Types Of Leverage Every Real Estate Agent Needs To Know

Looking for tips and tools for your real estate growth plan? Want to become a successful real estate agent but don’t know how to start?

A generalized principle is a term used by Buckminster Fuller, who was called the “Leonardo Da Vinci of the 20th Century,” to refer to a subject that is true in ALL cases, with no exceptions.

At The Real Estate Business School, we teach generalized principles because they are true in all cases. No matter which way the economy goes, the generalized principles can be counted on and trusted as they are always true and apply in all cases.

For example, gravity is a generalized principle. If you don’t understand gravity, drop something. Every time you drop something, it will head toward the center of the earth. Therefore, gravity is a generalized principle.

Another Generalized Principle is the principle of leverage. Leverage refers essentially, to doing more with less.

There are six basic ways to apply the principle of leverage.

1. Tools

This is the oldest, most well-known, and most consciously used from of leverage.

Conscious, because this is often done deliberately, with thought and planning. Archimedes said, “Give me a place to stand and a lever long enough and I can move the world.” If we want to move an object that outweighs us by several hundred pounds and therefore impossible to lift, we find a lever and a fulcrum and go about the process of moving the object from where it is to where we want it to be.

Over the centuries we have developed sophisticated tools that not only help us do more work in much less time, we also have tools that allow us to enjoy life more.

Some examples of tools that allow us to do more with less: chainsaws, horsedrawn wagons, motorized vehicles, electric vehicles, airplanes, stone tablets, pen & ink, typewriters, telephones, computers, text messages, voicemail, etc.

The more one observes, the more one sees. An Apple watch with 4,000,000,000 songs on it? By the time you read this, that will be obsolete.

A recent interviewer with a small group of millennials asked; “What function would you remove from your smart phone?” Answer: the phone.

We are doing so much more with so much less, soon humans themselves will be obsolete.

2. People

The first thing to understand is that leverage is the opposite of hard work. Hard work is a highly overrated activity and will not make you rich; instead it will make you very tired.

My father did his best to instill in me what is still today called a good “work ethic.” He worked very hard and expected me to do the same. On more than one occasion, he referred to me as “lazy” if I slacked off or appeared disinterested in the task he had given me.

Since I wanted to please him, I did work hard and continued to do so for years. As I got older, the work became harder. He and I worked together in a family-owned business.

Other employees worked for us as well. I noticed that the more people who were working, more work got done and there was less work I had to do. The end result was the company made more money.

One day, it dawned on me that my dad was right. I’m lazy. I also discovered laziness is the key to success. I had stumbled upon the generalized principle called leverage. I have been doing my best to apply it ever since. No one succeeds alone. You are always better off on a team. There is no Synergy when you are working alone.

Don’t waste time trying to excel at something you dislike or are only “Very good, Fair, or Poor” at. Just don’t do them. Why? Because you don’t need to. There are people who are looking for jobs who are excellent at the things you do not do well. This is how you get the right people on the bus and in the right seats. Hire people who are “Excellent” where you are “Poor.” Your weakness is their strength. Your strength is their weakness. That’s how you build teams.

3. Money

How do we apply the generalized principle of leverage using money? Using real estate as an example, you have decided to buy a home. You have saved up $200,000 cash to do so.

You have two choices: buy a house for $200,000 or less and pay cash, or you could use leverage by buying a $400,000 house and using someone else’s money (borrowing $200,000, or 50% leverage). The amount of leverage you use depends on your comfort level.

If your tolerance for risk is higher, you could use 80% leverage and buy a $1 million home by putting the $200,000 down and borrowing $800,000. Most investors use leverage to buy more than one property. For example, an investor has $200,000 cash, what are their investment options?

• Option One: Buy one house for $200,000 cash and have no debt.

• Option Two: Buy two houses for $200,000 each for a total of $400,000. Use 50% leverage, put $100,000 (50%) down on each house and put $100,000 debt on each house.

• Option Three: Buy three houses for $200,000 each for a total of $600,000. Use 67% leverage, put $66,000 (33%) down on each house and put $134,000 debt on each house.

