Multiple Income Streams for Real Estate Agents and Brokers: A step-by Step Guide to Making Money in the Real Estate Market

By Ray Abichandani

Multiple Income Streams for Real Estate Agents and Brokers is intended to provide multiple income sources to the real estate agents and brokers to supplement their income when the real estate market is cooling down or they would like to consider adding new marketing niches to their existing real estate practice. The tools and techniques described in this book leverages the current real estate knowledge and skills that these professions already possess or can acquire with limited additional education. Based on our market analysis , an additional six figure income per year can be built by using some of these additional sources of income.
In this book, Ray Abichandani has presented over 50 new ideas and market niches to help real estate professionals to generate new buyer and seller leads, enter new market niches, and significantly increase their sales. Packed with rich insights and practical ideas, this book offers disruptive methods and techniques to revolutionize the traditional real estate market and challenges the existing mindset that the real estate professionals cannot generate income like their wall street counterparts. The time to start is NOW!

• Language: English
• Publisher: BookBaby
• Release date: May 7, 2021
• ISBN: 9781098378875

Book preview

PART I: Real Estate Business Cycle

Chapter One: Real Estate Business Cycle Versus the Economic Business Cycle

Economic Business Cycle

Business cycle involves the cyclical movement of the economic periods starting with a peak followed by contraction, trough, and expansion. During the peak period, the production and income has reached its peak and starts its movement downwards. During the contraction period, the unemployment increases, and the production begins to fall. During the trough cycle, the output starts to increase and unemployment decreases. During the final cycle of expansion, the output increases and employment increases.

The recession is traditionally defined as two consecutive quarters of decrease in GDP (Gross Domestic Product). However, in my opinion, this may not always be true. There have been many instances where the economy has done very well even though the GDP has declined. The recession occurs when the income falls, sales fall, production of goods and services fall, and the employment falls. The real estate cycle is heavily dependent on the economic business cycle and indicates a coupling effect. However, the real estate cycle lags the business cycle. Many buyers, sellers, and the real estate professionals are caught off guard because they do not see the various phases of the business or real estate cycle, trends, and the relationship of the two cycles. This lack of understanding significantly influences the income of the real estate professionals.

Real Estate Business Cycle

The Real Estate Business Cycle normally follows the Economic Business Cycle but is more difficult to forecast. The main reason is that real estate depends on the local economy as well. For example, during the recession, certain cities or states may do well in economy and, therefore, may also do well in real estate while other areas may not, following the general economy trend. How does the real estate cycle work?

Business Cycle Expansion Phase: Real Estate also expands, but it happens much later after the business expansion has begun.

Business Cycle Peak Phase: Real Estate will show signs of downturn.

Business Cycle Contraction (Recession): Real Estate Supply will outstrip the demand, and prices will start to go down.

Business Cycle Trough: The Real Estate market will continue to drop, home prices fall, and supply will continue to outstrip the demand.

Most of the real estate professionals need other sources of income during all phases of the business cycle except during the peak period of the business cycle. The purpose of this book is to help you generate additional sources of income in all the phases of the business cycle but more so during the early part of the expansion, recession, and trough phase of the business cycle.

Chapter Summary and Key Points:

•It is important for the real estate professionals to understand how the real estate business cycle relates to the economic business cycle and be prepared for the ups and downs in the marketplace.

•The real estate market is local and depends on the national and local economy.

•The interest rates and employment rates play an important role in the real estate supply and demand process.

•Multiple income sources are required to balance the downturns in the real estate market.

In the next chapter we will explore and learn how the real estate market really works and how to use that understanding to generate more income in real estate marketplace.

Chapter Two: Understanding the Real Estate Market

Understanding the Real Estate Market and Financial Planning Analogy

Every business type has their own vocabulary, knowledge base, and factors that impact that business. For example, Financial Planning or Advisory Services businesses have their own vocabulary such as FICO Score, net worth, capital gains, etc. A financial planner helps clients to establish their financial goals and, therefore, must be knowledgeable in finance, insurance, taxes, risk tolerance, investments etc. This knowledge is acquired by education such as a college degree, professional certification (Certified Financial Planner-CFP) and continuing education. The Financial Planner must also understand the forces that impact his/her business and the industry. Forces impacting the Financial Services business include but are not limited to: changing business model, technology, regulations, market differentiation, economic growth, political issues, etc.

Real estate market similarly has its own vocabulary, knowledge base, and factors that impact the real estate business. The real estate vocabulary has its own terms and definitions that a real estate professional must be familiar with, and since they are easily available, we will not discuss them here. The real estate knowledge base is important here because the success of business heavily depends on it.

