Stay with current commercial real estate brokerage or leave?

General Real Estate Investing
1

Context: I am 30 years old and have been a commercial real estate agent for 2 years. I have a strong background in sales and joined a very reputable commercial firm that is owned by my best friend’s family. I am at a point now where I am looking for advice as to whether I should stay with the current company or go out on my own. I am not too interested in joining a competitor.

In 2017 I grossed over $460,000 in commissions and I received 55% ($253,000) as take-home pay. $91,000 of the gross commissions was a referral by the company’s CEO. $210,000 went to the house this year.

In 2018 I grossed $1,250,000 and I received 62% ($775,000) as take-home pay. $232,800 of the gross was internal referrals. $471,500 went to the house this year!

I am currently re-negotiating my split structure and the company will not go above 70% to me / 30% to them at $1,000,000 in gross commissions. The net to me breakdown is as follows:

55% - $0-$100k

60% - $100k-200k

65% - $200k-400k

70% - $400k-600k

75% - $600k+

I receive a 3.5% bonus on top of the 75% threshold once I hit $1.0M in gross commissions.

It’s important to note that the company pays for my admin, my office, computer, phone, marketing, etc. I have zero true out of pocket expenses.

Ultimately, the question is, at $1.0M in gross commissions, is paying the house $300,000 too much? I know I also have to look at the post-tax money aspect too… I am just having a very difficult time paying the house so much money for business that I am mostly generating!

What if I am able to go out on my own and do $1.0M in gross and my costs are only $50k-$100k? I could be leaving $200k+ per year on the table…

I also have to weigh the long term intangibles too though, I understand that…

Appreciate the advice!

2

That’s a very interesting question.

There’s a couple of things you didn’t mention, including the goodwill that your brokerage has established in the market. That may be one of the reasons you’re able to generate this much business. Your customers recognize the company’s branding and trust them to do good work.

This just means you’re benefiting financially and professionally from the company’s branding.

And then there’s not having to screw around with the management of the office that is also helping you pull down over half a million dollars a year. You may not see the whole benefit, because you’re not seeing all the crap, confusion, and did I mention crap going to maintain the office.

Meantime, your office probably may not be covering all of it’s overhead ONLY because of your contribution. They’re able to doing lots of extra things for you, because there’s several sources of reliable income.

That is to say that your office management is likely dealing with personality defects and overhead of the less performance-oriented agents.

I’m not saying you should stay, or that you don’t deserve to keep 75% of what you generate, but the hassle-free management you’ve described, would seem to allow you to focus MUCH more of your energy on your bottom line.

Hope that helps a little.

3

Javipa - thanks for the detailed response, much appreciated!

I do try to take into account the factors that you mentioned, but if I were to go out on my own, lease small office space, and freelance out most of my advertising work, I suspect that I will spend only $50k-$100k per year tops. At $1M in gross commissions at my current firm, I will only be keeping $700k… It’s a tough pill to swollow knowing that I could potentially be giving up $200k per year for x amount of years… I don’t want to build my own brokerage; it sounds like a pain to manage other brokers. I would purely leave and start my own one man shop.

I will also add that I’m primarily selling investment properties with no signage costs, etc. I also represent a number of buyers where I don’t use much of the firms resources.

Ultimately, the question is, do I go out on my own with the attempt to save $200k per year or do I stay and try to reap the long term benefits of potentially investing in deals with the principles and not have to worry about costs and the downside if the market turns the other way? I constantly look back to the past two years and get frustrated that I’ve provided the house $650k+ in commission splits. I feel resentment over this…

Appreciate the advice!

4

There’s two separate issues:

  1. Working for yourself.

  2. Making money.

If it’s ‘just’ about the money, then you should quit the brokerage and go it alone.

Of course, if you go it alone, you ‘will’ be working harder for the same, or more, money, because now you’re having to look after the entire business end of things, not just the sales end of things.

Never mind you’ll need to hire someone who understands ‘you;’ understands the business; understands office management; can negotiate/delegate the paperwork; won’t steal from you; won’t make paperwork mistakes that cost you thousands, if not hundreds of thousands of dollars …in lawsuits …in permanent damage to your reputation, or worse, put you out of business, etc.

Frankly, most great salesmen are not necessarily that organized, and/or pay an overly lot of attention to detail, and frankly often make poor business operators.

Think Walt Disney and his brother Roy. Walt filed bankruptcy a half-dozen times trying to be his own boss, business man, idea man, and salesman. It wasn’t until he partnered with his brother, Roy, that things started going the right way. Even then it was rough.

It was a team effort. Walt brought ideas to the table and Roy brought the organization.

Meantime, Walt felt somewhat hamstrung by Roy, despite being enabled to remain the idea-guy/salesmen. However, both Walt and Roy got rich because Roy served Walt as both finance manager and money-raiser.

It could be the same with you.

Of course, I’m not saying you need a ‘partner’ per sé, but you will need a team that you can trust to keep your business together. Otherwise, you can’t focus on two things at once, and do as well. Right now, you just have to focus on generating closings.

So, the question might come, “What kinds of persons would you need to surround yourself with, in order to make sure your office remains organized and legally compliant, to the point that you can remain focused on making money?”

5

I don’t trust commercial real estate agents at all. And as for me, $300,000 is too much. But it’s all up to you.