Know the Numbers
Online Real Estate Training – Podcast #37
Hey all you 4X’ers out there. I hope you are having a great day! Thanks for joining me again on 4X Radio. Today we are going to talk about the importance of “Knowing the Numbers”. You need to make it your business to know the numbers…
Hi, I’m Kelly Johnson, founder of the 4X formula, and the big question is this: How are real estate agents like us able to create a constant stream of commissions and a constant stream of leads while enjoying life without wasting big budgets on branding, without working crazy hours, without worrying where the next deal’s coming from in today’s real estate market? This podcast is here to reveal the answers.
The numbers… a lot of people say… this is a numbers game. You know if you think about it, that is true for the Real Estate business. It is crucial to the success of your business to know “The Numbers”.
1. When you are working with a client…
The numbers. Most deals are all about the numbers. When people are selling a home they are looking at the numbers to see what they can NET on the sale of the home. The other end of the transaction is what they are buying. Financing, most of the time has to do with the numbers. In order to do your best for your client do you understand the numbers that are pertinent to making the deal happen? Are you getting this information? Are you having these discussions with your clients so that you can help them make a great decision? When you sit down with them, what is the most important thing in your mind?
“Get the listing… No matter what…..get the listing?”
Depending on a few factors maybe that is a good strategy for your business. BUT, consider this: If you create or support an unrealistic expectation with that client, are you helping them? IF you tell them what they want to hear instead of what they need to hear, are you helping them plan appropriately? What happens when the scenario that is built up in their mind, that has been supported by you, does not come together? I’ll tell you what happens. If you haven’t instilled the “We Talk” into your conversations properly, you will be the person that “carries the load” of failure of that scenario. If you haven’t stated the truth, and pushed that decision, that they made, against your advice towards them, so that the responsibility shifts, then you will be the professional that failed them.
This is why, logic has to enter into the meeting. The numbers.
When you go over the numbers with people you should communicate to them that you are going to work off of a worst case scenario for sale price of their or a more realistic number….not the number they want. Just explain that you want them to make a plan based on that so that they can see if the plan works. If the plan only works off of their best case scenario or, the scenario that they are “hoping for”, then that is not a smart way to make a plan.
Think of the psychology behind that. If they now think of their “wish”, or unrealistic numbers in that way, even if they stick to it later, then there is a bit of a set up for discussions later. Does that make sense? So if they still choose, to move forward in that way, you can re-visit that conversation and remind them that ….
“Hey, remember, we were really just kind of giving it a shot. We all hoped that this may be possible. We tried. Now should we re-work the numbers?”
Logic doesn’t always prevail. But the numbers don’t lie. We don’t create the market. The Buyer’s create the market. Show them the sales of homes comparable to yours in the last 30 days since you were on the market. And explain that this is where the reality is….You don’t want to wait longer than 30 days…in the first 21 days, is definitely better so that you react properly to market conditions appropriately. Once a listing gets to 60 days in most markets the listing begins to go stale. In that same meeting show them where their home is situated in the market as compared to their competition and ensure that it is strategically located. Why would a Buyer pick their home over the other ones? If their listing is the highest one of the bunch, then logic has to prevail.
“Mr. Seller, do you see that your home is priced the highest of all of the comparable homes here. If you were the Buyer how would feel about our listing? Sometimes, it happens, that the higher priced listings are simply helping the other houses sell that are priced sharper. It is possible that over the last 30 days we have simply helped these other homes sell. I don’t think that is our goal”
What they are buying is a key factor here. Why are they moving? What is the motivation to move? What has changed in their lives that has created this urgency? Is the urgency about money or is it about a lifestyle change? Is what they want consumed with ego only? Do they want a bigger house purely for the sake of getting a bigger house and they are pressing their “affordability factor” to the max? How do you know?
Do you know the numbers? The time to go over the numbers is in the first initial meeting. Sometimes that is not the listing meeting. The best time, is the meeting before the actual listing meeting. The planning meeting. We have tools for this in the 4X Formula Real Estate Training Course to help you have a great planning meeting so that the game plan gets mapped out and everyone gets on the same page.
Know the Numbers…you should know their mortgage payout amount. Their affordability goals for monthly outflow…in other words, the monthly payment that is affordable for their budget goals, and then get a little bit of understand about the probability of approval, based on income level, estimated debt level, etc. Calculate payment amounts based on todays interest rates. Do you know the current rates? Know the numbers.
