Real Estate Sales - New Ideas

[Investcom]

Hi
This is my first post on this site so hello one and all.
What I want is some objective/critical feedback on a couple of strategies that I want to put in place in a new real estate business that I am about to start.
However before I do that just a little of my background so that you have an idea of where I am at - it wont take long - years ago worked in town planning (UK) then on to real estate sales where I ended up as a master franchisee of about 20 offices in Adelaide,left that around 1999 and concentrated on investing in real estate and now have 17 properties with pretty good equity.
So thats the history. What I want to do now is get back into real estate sales (for some strange reason I actually enjoy it) but I want to offer something a little different to my vendors when it comes to their selling costs (commission).
My first idea is why not let them pay their selling fees when it suits them ie rather than lose X% at settlement keep that and pay say a monthly amount over 60 months. Benefit to them more cash at settlement benefit to me cash flow rather than commission spikes.
Second idea a full commission rebate ie pay commission by way of a loan to the company at settlement and receive an annual loan repayment rebate over 5 years (low at first ballon at the end) Benefit to me being possibility of more listings plus lump sums of cash to further reduce loans on ips with the belief that by the time the 'loan' is repaid the ips have increased equity. Benefit to the vendor they get their money back.
I KNOW that these strategy outlines are very simplistic and I can flesh them out some more if you want but it will take far too long on this post. Also these strategies form part of a full and professional service where the option of a more conventional approach to fees will be available.
The main reason I am considering these strategies is because I can and I want to offer a niche service that is genuinely different, where there is something in it for everyone, after all its the same old stuff out there with few genuine attempts to benefit the mum and dad seller or investor for that matter.
My concerns are that the public wont 'get it' with a danger of if its too good to be true it probably is! Also with strategy 2 is it going to be ok to accept a loan as payment.
Anyhow this is going on a bit. Over to you rip it apart let me know what you think. Ta

 

[alexlee]

Aren't you taking a lot of credit risk here? What rights do you have if the vendor stops paying you?
Alex

 

[Investcom]

Yes there is a risk and it would need securing as much as possible but on the other hand if you know who they are and where they are its a good start. Also the fall over rate should be more than offset by the ability to attract customers. Thanks for the feedback

 

[steveadl]

I don't have experience with realestate sales so could be way off here - but if you went down the path of trailing payments vs. lump sum on settlement:

Are you going to find it hard to expand since REA's who come to work for you would essentially be on the same 'drip feed' income? For you it might suit because you probably have plenty of equity and cash after already being a successful investor, but chances are they won't. If you want to remain a one person show, then it doesn't matter - but I assume you would want to expand and grow.

 

[Investcom]

The expansion thing is an issue. I thought of offering a salary rather than a commission structure (funded out of ip equity) up until the salesperson hit critical mass with their own income stream.However the aim at this point is to remain 'boutique' ie small and niche. With todays technology a few can do a lot and past experience tells me to be very careful about bums on seats just for the sake of it. Thanks for the feedback

 

[eKwatee]

My first idea is why not let them pay their selling fees when it suits them ie rather than lose X% at settlement keep that and pay say a monthly amount over 60 months. Benefit to them more cash at settlement benefit to me cash flow rather than commission spikes.
Second idea a full commission rebate ie pay commission by way of a loan to the company at settlement and receive an annual loan repayment rebate over 5 years (low at first ballon at the end) Benefit to me being possibility of more listings plus lump sums of cash to further reduce loans on ips with the belief that by the time the 'loan' is repaid the ips have increased equity.

One problem may result from this system is If the reason the vendor's are using you to sell their home is so they can have more money post settlement this may affect their borrowing power on their next purchase because they will be carrying a debt from their previous sale.

 

[twobobsworth]

Not sure what market you're targeting, but it sounds a little too complicated for your average joe.

 

[kegger]

Good on you for the 17 props !

Would be interested in learning some hints and tips in time.

Great to hear you thinking out of the square. My only comments would be that I am not sure that everyday 'home sellers' would either understand or be willing to give it a go. I think 'investors' would, as they are a little more adept at understanding these things, BUT, investors don't sell property..........

This idea could work if it was marketed right and the right language was used to attract customers, you are definately onto something good here.

Would it be possible for you to waive the comission completely if they bought their next property through you. That is, they could pay the comission, but if they bought another property through you, say with 6 months of selling, you would reimburse 1/2 the comission back to them ?

 

[BayView]

With 17 properties, why don't you sell half, keep half, live off the pos cashflow and retire to an island somewhere?

I think offering the choice to the public is good, and as was said; investors are more in tune with it and would possibly take it up, but the average person may just want to have a clean finalised sale transaction and move on.

What sort of instruments are you gunna have in place to secure yourself when they stop paying? And they will.

 

[steveadl]

From a personal stand point, I wouldn't do it.

I'd rather pay say $7k on settlement, than have a debt of $7k sitting there for the next 5yrs being paid off. Upon settlement, it's all finished, and if I never had that $7k, I can't miss it. As opposed to getting it, then needing to keep drip feeding it off over the next few years.

Just not appealing to me - but as I said, that's a personal choice.

 

[LynnH]

I would have to agree with Steve - I would prefer to pay upfront and not have to keep track of things for several years into the future. The old KISS principle, I guess.

Cheers
LynnH

 

[hfw]

Sounds fine to me, although as noted above there is credit risk. Also you would need to charge interest or a higher fee to compensate for the time value of money.

I think it should be an option that the vendor chooses rather than the only option.

 

[marg4000]

As an investor, I reckon it would be messy.

How would it affect CGT? The commission is included with selling costs when calculating the CGT. If it hadn't been paid, would it still be claimed at that point? And if not, when? Especially if it is paid over a couple of years?

Personally I prefer to wrap everything up in the one transaction, pay the commission and end of story rather than have loose ends hanging about.

Marg

 

[Investcom]

Thanks for all the comments gives me something to think about. I understand the keeping it simple point because thats what I see as the biggest hurdle.
Interesting to read that some would rather pay the comm lets say $7K upfront rather than hold onto it say in an offset account or line of credit to reduce interest costs on ip.after all a direct debit once a month or even once a quarter should not be too much to think about.
Also why not take up option 2 pay the $7K by way of a loan and get it back over time?
As far as keeping people honest with payments i agree that there could be some issues but interestingly enough I have sold a few of my properties over the years by providing vendor finance (great way to get top price) and touch wood never had a problem with repayments. Lucky I guess

 

[aaarghhh]

I like the idea InvestCom.

It's like a Harvey Norman 60 months interest free thingy within the confines of a real estate commission deal. But I'd do the 24 or 18 months interest free period instead as people are more conditioned to the numbers 18 or 24. Old Gerry and a bunch of other retailers, bombard customers with the interest free concept, so it is familiar to joe public.

Interested to see how you securitise the deal, 2nd mortgage? Caveat? Charge penalty interest 30% from the beginning on defaulting just like Gerr-o?

Elegant concept
Aaron