• Option Four: Buy four houses for $200,000 each for a total of $800,000. Use 80% leverage for $50,000 down (25%) on each house and $150,000 debt on each house.

Another way to know that a person is over-leveraged is called “the sleeping factor.” If you can’t sleep… How do you leverage via money?

4. Product

One of the criteria I have for the business that I am in is that I need to be able to leverage it. For example, the worst kind of business for me personally would be one that depended on me to work constantly and if I did not work then there would be no business.

The question you have to ask yourself is this: “If I stopped working today, would my income stop?” If the answer to this question is “Yes,” then you may want to re-think being in that business.

If you cannot leave it and have it operate without you, it is not a business; it is a sole proprietorship, the lowest level of evolution for a businessperson. (see Evolution of Humans in Business, Chapter 2: Subtopic Three).

The other criterion is that I need to be able to sell the business someday.

What makes a business valuable and easy to sell?

There are several entities that add value to your business that someone is willing to pay for. They are: 1. Inventory

2. Furniture, fixtures, and equipment

3. Accounts receivable

4. Cash on hand

5. Goodwill

6. Real estate

7. Involvement of ownership

8. Systems – is the business systemized?

9. Scalability – can the business be expanded or grown?

10. Market share

11. Demand

12. Profit/cash flow

13. Reputation

14. Management

If these are present in the business, the business will have more value. Let’s face it, someday that business will trade and when that day arrives, if you are the owner you are probably going to want it to have maximum value.

The license gets you into the business, but it does not keep you in the business.

To stay in business, you have to treat it like a business. In addition to the required technical education, you need a business education. If you want to become financially successful, you also need a financial education. The technical, business, and financial knowledge is what we teach; that is our product line and most of it is online. We no longer have to stand and speak in front of a roomful of people. Over 90% of our curriculum is now online and that is how we leverage it. We build it one time and sell it over and over again. Then we extended the product line and then we put it online.

Most people get into real estate because, as independent contractors, they don’t have a boss. They are wrong. Everyone has a boss. The marketplace is your boss and if Realtors® are not valuable to the marketplace then the marketplace will fire them.

So, for Realtors® to be successful they must have a good product or service and they have to leverage it. what is your product? What business are you in? How do you leverage via product? List the ways…

5. Technology

Technology is a great example of products that do more with less. All technology including: computers, tablets, cell phones and watches, allows people to do more and more with less and less. Observe the many ways humans are doing so much more with so much less.

It is incredible when you begin to notice that all the things that used to be done with physical labor and people are now done electronically, digitally, and with robots.

Examples of technology used in the real estate business that adds value to the customers by doing more with less are:

• Email: Sending messages to hundreds of thousands of people across the country or around the world simultaneously. For free without copying and printing cost? For real?

• Using social media platforms such as LinkedIn, Facebook, Pinterest, Instagram, Web browsing, Google, Bing, Explorer, Safari etc. all FREE! Unbelievable.

• Using software that cuts the time to 20% of what it used to take to handle the details of contract-to-closing. Unbelievable.

• Accessing full MLS listings from any mobile device 24/7? Access to any house from your smart phone? Incredible.

• Smart phones with FREE features NO ONE ever thought we would ever have? GPS? I can travel ANYWHERE in the world, know where I am, how to get where I’m going, a voice will tell me, and I’ll never get lost!

6. Education

How will you use education to leverage yourself? Think about it like this: we all know that the top producers in our business have several things in common; the main thing they all have in common? They see education as an investment, not an expense. What is the biggest difference between the $500,000 to $1,000,000 GCI producer and the $100,000 producer? The amount of education they have. They can have the same amount of motivation, drive and desire, but the smarter agent will win every time.

The most educated people in our society make the most money. Everyone knows that. Why? because of leverage. Because the more you know, the more you can do with less. Remember; hard work is a highly over-rated activity! The key to success is laziness. Do more with less by applying the principle of leverage to all aspects of your life; personally and professionally. Focus on Income Producing Activities (IPAs).

How will you apply the Generalized Principle of Leverage (tools, people, money, product, technology and education) to your business? List the ways…

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