three will stick with you. BUT and this is a biggie, you now have a buyer client you can help and charm and service and talk to and listen to and engage and sharpen your skills with.
Time & Money Management
It's a good time to discuss money management. As the real estate business is feast or famine, you will do yourself a huge favor by lowering your expectations for income for the first 9 months of working in the business. In the beginning, if you are not coasting off a nice nest egg, you will want to take your lunch from home, grab apples and $1 slices if necessary while you are launching your business. I typically was the first one in and the last one out at Douglas Elliman when I started, and I would recommend the same type of focus for you.
As you will be able to do both rentals and sales with your license it will be up to you to decide how to best appropriate your time. For me, I did not want to get into the circle of small deal cycles that rentals can trap you in. I determined that Id rather be poor for 6 months than just getting by forever.
With real estate sales the deals can take 6 months to a year to close but the compensation is much more inspiring. When you first join a firm they will offer you a 45% -55% split with the company typically if you have no experience. You can increase your split by closing more deals. The top split among most firms is in the ballpark of 70%.
The average commission on NYC sales is still 5–6% commission. That means that on a $1,000,000 6% commission sale, the buyer's broker will receive half ($30,000) and the sellers’ agent will also receive half. If your split with your firm is 50% you will net $15,000 on the sale. If you are at 70% you will net $21,000. Its really that simple for most deals. The total amount your side receives is called your Gross Commission Income or GCI. Your GGI is really the only category you are measured by in the real estate business.
To reach $1,000,000 in GCI and be known as a Million Dollar Broker you just have to do the math. If your average GCI per deal is $30,000 you’d have to close 34 deals in a year to get there. That’s a lot! If your average GCI is $60,000 you’re looking at 16.5 sales to get there. Alternatively, you only need seven 5 million dollar sales or just one 34 Million dollar sale to get there.
Once you do start to generate income you will need to set aside money for rent, taxes, food, transportation, clothes, cell phone, closing gifts, etc… You will also want to increase your available credit as much as possible and use only the bare minimum at the same time. As your business grows you will take on greater expenses and you never want to have a card maxed out -both for liquidity issues and for negative credit consequences. Having $50,000 in available credit but only using $3,000-$5,000 is a great scenario.
In my next lesson I will discuss Best Practices as it relates to both clients and deal scenarios…
