|This article was published on: 02/01/2006|
FOR BROKERS: Start-ups
BY G. M. FILISKO
Your first year: a survival guide
Ah, to be your own boss. To own your own company. To control your own future. It’s the dream of so many in real estate. If you’ve recently hung your shingle, get your head out of the clouds and get cracking. You’ve got serious planning and tons of hard work ahead. Here, brokers who’ve lived through the trial by fire of opening their own company tell you what you must do to survive the first year without going bust.
Lucy, you’ve got some plannin’ to do
“If I were to do it again,” says Tom Pleimling, who opened Tom Pleimling Realty Inc. in Alexandria, Va., in December 2000, “I’d develop the branding earlier than I did. Give yourself at least six months to brand yourself. You’ve got to create signs, business cards, stationery, and an introduction letter letting people know that you’ve advanced to owning your own business.
“I had a logo, but it had my former company’s colors. I used that until I could get a graphic designer,” says Pleimling. That turned out to be about eight months after he opened his shop. “I still run into people—five years later—who think I’m with my old company. I didn’t make my brand different enough from that of my former company,” he says.
“When you start a new business, you can’t be na´ve,” says Catherine Gortner, owner of Catherine Gortner Properties, which she launched in October 2003 in San Jose, Calif. “If you plan to hire others, make sure you have training and checklists and you’re up-to-date about the legalities of running a brokerage.”
Gortner dug in and researched every legal and financial aspect on her own. But Patti Johnson, CRB, CRS«, who purchased BHA Real Estate in Lexington, Neb., in 1996, had the luxury of going a different route. “I don’t have the personality for money management,” she says. So she hired a CPA—her husband.
When he opened shop, Pleimling contracted with a pension plan designer. He and his two administrators are salaried and have pension plans. He says the advice he received from other professionals, such as the pension plan consultant, has given the company “more stability.”
Chaz Walters opened his Chicago company, Hot Property, in temporary space in November 2003 and then formally in February 2004. Walters already had legal and financial advisers. What he needed was a sales manager. “If you don’t plan to manage salespeople yourself, which I didn’t, a manager is one of your most important assets,” he says. “I was lucky enough to hire somebody I looked up to, who was good at pointing out things that needed to be done whether I wanted to hear it or not.
The biggest first-year challenges
The toughest problem for Johnson in her first year—and it’s ongoing—has been the cost of advertising. “It’s probably my downfall because I love advertising,” she says. “You can’t live without advertising, but be pretty darned careful about budgeting, because it could eat you alive.”
Although it sounds obvious, you also have to find business, which Gortner, a selling broker, says was the most challenging part of her first year. “If you haven’t been established a long time, and I mean five to 10 years, where are you going to get business?” she asks. “I buy leads from an online lead-generation source, and I maintain a farm.” By October 2005 Gortner and her sole associate had racked up $20 million in listings and closed sales.
You also have to create systems and consistency, says Johnson, who had to reinvent the wheel because the company she bought had “no systems at all,” she says. “Now we have checklists and double-checks for such things as listings and disclosures.”
Another big task for Johnson was computerizing. “You have to computerize correspondence and things that need to be sent out regularly, or you’ll never be able to grow past a certain point,” she says.
Most difficult for Walters during that risky first year was proving to recruits and consumers that his company had staying power. “It’s easy for your competition to say to consumers, ‘Yes, he may have a great concept, but he might not be a good businessman. You don’t know if the company’s going to be open 10 months from now,’ ” Walters says. “Every week that people see the advertising we do—just like the big brands do—it instills in them the idea that there’s longevity in this company.”
Is it worth it?
The first year can be grueling. “I didn’t take one day off,” Walters says. What kept him going was “baby-stepping everything,” he says. “I didn’t look at the whole picture of what needed to be done. I just looked at the immediate thing in front of me.”
Pleimling says he also put in long hours the first year. “I was in a lot of mornings at 6 a.m. That’s when I’d do my thinking,” he says. The reward for all that hard work is that “the community has greeted us with open arms.”
For Gortner, the hard work of opening a brokerage has enabled her to do what she loves to do—”marketing my way. I have complete control over the transaction, and I’ve become a much better real estate professional,” she says. “The first transactions literally scared me. After the initial fear, it was like, ‘Whoa, I made it. I can do this!’ ”
“Nothing good is ever easy,” says Walters. “In life, you get what you pay for. I’m paying dearly, and I think I’ll always pay dearly, in terms of time and stress, but every day you’re open, it gets easier and easier.”
The cost of setting up shop
Starting a business is an uphill struggle. But you have at least one ace in the hole: you know how to leverage real estate. “When you’re a corporation,” says Tom Pleimling, owner of Tom Pleimling Realty Inc. in Alexandria, Va., “you can buy a building or an office and rent it to your company. It’s worked out well for me because it’s like having another pension plan. It’s a wealth-building tool you couldn’t use if you were a salesperson at another broker’s company.”
That’s something Chicago broker Chaz Walters wishes he’d done from the day he opened Hot Property. “My first location was leased. From now on, all additional locations will be purchased,” he says. “You can’t borrow against a lease. But you can borrow against a building you’ve purchased.”
Walters is about to open his company’s second office in downtown Chicago. He says that by buying the property and financing the purchase over 25 years, he’ll “tie up less capital and have a lower monthly payment for a bigger space” than he has for his first location.
Catherine Gortner, who opened Catherine Gortner Properties in San Jose, Calif., in 2003, neither purchased nor leased space. Instead, she and her sole associate work out of their homes. “It’s so easy to become intoxicated with real estate and throw money out the window,” she says. “I know more than one broker who’s paying for rent and infrastructure, but what happens if the market changes? What are they going to do?”
Money has been a big issue, Walters admits. “It’s like a time bomb ticking. Every single month, you have to come up with money to pay your expenses. And unless something closes, you don’t get income,” he says. “You have to get used to it and plan properly.”
Gortner’s approach is decidedly less stressful. “If you want to open your office on the cheap end, paying for things like errors & omissions insurance, a multifunction printer, office equipment, and training, you could spend $10,000,” she says. “If you’re renting office equipment and space, you could spend as much as $100,000.
“One broker I know started his brokerage with four or five salespeople and spent $100,000 up front,” she says. “He made one-and-a-half times my gross commission this year but took home less than half my net. My model is very profitable.”
“The key is to be well-funded,” says Pleimling. “Make sure you have more money coming in the front door than going out the back.” To last, Pleimling says, you need a reserve fund of three to four months. He started his company with about $40,000 in cash and a line of credit with a bank for about $100,000.
“We didn’t want to deplete our reserves just for show,” he says. “so we started out with resale furniture that cost $6,000. Later we moved to a new office and bought all new furniture, which cost $20,000,” he says. “Mind your business carefully,” so you’re in it for the long haul.