Real Estate Investors: The 7% Rule
Posted by JD Esajian // September 30, 2014
There are a lot of “number rules” thrown around in the real estate world. The one I am about to introduce you to may be the most important of them all. It has often been said that 20% of the players do 80% of the business: the 80/20 rule as it is sometimes referred to. However, this contrast has reportedly become even starker in the real estate world. According to the data, just 7% of real estate agents do 93% of the business. Some figures suggest thousands of Realtors don’t do any deals in a year, with many of them failing to renew their real estate licenses even once! This announcement has huge ramifications that can spread throughout the real estate industry, directly impacting the performance and success of individual property investors. So why it is so significant? Why does it matter to you? How can investors best capitalize on it? The first and most obvious question is if you fall into the 7% category, or the rest? A good start for getting to the next level would certainly be learning the benchmarks and setting new goals to start owning more of the business in your area or niche. Then expand to meet your goals. The same ratios no doubt apply to real estate investors, but it also matters to investors which Realtors are doing all the business. In some cases, these may be your top competitors. You need to know who is just a distraction and who may be worth defending against, or at least positioning against. This is perhaps even more important when it comes to trying to work with Realtors. Some real estate investors would never dream of it. However, many find working in collaboration with Realtors is highly profitable, if not a necessity. Like mortgage brokers and title insurance companies, some real estate investors expend substantial resources trying to connect with and do business with real estate agents. However, it can be hard to gain their attention, spur action, and earn their business. This comes with time and money costs that many may not be prepared for. The key is to not invest in those that are not in the 7% I mentioned earlier. This can result in literally throwing years of effort and earnings down the drain. So you need to know who is really doing the deals, controlling the buyers and sellers, and influencing deal flow. Real estate investors can’t just rely on spotting bench ads, trolling Realtor websites, or watching which cars they have leased. Find out who is worth working with, and who isn’t. Who is worth pursuing, and if necessary wooing. If you are going to invest in marketing and follow up, make it with these agents. However, some real estate investors might have already had the “eureka” moment, and realized that the bottom 93% might have some value too. At least some of them. No doubt, other savvy and well capitalized competitors are focusing on, and are bombarding those at the top. Many of those individuals and firms will also have very deep relationships and other ties which can be hard to make a dent in. However, there could be many other investors and Realtors with great potential who are being ignored, and who are probably looking to connect and collaborate with others on their way up too. This group may be far more receptive, easier to work with and deliver a better ROI. There can be many advantages of taking the time, and making the effort to work with these Realtors. They could certainly be among the most loyal if given a chance. Good relationships forged early could result in long term relationships that continue to deliver ongoing leads, referrals and deals every month. It is important for real estate investors to be wise with their time, and choose the right people to work with. Evaluate why these candidates haven’t made it yet, and if they have what it takes. Perhaps they just got into real estate but have huge potential waiting to be unleashed. Maybe they just need a little mentoring, or a chance. Test them out on some smaller deals and see how they perform. They need to be capable, motivated, and “coachable.” Legendary investor Mark Cuban has reportedly said that in contrast to popular opinion, it isn’t money or connections that make individuals successful, but more often their willingness to out-learn and outwork their competition. This is certainly true in sports, entrepreneurial start-ups, and definitely in all aspects of the real estate world. The top 7% are hustlers. If they don’t know something, they’ll learn it. If the heat is on, they’ll put in the extra hours to make it happen. You don’t have to know everything, everyone, have all the money, or talent, but if you’ll apply those two principles, you’ll do very well in real estate.
