One of the things I wrestle with is how much time to devote to our brokerage operation.
As many of you know, I supervise six agents who help investors buy and sell investment property in gentrifying parts of LA.
Compared to our fund management business and our fee-for-service development business, the brokerage is tiny. To give you a sense for how tiny: We generate more revenue from one decent fee-for-service deal than we will from the entire brokerage this year.
That’s not to say that the agents aren’t active; they are. It’s just that the economics of the business are such that the agents (appropriately!) receive the vast majority of the commission income from their deals. And since the deals they are doing are generally not huge (mostly in the $500-1.5MM range), the amount of revenue we collect on a given deal is pretty small. Even with pretty active agents, the numbers don’t really get that interesting.
So, why do I bother with the brokerage?
1. We derive a lot of market intelligence from the agents, who are all smart, diligent people constantly looking for interesting deals to sell to their clients. They’ve often brokered deals for us (in other words, represented our fund entities in acquisitions).
2. At scale, the brokerage economics improve. Six agents, particularly agents towards the beginning of their careers, don’t generate a ton of revenue. But, depending on productivity, 20 agents absolutely would. We’re not actively recruiting, because we wouldn’t accept most applicants, anyway. But, over time, I continue to run across talented people who I think we do well in real estate and I bring those people in and train them. Over time, we’ll probably get to the point where the brokerage is an interesting business.
3. It’s gratifying to teach people how to make real estate deals. There’s a big part of me that would have been pretty satisfied with being a highschool teacher (except I’m greedier than that!). So it’s nice to get to spend part of each week teaching something I love, even if it may not be strictly economically rational for me to do so.
I keep the brokerage going / growing for all of the reasons above. So it’s quite gratifying for me personally to stretches like the one we’re in now, where one of my agents just closed a deal yesterday and has another (big one) closing next week and where another agent just closed a very difficult deal today and has another one closing early next week.
The brokerage appears to be hitting its stride!