My dad was a car and tractor dealer in a small town called Ayr in North Queensland. I was born into that small business family but when I was still in short pants Dad expanded into real estate. A quick drive to the court house to get a license issued and Honeycombes Real Estate was launched. And here’s why.
Selling Mazdas, John Deere and lots of other farming machinery all came with a huge capital cost to our business – most dealers have the finance burden of fronting the purchase of lots and lots of stock. A decent tractor is $250,000 and you’ll need plenty of them to fill your yard. “In real estate your stock is a sheet of paper with your listing details”, says Dad, (now 88 and still business smart as ever.)
As agents we can fill our showrooms and shelves of our stores with stock, simply by earning sellers’ trust. Form 6 signed and we’re ready.
Real estate agents don’t chase bad debts. Ask your accountant about their small business clients and you’ll learn almost everyone allows a percentage of their invoices to go unpaid. Here’s an accounting term you’ve probably never heard: “aged debtors”! Yet we pay ourselves the minute our fees are due, taking them directly from the trust account!
Our customer/client concentration is low. In my agency I had over 500 landlords and no, I didn’t love it when I lost a management. But it didn’t smack my cashflow around in any noticeable way. Ask an architect how they’re doing when a big developer client calls time and moves their design work. Or an IT business that loses its large contract with a government department. Real estate agents have consistent, stable cashflows.
And that consistency of income is highest when you run a rent roll. Everyone needs a home. Tenants pay their rent or they’re out. Even in the depths of a pandemic governments made sure they could afford to pay (was it just me who said a loud “amen” when PM Scotty announced Job Keeper?!)
There’s good reason banks like our industry. That predictable income and broad client base makes us safe borrowers.
We also have low barriers to entry. Yes you’ll now need to do a bit more to obtain a license than my Dad in 1975, but there’s no uni degree or extended education or apprenticeship before you can own a real estate agency. Lots of industries – and especially those who charge comparable professional fees to us – have all sorts of qualification requirements that we don’t. (Yes – you might think it’s too easy and I might agree.)
And one final advantage of owning a business in our industry: We don’t provide after sales service.
I’m not suggesting real estate agents don’t need to follow up clients after the sale and keep in touch. When I was a kid however, it was common to answer the home phone on a Sunday and have a farmer asking Dad to send out a mechanic. There was cane to get off and if the harvester wasn’t working someone needed to sort it urgently. We’d made the sale, money had been paid, but the service continued well past that time. Real estate agents don’t have those warranty claims or product recalls or goods expiry/wastage.
Spend some time chatting about the real estate industry with an accountant or a banker, or even a retired tractor salesman. You might be surprised how good we’ve got it!
Now that I’ve spelt out lots of reasons to own a real estate agency, my job is selling them! If you think you might be ready to sell or would just like to chat confidentially about your rent roll and agency, please call me on 0423 332 022.