It is sad to say that most of the real estate professionals are not that knowledgeable in their field. One of the major reasons is the requirements for obtaining a real estate license are almost very minimal. Anyone with a high school diploma can complete a 63-hour class and qualify to take a state test, pass the test, get a license, and start selling real estate. This is another reason why there are so many real estate agents in the USA including weekend, part-time, and full-time sales agents. One cannot be a Certified Public Accountant (CPA) without a college degree and a tough qualifying CPA test. However, as stated earlier, no degree is required to be a real estate agent or a broker! Less than fifty percent of real estate professionals have a college degree.

The real estate knowledge base is vast and varied, and the real estate knowledge separates the best agent from the average agent. For example, if a client needs a home with a boating dock, you need to know if there is a navigable canal, river, or ocean access on the property, and, if there is a fixed or open bridge from the river or canal to the ocean, what boat height is maximum to cross under the fixed bridge, etc.

The next house you may sell could be for an active military or a veteran, and you may need knowledge about VA loans. A real estate professional who is veteran-friendly must have knowledge about various aspects of home buying or selling for veterans. The real estate professional and the lender must know the VA loan process from the inside out. VA loan is impacted by the length of service, Certificate of Eligibility (COE), VA loan limits, credit scores, etc. Some sellers do not understand the loan approval process for the veterans and are sometimes reluctant to accept offers. A veteran-friendly real estate professional will be in a better position to explain the buying and loan process to sellers and alleviate their fears or reservations. For most home buyers if not all, purchasing a home is the single most expensive purchase in their lives, and, therefore, they must entrust this responsibility to a knowledgeable professional.

What Knowledge Base Do Real Estate Professionals Need and How Do They Acquire It?

Besides the basic education and the required post licensing education and continuing education etc., the real estate professionals need to acquire special knowledge to differentiate themselves from the other real estate agents. As of June 2020, there were two million active real estate licensees (source: Association of Real Estate License Law Officials/ARELLO) including 1,396,575 National Association of Realtor members (1). If that is not enough, about six million new and existing homes were sold in 2019, and with two million active real estate licensees, that is three homes available for every agent in the USA to compete for buyers and sellers!

So, what is the special knowledge or skillset that a real estate professional must acquire? It depends on many factors such as price range, buyer and seller profile, property type, location (city and state), market segmentation, etc. An agent cannot be everything to everyone. A different knowledge base is required to sell a home to a military person or a veteran than to a buyer looking for a home with a dock. Unfortunately, most of the agents take any listing they can get and work with any buyer they can find. I have seen websites of agents where they will show a listing of $150,000 home and a listing of $500,000 home. That clearly shows that the agent has no focus unless one of the listings is for a friend or a relative.

First, the agent should decide what real estate market segment he or she would like to serve. As stated earlier in this chapter, one cannot be everything to everyone because that requires a lot of knowledge and skill. It is suggested that the agents focus on only one of the following areas, develop expertise in that area, market themselves as experts in that area, and develop the brand. The medical field is a good example. Doctors are specialists in only one area such as urology, cardiology, or ophthalmology. We should learn from other professions and use those examples in the real estate business.

Some agents today try to represent buyers only, but unfortunately, they are not pure buyer’s agents because it is not possible to just represent buyers and not sellers and not accept any listings. One can focus on a strategy of dividing the business plan of sixty percent listings and forty percent buyer representation or any other desired proportion.

It is difficult to sell homes and find buyers as a generalist and make substantial money in commissions. Agents need to decide on their target market which includes four key elements: price, home category such as single-family home, condominium buyer or seller profile such as military/veterans or doctors, and lastly, lifestyle-desired such as ocean front, homes with a dock, etc. If you want to be successful, you need to specialize and focus on your target market and be an expert at it. This will allow you to focus your marketing on a selective target area and not go all over the board.

Here is a description of various marketing and other categories that an agent can select from:

1.Price range (For example, homes under $300,000 or homes over one million dollars).

Each price range requires different types of marketing and contacts. In 2019, most homes in the USA were sold in the price range of 200K-300K (thirty to thirty-five percent). The next range was from 300K-400K (twenty-five to thirty percent). Less than five percent of homes over one million were sold in 2019. However, these prices vary significantly by location. Average prices across the USA have no meaning at all. Agents must select a price range in their market. As we know prices in New York City, NY and San Francisco, CA are much higher than Milwaukee, WI or Palm Beach, FL.

2.Home Category

Agents must also select whether they would like to focus on a single family home, a condominium, a Co-Op, or land. In many cases, this selection also depends on location. For example, almost all homes sold in New York City are Co-Ops or condominiums. On the other hand, most of the homes sold in New Canaan, CT are single family homes. In these areas, an agent has limited choices.

