As a new real estate agent, how long will it take for you to become profitable and start making money? This question comes up a lot. Realtors become licensed and are excited to get out there and start selling homes. This is not the way building a business works. It takes time and strategy to start producing and selling homes. Then after a few years when there are some deals flowing in, how do you become more profitable? Do you try to increase revenue or decrease expenses?
In this real estate agent training podcast, you will learn how long it takes to become successful in real estate.
Podcast Transcript:
[00:00:00] Hello and welcome to Rev Real Estate School. The podcast with quick tips and actionable advice to help you sell more real estate in today's world. And now your host Michael Montgomery.
[00:00:12] Hello and welcome back to Rev Real Estate School. I'm your host Michael Montgomery. Today we were talking about how long it's going to take for you to become profitable in real estate.
[00:00:25] So you may have heard this quote before and it's from Bill Gates, "most people overestimate what they can do in a year and they underestimate what they can do in 10 years." This is a very applicable quote for real estate agents and I come back to it a lot with my current students. Most of our current Rev Real Estate School students are about 1 to 6 years or so in the industry. So they're in the newer stage as far as being a real estate agent or in business this is the newer part of becoming a business owner. But here's where so many people go wrong they get their real estate license. They're in the industry for one to about five years and they think OK well now I have a job and you do not have a job. You have started a business. You have started a brand new venture. It's like opening the doors for a brand new say convenience store a law office plumber trades person whatever it might be. You're starting a brand new business. And this isn't always obvious. And how is it supposed to be obvious. You get your real estate license. You're going to go out there and start selling homes. You don't necessarily think of it like a business and even if you do think of it like a business it takes work to really understand how this is going to work.
[00:01:42] So coming back to the quote, "most people overestimate what they can do in one year and underestimate what they can do in 10 years." Does that mean it's going to take 10 years to become profitable in real estate. Not at all. We're going to look at two cases today. We're going to look at the brand new real estate agent case and then we're going to also look at the case of somebody who's maybe three to five years in the industry and how this quote can be applicable to them.
[00:02:09] Let's start with the brand new real estate agent and if you are brand new if you do identify with this make sure you understand you are running a business. You do not have a job anymore. You do not have a 9 to 5 job. You are starting a brand new business venture. And it should be treated like that. So if you put the pressure on yourself as a brand new real estate agent to become profitable right away then chances are you're putting too much pressure on yourself and this will backfire and you will actually perform worse. Now if you think that means you have to lower the bar that is not true at all. In fact it's the opposite you're going to be working your butt off off the start but you have to set a plan for yourself. So let's talk about how long it's going to take for you to become profitable. Now the rule of thumb in business and it's different between different businesses is about two to three years to become profitable. So when I'm talking to a brand new agent that's maybe been the industry for six months or a year and a half and they're wondering why they're not profitable. Well it takes time to become profitable. Now you have to have a plan and you have to be strategic about building your business and becoming profitable. But it can take some time. So you have to give yourself a realistic time frame. If you think that you're going to do this in three months or six months and you're going to grind and work 24/7 you will burn out and chances are you will start to dislike real estate if you know my story you know I've been down this road and it's not healthy. You start to dislike your day to day because all you're doing is you're working yourself to the bone. You do not necessarily want to do this you want to set yourself up on a realistic timeframe.
[00:03:52] So how long is this going to take me? If you're a brand new agent how long is it going to take me to become profitable. I say it's going to take probably between 12 and 18 months. So you want to give yourself that period of time to grow to learn and to really start building your contacts. Now that doesn't mean you can just kind of sit on your hands and it's all going to come together for you in that period of time. Not at all. You are going to have to work build your contacts and you're going to have to build your business plan and start following it. But you can expect to become profitable in real estate in 12 to 18 months. Now why is that shorter from the standard business that say two to three years if not longer?
[00:04:33] There's some businesses that are five to 10 years. And the reason is real estate although there are expenses in real estate they're pretty low compared to some other industries. You're not leasing out office space. You don't have to buy a product you don't have inventory. You're offering a service. Now that's not to say it's a very inexpensive industry to be in. There's a lot of expenses especially if you're marketing yourself. However there are lower expenses than other businesses out there.
[00:05:03] You are in a great position but it always comes back to this same concept that you have to treat it like a business now if after 18 to 24 months you're not profitable as in you're not producing then chances are you might have to make some tweaks to your business plan to how you're going out there and you're prospecting to how you're acquiring clients. It's like a restaurant that after maybe two years they're not getting the income that they're looking for. What would the restaurant owner do or what would you say to the restaurant owner if after a few years they're not making money. You would then tell them to look at their business plan to look at their menu what are they offering. How are they helping and serving those people that are coming through the doors how are they interacting with their customers. How can they improve their service offering to the customers in order for them to come back to their restaurant. It's the same thing. So that's the first part of your career. That's the say 0-2 about two year mark.
[00:06:03] Now let's say you're in the three to six year mark. You've done a few deals. You've had some good months you've had some slow months. But how do you increase your profitability and how do you start to create more predictable revenue. Well this episode we are talking about profitability and how long it takes to become profitable. And if you're in this stage where you are doing deals you have income coming in but it's just not where you want it to be. Then of course you have to look at how you can generate more leads and then how you can convert those leads into sales. That's like any other business. But that is going to increase your revenue if you want to increase your profit. You also have to look at your expenses. So what I find people when they start to get to that three to six year mark that's when they really start to experiment and they start spending money on certain things that maybe aren't improving their business. And when you're in that stage you really have to look at your profit and loss statements you have to look at how much money you're putting into acquire a client and what your average revenue is per client. And this is something that gets very lost when you're in this stage because all you're trying to do is generate more leads and find the next lead generation tactic. And again there's nothing wrong with this but we also have to look at expenses usually in this stage. I am way more focused on lead generation rather than just expense reduction because this is a point in time in your career where you can really start to ramp it up but that's not to say that you can just forget about your expenses. You have to pay very close attention to them. And if you're in this stage where you're doing some deals. But at the end of the year you've done your taxes and you're like, "why don't have too much to show for it." That's when you have to take a very hard look at some of your expenses and determine your return on investment.
[00:07:54] So let's have a quick recap. When you're newer in the industry how long is it going to take to become profitable. Well most businesses are about two to three years maybe longer in real estate you can get away with about 12 to 18 months. So give yourself that amount of time to learn the industry and just start making contacts putting people into your database so that you're ready to rock and roll when that 18 months to 24 months comes along. Now when you're starting to get into three years up to about six years you really want to start looking at profit. You want to look at revenue and you want to look at expenses. You want to look at your expenses in the way that is each expense providing a return on investment. And you do not want to pull away from what you're spending you do also want to be very focused on increasing revenue. So you want to be focused on how you can start spending money and if not more money on those activities that are producing income and taking away from some that are not. And this is exactly what a business owner does. They're going to look at say they're lead generating strategies.
[00:08:55] They're going to say what is producing the highest return on investment. And we're going to double down on that. And what is not producing any investment whatsoever and we're going to cut back on that. It's all about writing a business and at different stages. There's different things that we look at.
[00:09:12] Thank you so much for losing this episode. I really appreciate it. Remember you can reach out to me anytime you can find me at revrealestateschool.com or on Instagram @the.michael.montgomery thanks so much and we'll see you in the next lesson.
[00:09:27] This episode of Rev Real Estate School has come to a close. Thank you for tuning in. We'll see you back here for the next lesson.
