Should I open a brokerage or not? Advise from brokers please!

Question

Llewelyn A. · Answer

@Shane Smith

Hi Shane. Not sure if my experience is going to help much, but I just became a Broker in New York and started my own Brokerage, Work Hard Realty, LLC.

Prior, I was never a Salesperson and attained my Broker License from qualifying with my experience over 20 years as a Real Estate Investor.

I have a lot of experience in REI and hold 7 multi-family Investment Properties in Brooklyn, NY that I buy with Partners.

Prior to becoming a Broker, a few friends of my Partners, Family Members and others have been asking me to help them buy properties as they realized how successful I have become.

The properties that I bought and sold made me realize that I left some money on the table. Basically, since 1997, as a REI but not an Agent or Broker, I received NO commissions.

Properties in Brooklyn were not as high as they are post-2014. pre-2014, the properties I bought with my Partners were $1.2 Million and below. Since 2014, it moved up and now I'm buying properties in the $2 Million Range.

I'm currently in Contract to buy a property for $1.9 Million and the commission is 5% or $95k. If I were a Broker I would have received 1/2 the commission or $47.5k. Obviously, it makes a lot of sense for me to become a Broker.

However, I don't have Sales Experience. So I had started thinking that working for a Brokerage Firm for 2 years would help me build up that Experience.

I have a choice when I passed my Broker's Exam. I can either start a Brokerage or work as an "Associate Broker" for another Brokerage, basically a Broker who works as an Agent.

There were several things that made me decide to NOT work under a Brokerage but start my own.

1) Although I am a Broker, I'm still new to Sales. I would have to grind through a lot of junk leads before getting to the covetted Leads and Listings that the most experienced Agents get from their connections or from the Brokerage Firm as the Firm wants their best Closers to work on these more lucrative leads. One of my Partners who has less REI Experience just got his Salesperson's License and started working in a Brokerage firm. He had been given Rentals to do, but those rentals are not exclusive. It's a junk rental and he has to spend his own money on marketing the rental but his competition is much more experienced. I consider this being set up to fail. Unless a Brokerage is willing to give me quality leads, I'm not willing to work this way.

2) In the meantime that I'm building up my experience and raising the quality of my leads, I'm giving up commissions by splitting the commissions on the buyers that I already have as quality leads through my friends and Investment Partners. There's no point on doing that if I'm already a Broker. These commissions will be around $100k, split 50% to the Co-Broker and then split 50% to the Salesperson. So if I am that Salesperson, I get $25k and the Brokerage gets $25k. But that's a hell of a lot of money to give up for a person like me.

3) My previous profession was a highly paid programmer. IT is in my blood. I'm sure I can build up a very good Website myself and save on having an IT staff.

4) I am already Financially Free. My own Brokerage may cost me somewhere around $10k to $15k per year for all the services I will use as well budgets for Marketing. I fully intend to do everything Virtually, including the Office. Plenty of options here in NYC, especially with We Works Offices in very prestigeous locations. This is a budget I can fully absorb and it won't affect my life style.

5) Like the name of my Brokerage, Work Hard Realty.... I really do work hard. You will typically find me working 60 hours a week or more. It's just what I like to do. Why should I enrichen someone else with my work ethics? I may not be starting out as experienced as a normal Broker does, but I'm pretty sure I'll catch up VERY quickly. I also have the advantage of my 2 decades of REI experience that other Brokers just do not have.

6) My friends and Family understand my ambitions and goals. I had to explain to them that we only live once. If you want to reach lofty goals, some sacrifices would have to be made. So they don't expect me to come to every party or stay long. This is going to be important as the weekends will be the time for me to put in a lot of work with Open Houses, etc.

7) Some people reading this are going to say, "What's the point on making all this money if I don't spend it?" Building businesses is one of the pleasures in my life. It's not a chore, it's fun. The more business I do, the better I become at it, the more I enjoy doing it. Some people enjoy golfing, some playing Video games... for me... it's business.

8) I'm an underdog that rises to the challenge despite the disadvantages in life. If you were to pass me on the street, you would not think "Oh, what a successful presence this guy has!" You wouldn't really notice me. However, if I spoke, it would become obvious. One of my specialties is to understand the reality of the world's perceptions and overcome those disavantages, particularly with Technology which was why having an IT background became a really good asset for me. Judging the appearance of the typical Salespersons that I have seen in my time working for the top 10 Financial firms as an IT Specialist, I just don't fit in physically. I'm much more a Geek that has developed his business skills as well as his IT skills. I know that the only way I can beat a really good Salesperson is to develop a special way to do Sales. I think I have worked out that formula.

There are also arguments to have the same work ethics as an Agent, but generally, you will need to work in a team. The problem I have with this is that usually you will NOT be the team leader unless you have developed your skills to that level. That's fine, but that's not me. If I started out as a minor role on the team, I just won't be happy. I would rather start out at the top and learn everything I need to do and build up my own team with me at the Center. If I really need to have someone experienced beyond what I can learn, I'll hire a very successful Agent and give them a great split or deal. BUT, I would need to learn what they do differently than other Agents. In other words, it has to be a mutually beneficial relationship.

There is a lot more to making the decision and I am not sure how much of what I expressed in this posting helps. Hopefully you will see some of this as being useful but a lot depends on what you think about yourself and your personality.

James C. · Answer

Shane,

This all depends on what you want to do with your brokerage.

If you decide that you want to have other agents then you will need to operate it as a business. That means all the benefits and headaches of having other agents and staff. You need to weigh potential income vs. difficulty with agents,  training them, splits /desk fees, Realtor dues, MLS access, office space and a myriad of other issues.

If you want a company to run your own deals through and not have other agents,  then that comes with the "you're it" benefits and headaches. You don't have to deal with the business aspects, but you don't get the extra income.

Once you figure out which one you want,  then you can make decisions from there.

What seems to be popular is agents creating teams inside of a brokerage and levering the franchise name along with their own. This only goes so far, in that agents you hire technically have their license hanging with the agency,  not you so everyone is at the whim of the owner broker and not really independent.

Hope that helps.

Good luck,

Jim