Everybody loves Ramen . . .

by Greg Swann

Suburban Phoenix Real Estate Broker

Author website

Here’s a true fact of life for almost everyone with a real estate license: This job pays really badly.

Here’s a true fact of life for a favored few people with real estate licenses: This job pays really well.

I don’t know if we can safely count ourselves among the favored few just yet, but being Realtors is throwing off a lot of cash for us, and that cash is throwing off a lot of opportunities to make more cash.

Last year was phenomenal, of course, and this year hasn’t been awful for us, considering how awful it was for other Realtors in Phoenix. We got a lot choosier about listings, which helped keep our money in our pockets, and we’ve both done more than we ever have before with new builds.

But: Do Realtors “deserve” all the money they make? I’ve had transactions — two closing later this month — where my total involvement was around five hours. I’ve had others that have run to hundreds of hours over the course of years. But looking at my added-value by hours or tasks or ergs of energy expended is a mistake. The value I bring to the transaction comes from knowing what to do, how, when — and why. Our clients do a lot better because of our involvement, and they are gracious enough to say so.

For now, our earning goal is $1,000 a day, each, call it $700,000 a year, gross. Obviously our expenses are huge, as are our taxes (grr!). Worse yet, we’re not hitting that goal yet. And to put things in perspective, Russell Shaw’s annual broadcast advertising spend approaches our total earning goal.

In the near term, I think we can double our numbers to something like $1.5 million a year, before taxes and expenses. From there, with a couple of assistants each, we might be able to push things to that amount, gross, each. In other words, without growing our head-count very much, we might be able to knock down $3 million a year in gross commission income. The net from that might not be all that great, considering, but it will still be a lot of money.

But wait. There’s more.

We bought the house we live in now in January of 2005 — in the midst of the boom. El Caminito had been beautifully remodeled and pitifully marketed, so we picked it up at a bargain price. We held onto our old house through the boom, so we had two domiciles appreciating at a mad rate.

We sold our old house in May of this year, pocketing over $100,000, net, all tax-free.

Our new house is in the last affordable ghetto in North Central Phoenix, an avidly-desired neighborhood. Two streets south of us, houses go for $750,000 and up — way up. If people want to find affordable homes in our neighborhood, they’re going to come here, and they’re going to bid up our house with the rest of the street.

In the time we have been in this house, it has appreciated by $205,000. We bought this house with 5% down and a 15% second mortgage, no PMI, seller paid closing costs, with the 3% buyer’s agent’s commission providing 60% of the down payment. We’re in the process now of refinancing to retire the second mortgage, and we will come out of that refi with about 30% equity in an asset that is now worth over $500,000. In other words, in less than two years we turned $6,000 cash out of pocket and 21 mortgage payments into $150,000 of equity.

After the start of the year, we will tap that equity to acquire income property. If we buy in Metro Phoenix, we’ll pick up between three and five rental homes, the kind I encourage my investors to buy. If we can structure these to be cash-flow neutral, each one will throw off six figures by the time we sell, along with favorable tax benefits while we own them.

Alternatively, we might take that equity and use it to buy a 20-unit apartment building in the rust belt. This won’t appreciate appreciably, but it will throw off a lot cash income every month.

And if we can keep hitting — and keep growing — our income targets, we’ll have that much more to invest — coupled with professional knowledge of where to invest.

We’re not rich — far from it. I drive a Hyundai station wagon, and most days I have a luxurious luncheon a la drive-through, stuffing my face between phone calls as I race to the next appointment.

And here’s another true fact of life in real estate: I work a lot. A normal day is 6 am to 9 pm. A long day is a lot longer than that. I work hardest when everyone else is off work, and I can count the days when I know for sure I won’t have to work on one hand: Thanksgiving Day, Christmas Day, New Year’s Day, Independence Day and the morning — but not the afternoon — of Mother’s Day. Even on those days, I’ll have phone calls and email to deal with.

One of the reasons this job pays as well as it does is that very few people, including many Realtors, want to do it. Everyone wants the money. Nobody wants the hours, the stress, the potentially-ugly conflicts, the legal liability, the stark and sometimes terrifying knowledge that you are always three bad months away from failure.

So: What are we after? Money. We love our clients, and we love helping them achieve their real estate goals. But if this job didn’t pay this well, we would be doing something else that either paid better, provided actual benefits or left some time free for other pursuits. We’re doing this — and we’re dancing as fast as we can — so that one day we can stop doing it.

How much is enough? Right now, I’m thinking around $10 million in net worth. That sounds like a lot of money, but it doesn’t feel like it to me from here.

Normally I think of money in terms of houses. The unit of currency that means something to me is the average commission on the sale of a house — call it $5,000. Cathy wants a Toyota Highlander. Call it five houses with the options package. Greg wants a giant plasma flat-panel TV. Used to be a house, now about half that. The entry cost for a newer cash-flow neutral Phoenix-area rental home that will appreciate well is five or six houses.

But since our enbubbulated friends started predicting that we’ll all be eating Top Ramen soon, I’ve been trying to think of money in terms of Ramen. It’s not that easy. Everybody loves Ramen at least once in a while, but the numbers get impossibly large very quickly.

How much is enough? I think something like a hundred million packages of Top Ramen oughta do the trick…

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