Building a Mountain of Leverage Course Preview: Leverage Example - Four Real Estate Agents
Leverage Example: Four Real Estate Agents
I worked with a lot of Real Estate Agents in my past job. Agents are independent contractors -- they aren't paid by their brokerage. In fact, they pay their broker (Re/Max for example) a portion of their earnings. Agents only earn money on commissions when clients sell or buy a house.
No clients, no money. Many clients, many moneys.
The unleveraged real estate agent is doing roughly a normal job. The leveraged real estate agent is the owner of a large business with uncapped earning potential.
This makes it the perfect playground to explore ways people "doing the same job" are actually playing a very different game. (More in Part 2: Same People, Different Games)
Here, I will show you exactly how the leveraged win, and how the winners are leveraged.
I'll introduce you to four different hypothetical real estate agents:
Debbie, a normal agent.
Tamara, the #1 agent in her office.
Kathy, the #1 agent in the city.
Ben Caballero, the #1 realtor in the country.
Meet Debbie the agent
Debbie is a slightly-below-average real estate agent. She does about 6 transactions a year for her friends and connections from her church and book club. She shares her listings on social media and mails birthday cards to clients.
Her 6 transactions a year earn her $40,000-$50,000 per year after expenses. Since she wants to keep as much of that revenue as possible for her personal earnings, she does everything herself: answering the phones, setting appointments, calling contractors, driving clients, holding open houses, and client paperwork.
She has a flexible schedule, though she works on more nights and weekends since that's when clients want to look at houses. Overall, she has an average salary for 40-50 hours per week of work.
Meet Tamara, #1 agent in her office.
Tamara is in the top 1% of agents. She became an agent as her second career after working as a marketing executive and brought those tools and expertise to her business as an agent. (Tool Leverage, Section 4)
Tamara's Marketing effort got her 12 client transactions in her first year, and she earned over $100,000. Wanting to keep growing, she invested some of that revenue into an assistant (Transaction Coordinator) so she could focus on high-value client relationships. (People Leverage, Section 6)
She also continued to re-invest in marketing, so that in year two, she had 20 clients and the staff and tools in place to handle all of those clients. Year 2 she earned $200,000 and with further reinvestment, her growth continues toward 50 transactions a year and $400,000+ in yearly profits. (Capital Leverage, Section 7)
Meet Kathy, #1 agent in the city.
Kathy is in the top 0.01% of agents by transactions and sales volume. At first, she was a successful agent like Tamara, but she took a huge level-up in Leverage when she started a team and hired agents to work for her on a split-commission basis.
Between her reputation, systems, and current clients she could ensure success for the agents on her team, to the extent that they would be glad to pay her a % of all of their earnings. Kathy's team expanded over a few years and is now 50+ agents. (People Leverage, Section 6)
While Kathy is still a licensed, practicing agent with clients, her day-to-day looks more like a CEO who spends time recruiting new agents, coaching her team, and allocating resources to maximum effect.
The kicker? Kathy's reputation and earning power are so strong as the #1 agent in the city that she has negotiated a large discount from her broker, so the costs are lower for her team. (Capital Leverage, Section 7)
Her team did $400 million in sales volume, earning Kathy somewhere around $10,000,000 per year -- personally.
Meet Ben Caballero, #1 agent in the USA.
Ok, Ben Caballero is not hypothetical. In fact, he's been the #1 agent in the US for the past 10 years. Ben is real, and he is the only agent in US history ever to exceed $1 BILLION in real estate sales.
In 2018, Ben sold $2.2 BILLION of real estate. Yes, I'm going to keep capitalizing BILLION.
5,778 home sales in 2018.
Debbie sold 6 per year. Ben sold 111 every week.
It's just wild.
How did he do it? Leverage.
A quote from his own website (emphasis mine):
Ben is an acclaimed innovator and technological pioneer. His drive to leverage technology has allowed him to reach unprecedented, historic levels of sales. Ben has developed a proprietary SaaS platform, HomesUSA.com, to aid him in servicing his clients. His individual record-setting production is only possible due to the efficiencies it enables.
Let's put what makes Ben special into our Leverage framework:
Ben only sells new-construction houses built by high-volume builders. He partners with 60+ companies that have hundreds or thousands of homes to sell. (Partners are Bundles of Leverage, Section 7.5)
Builders are large, reliable clients but pay on worse terms than individual clients. (Capital Leverage, Section 7)
Ben has a team of 22 staff (People Leverage, Section 6)
Ben built a proprietary software platform for builders to track and manage the sales of these new homes (Product Leverage, Section 5) and (Tool Leverage, Section 4)
Ben's personal bottom line is harder to estimate. Napkin math puts it comfortably above $100,000,000 per year. If he's not already a billionaire, Ben is well on the way.
To Recap
We have 4 real estate agents: Debbie, Tamara, Kathy, and Ben. We have incomes ranging from $40,000 to $100,000,000. And we can see how no-leverage Debbie is playing a very different game from Tamara, who has added some leverage to her skillset, applying resources to get much more done and build a much successful small business.
Kathy's leverage comes in the form of building a team of agents and strong processes. She's focused on finding new agents for her team, and helping her team be successful. Kathy focuses on building her mountain of People Leverage.
And Ben -- we can see how Ben is playing a different game even from Kathy. Ben has built his Mountain of Levers from partners, software, and staff. This unique combination of very long levers has made Ben the most successful real estate agent in history and turned Ben into a billionaire.