3.Buyer and Seller Profile

Once price range and home type are selected, the next factor is to decide what kind of buyers and sellers an agent should focus on for marketing. Price range will include or exclude certain buyers and sellers. For example, if your price range is under $300K then, in most areas, high income earners will be most likely excluded. Price range and buyer/seller profile go hand in hand. An average price of a luxury home is over 1.5 million and, therefore, the buyer or seller profile will be quite different. The point here is that how and whom you market depends on the price range and location. Military/veteran buyers or sellers have different loan requirements and, therefore, a different prices range.

Here are some of the home buyer/seller profiles to select from:

a.First-time home buyers (about thirty to thirty-five percent of home buyers are first-time home buyers). First-time home buyers can be in various price ranges, but they have one thing in common. They need a lot more education and hand-holding in the buying process from initial offer to final closing and post-closing follow-up. Market focus on first-time home buyers is a financially and personally rewarding experience, but it requires a lot more patience, marketing, and particular knowledge in social media and digital marketing.

b.Specialize by professions such as medical, sports, entertainment, educational services, etc. Besides making money, you meet interesting people in sports and entertainment. For example, Celebrity Advisors, a Miami based Real Estate Company, provides full service real estate services (buying, selling, renting, investing) to sports and entertainment clients ranging from professional athletes to actors and actresses to film, television, and music executives.

One neglected area in real estate is services to small business owners. This is such a great opportunity that very few agents have focused on. I suggest that the agents consider this great opportunity. The statistics are amazing:

-30.7 million businesses are classified as small businesses (employing fewer than 500 employees) and account for 99.9 percent of all U.S. businesses. (Source: Small Business Administration 2019)

-Of approximately 139 million homes in the USA in 2019, about six percent (eight million plus) are second and vacation homes. According to a study conducted by National Association of Home Builders (NAHB) in 2016, second homes accounted for 7.4 million, about 5.6% of total homes. Sales of second homes are therefore steadily increasing.

-As of 2019, one of the largest groups of second home buyers are the small business owners. Almost forty percent of second and vacation homes are owned by small business owners. The rest are owned by professionals, investors, business executives, and corporations.

-Sixty-four percent of small businesses use digital marketing to market their products and services to target customers (Source: The Manifest). This is important for the agents because small businesses are used to receiving digital marketing materials as well!

-Foreign Buyers including Canadian Buyers: Here one can focus on a specific country along with other foreign buyers and sellers. For example, one of my friends in Miami rents homes and condos primarily to French Nationals besides other foreign buyers and sellers. According to NAR (2), foreign buyers bought 154,000 homes from April 2019 to March 2020 in the USA which is about three percent of total homes purchased in that time.

The top five countries in terms of buyers include: China, Canada, India, Mexico, and Columbia.

-Family and Corporate Relocations: One can focus on individuals and families who are relocating from one state to another. Corporate relocation business is extremely competitive, and leads are difficult to find because many large real estate companies have corporate connections and contracts. However, individual and family relocations are an untapped market, and one can focus on this market for buying and selling homes for this group. According to moveBuddha.com, on the average, three million household move interstate each year. On the average, thirty-eight percent are corporate moves, forty-four percent are individuals and family moves, and sixteen percent are military moves.

-Seasonal and Vacation Rentals: Seasonal and vacation rental market is also extremely competitive, and hundreds of companies are engaged in this area from Airbnb, VRBO, to many small companies. I suggest staying away from this market because it offers little money, and it is too much work to compete with the big companies. Renters can easily find a property on the internet using any one of the major companies, and the owner can list with the same ease at these companies as well.

-Residentials Rentals: 32 percent of properties in the USA are rental properties. This is also an extremely competitive category for agents. However, you can follow the similar type of categories of buyers and sellers as in Residential Buyers and Sellers. Approximately thirty-five to thirty-seven percent of households in the USA are rental properties (Source: Unitech Realty International)

-Investors: According to Rental Housing Survey (Census Bureau), approximately 48.5 million units are rental units in the USA. About 22.7 million units are owned by individual investors, and 25.8 million units are owned by businesses including corporations, limited partnerships, etc. There are ten to eleven million landlords, and most of them own one to two units. Agents can focus on individual investors, and the contact information is available on the local county tax sites or mailing services companies. I have worked with many investors, and as a real estate investor myself, I consider this as a lucrative market. Investors account for seventeen to twenty percent of the buyers in the real estate marketplace.

-Seller Financing and Rent to Buy: Although some sellers offer financing, this market is extremely limited and complex. I would suggest avoiding this area and not to waste time. Very few Rent to Buy contracts result in actual sales and are not desirable. I have tried these two areas myself, and I had limited or no successes in this market.