Why spend all the time, money and effort unless there is a chance of success. After going over everything, the conclusion may be, that it’s not the right time for them. It can be a disappointing reality but that’s ok.
I have had that happen many times…but when the time was right, they called me, because they knew they could trust me because the plan was made on information that they could rely upon. When the time was right, they were excited because they knew it had a chance of coming together. We were empowered by the numbers. So, you see where the relationship gets solidified in this scenario? As a group of people, we have gone more deeper than just “doing a transaction”. We have had meaningful discussions about how we can affect this “life change” that they are considering. We are looking out for their best interests. They see me as someone in their corner.
2. What about Investors? Investors are a great source of business. But their criteria for buying is different. Do you know the numbers that are important to them? What is the cap rate for your area? Do you know what I am referring to? What is an ROI? How does the cash flow work? How do you come to the NET numbers for that particular type of investment? What are the market dynamics? What are the lease rates for that product? The residential rental rates for that area? What are the other measuring sticks to ensure a good investment given the different ways to mitigate risk?
Just about every single Investor has a certain comfort level and a specific investment type that they prefer. They have different tolerance levels in, what is an acceptable, a great, or a fantastic investment in Real Estate.
Do you know the numbers? Do you know the questions to ask in order to make a determination on the numbers that are important to that type of investor? Are you willing to say to your client after your analysis is completed that “this is not a good investment”?
Investors are a little tougher because they are not so emotionally invested in Real Estate deals. Its all about the numbers for them. If the numbers don’t work exactly to their investment criteria is there another consideration? What is happening in the future around that property? Is there a way to improve the property slightly to create a higher income to make the numbers work? What are the terms of the rental agreements or leases in place that you can maybe work with? Is there another future use for the property that a simple re-zoning can create a new value for the property? What’s the EXIT STRATEGY?
Know the numbers. Do you see how you can become an enormous person of value to this segment of the market?
3. What about the STATS of your current market area?
Do you know the stats? Are they published on a monthly basis in your area? If they are, take a moment to understand what the stats mean. Is it trending in a certain direction? Is it moving towards a Sellers market? A Buyer’s Market? Is there a good amount of inventory which translates to: there are lots of choices for Buyers right now?
So, is that something to chat about with Buyers that you come into contact with? Do you check the stats and find out what the hottest price point is in your market area? If 40% of the sales are happening in a certain price point, then what is the type of product that is mostly popular in that price point? Where are there more Buyers, buying right now? What are they selling in general to buy in that price point? Know the numbers. Know where to focus to get more results. When you are listing a home in that area, how does the conversation go? Do you know the numbers. Make it your business to know the numbers.
This is what a REALTOR-Preneur does. Yep…I brought it back. You heard it first here on 4X Formula Radio….but you are…you are a person running a business. You are an entrepreneur and
A REALtor-preneur and you need to know the numbers.
4. Now what about goal setting and business planning? DO you know the numbers?
Do you know what your average “Dollar per DEAL” is in your market right now? If you are on par with that in your business, or are you a little lower or higher in your business compared to the average? Do you know that number? For Business planning and goal setting this is a very important number.
If you don’t then how are you supposed to set goals? How do you plan your year ahead if you don’t know that. How do you measure success? Its not about how many days you show up at the office. Its not about how many hours you stay away from your house before you go home. IT’S THE deals that you do per year. I have heard people talk about how many millions of dollars they do in business and then that is a brag point for them….
Here is why I am not impressed. Let me explain. If someone says that they did $6Million in sales. Great! Good for them. But if it was comprised of only 3 sales of $2M each then that is not impressive to me. Its not bad and not to be criticized…but I am more interested in the gross commissions earned plus the future potential that is building as well at the same time. If I use an average 2% factor on that, that person has made $120,000 for the year. Super. But they only effected 3 people. They increased their database by maybe 30 people to make that happen. That is not a sustainable business.
If it takes 20 deals to make that money then that is great. More experience is being gained. More people are being effected by you. You have added more people to your business that will refer business to you. There is 7X more business coming your way in the future and 7X more referral opportunities. Not only that but if you actually calculate the numbers more money is being made as well. That would be true for my area but I am not sure of the commission structures in your area.