-Equestrian Communities, Farms and Ranches: There are about two million horse owners in the USA and about 250-300 Equestrian Communities. The market is small but interesting if you also love horses. Some retirees live in these communities just for the open spaces. There are many agents who focus on the buying and selling of homes in the Equestrian Communities. Wellington Equestrian Realty in Wellington, Florida, is an example of such real estate brokerage.

-Homes with a landing strip or access to airport for small planes (Air Parks, Fly-in Communities): This is getting to be a popular real estate niche market, and it is growing in number of Air Parks. The first such community was started in California in 1946, and, today, there are over six hundred such communities according to a search done on Living with Your Plane, LWYP.com, a popular site to find Air Park Communities and other resources.

-According to LWYP.com, Florida has about seventy-one such Air Parks, and Texas has about sixty-eight. Ridge Landing Airpark in Frostproof, Florida, is an example of such communities. This is a lucrative market, and it appears that it is underrepresented by the real estate professionals. Typical Air Park homes sell from $600,000 to several million dollars.

-Spruce Creek Fly in Realty in Port Orange, Florida, is an example of a real estate company whose primary focus is on Air Park homes.

-Non-profit properties such as Churches, Charitable Organizations, Trade Associations, etc.: This is also an underrepresented category and open for real estate professionals to pursue. Helping these organizations to own their own space for the good of the community is a side benefit.

-E-2 Business Investor Visa: E-2 Visa Investors can enter the USA if they agree to invest certain amount of money ($250,000 and up) and control that business while they are in United States. This is a very lucrative opportunity, but the real estate professionals must acquire additional knowledge regarding what type of businesses are allowed, qualifying countries, and the E-2 Visa application process. I strongly recommend that agents pursue this area.

-For Sell by Owner (FSBO): About ten percent of homes listed for sale are by owners who would like to sell on their own. The main reason for owners to sell on their own is that they may not have enough equity in the house to pay for the closing costs and the commissions. There are many ways to pursue this market and cold calling scripts and standard mailing letters. I think it is a labor-intensive market with too many agents chasing this market, resulting in fewer opportunities.

-Expired Listings: Although some agents pursue this market by using expired listings information provided by third parties. It is labor-intensive and requires lot of work and persistence.

-Probate Segment: This area is also not actively pursued because it is delicate and requires careful marketing. When people die, their heirs prefer to sell the properties instead of keeping them. The best way to obtain these leads is to contact the probate attorneys in your area with a carefully scripted letter and obtain the listings.

-Divorce Leads: In many cases, divorced couples sell their properties to settle their financial obligations to each other. The best way to get these leads are through divorce attorneys or court records in your county.

-Hud Homes: Very few agents pursue this lucrative market. You can build a website and marketing strategy to attract buyers to purchase Hud homes. You can register on the Hud homes auction site and then work with buyers to help them purchase these homes. Once you have buyer leads, you may sell them any home that they may be interested in buying and not necessarily just Hud homes.

-Absentee Owners: This is another neglected area for generating leads. Sooner or later these owners will sell their properties. An effective and ongoing marketing to these absentee owners will provide you with hassle-free listings.

How Does the Real Estate Market Work?

Very few real estate professionals and the public understand how the real estate market really works. There is a general perception that the real estate market, like other goods and services, is based on a supply and demand model. The supply and demand model implies that when the demand increases the prices of real estate go up, and when the supply increases the prices fall. This is partially true, but it is not entirely true for the real estate market.

Another view is that when interest rates and unemployment increase, the housing market starts to fall. Many factors impact the real estate market including location, interest rates, employment rate, inflation, etc. Unlike the stock market, there is no central place to buy and sell real estate. It is a unique asset that is immobile.

It takes a while for a real estate market to dry up or recover. However, the number one critical factor in real estate is location. For example, a house located in Brookfield, Wisconsin, will sell at a much better price than one located in Greenfield, Wisconsin. This will also apply during the times the supply is higher than the demand or during the recession.

What do we mean by location? It is not just a geographical location. I call this concept as Smart Home Selection (SHS). SHS depends on many factors including but not limited to the following:

-Neighborhood

-Transportation access

-Closer to major businesses

-Land size

-House size

-Safety

-Amenities

-Geographical location (state, city, county, town)

Real Estate agents should focus on location factors in deciding which market to serve. Whether economy is good or bad, houses are still bought and sold. According to NAR Study (3) 5.34 million existing homes were sold in 2019 during the low employment, low mortgage rates, and favorable economy. But according to the National Association of Realtors (NAR), during the economic crisis of 2008, 4.12 million homes were sold, and another 4.34 million homes were sold in 2009. In other words, a real estate agent could have still made decent money in commissions during those years by correctly identifying the location for buyers and sellers and using the SHS concept for locating properties.

I suggest, whether the real estate market is up or down and regardless of the economy, if you focus on concepts described in this book, you will be successful. Just remember, even during the