Don’t get me wrong this is just an example to make a point…it is simply something to get you thinking. I want to get you out of transactional and more relational thinking. Think about building business for tomorrow while doing business today…
Know your average “dollar per deal”. This is crucial to goal setting. The LAG measure is the end result of gross commission. But it’s the LEAD measures, like LEADS, Contacts, Referrals, Strategic alliances that effect your business or enter into your database that will feed your business long term.
Do you know on a monthly basis how many new contacts you have made? How many you need to make to get the result that you need? What is your conversion rate? Count every lead from every single source. Even an email inquiry on a listing that never gets back to you…that counts. Count every lead and mark them down so that you can figure out your conversion rate. That will dictate where your efforts need to be focussed in order to help you determine how many leads it takes to convert into listings and then how many deals you will do per month and ultimately, annually multiplied by your average “dollar per deal” to get you to the ultimate end goal of Annual Gross Commissions.
When you know your conversion rate then you have the ability to literally plan your business and then simply – work the plan. These are the fundamentals for goal setting for the Real Estate business.
Does that make sense? We go over this in the 4X Formula Real Estate Mastery Course and we have tools to help you get it done. This alone is pivotal for most Real Estate Agents. I think that I could potentially take that part of the course and make it available to people and they would literally double their business just from that alone! I really believe that.
Anyway, lets move on…
5. What about Tax Planning….eek. I just had a little shudder….yuk.
I can’t stand paying taxes but it has to be done. We have to plan for it. Know the numbers. Know the strategies that are available to you in order to minimize your tax liability. What is a proper expense? What is not considered a proper expense. Don’t spend the money that should be sent to the government. Don’t do it. I got into a lot of trouble in that area and it was horrible, and I never want to go through that again. IT was a nightmare. If you take 15 to 25% of all your commission cheques and put it into a separate account then you should be fine in most cases.
There are some great ways to structure your business depending on the tax laws of your area and I would really encourage you to get proper advice from a trusted accountant. Do it. Don’t be cheap on this. In order to for you to get out of Survive and move on to Thrive, you need to be thinking bigger from the beginning. Plan for success. Don’t plan for failure. Don’t spend the governments money. If, after all is said and done, the taxes are paid, there is money left in that account, then take it and go on a vacation or put that money into your investment account. That’s the time to enjoy that money. Not during the months that you are earning it.
6. Business Expenses – Know where your money is going. Know how much you are spending on the different areas of business operations. Remember, you are a Realtor-Preneur and this is what business people do. They know how much they are spending on their expenses and they begin to make budgets. As your income increases, you can increase incrementally but if you suddenly start to get better results while spending the same on certain expenses, then you are creating a fantastic business that is highly profitable. When you keep track of your expenses, and begin to track what gets you the most results then you begin to understand how to say NO to certain expenses and plan for spending in the areas that are most productive and profitable. More on this in the course.
- If you hire an assistant….what is the net result of that. Whatever you are paying that person, should net you a minimum of double that or even triple that. If you pay someone $20,000 per year to help your business then the end result should be an additional $40,000 to $60,000 to your bottom line. Unless, for your purposes, it is about literally buying time…so that you can spend time with your loved ones and not have your business suffer, then that is fine. But as a Realtor-Preneur business person, I believe that every expense should pay you dividends not simple “zero-out”. The only way to know this for certain is to – Know the Numbers.
- Does it really make sense to have an $900 car payment so that you look good? Or is it better to save up and own the vehicle as a depreciating asset with no payments? Is it better to buy a new car or lease a new car or own a pretty good used car that has already experienced its larger amount of depreciation?
- What are you paying to your office? Are you getting the value you need from that office for the money you are paying them? Are you able to negotiate certain aspects based on production? Can your deal fees decrease if you hit a certain amount of deals? There’s a great motivator for you. That’s a win-win for both the office and you…Know the numbers.
These are just examples of different areas of you business where, it is important to make it your business to know. You can’t change or tweek or improve what you don’t measure. Not knowing, can be totally damaging. I remember those days when I was making a lot of money but it was flowing right out of the bank account just as fast as it was coming in….when I began to re-gain control I suddenly woke up to where, in my business, I was wasting my time, and where I was wasting my money.
The key here is…..you guessed it….Know your numbers.
That’s it for today, I hope you found value in our chat today.
I appreciate you and I appreciate that you are coming here on a weekly basis to catch another episode.
I wish you all the best and I encourage you to go out there and Make a Great Day!