Truth 2 Referrals Help with Your Retirement Fund

When you're building a referral business, I want you to think about your retirement. Here's what I mean. In the insurance industry, they have a great setup. Every time a salesperson sells you an insurance policy, that salesperson keeps getting a little residual as long as you're making your premium payments. It's not a lot, but it keeps coming. In the first year, the agents make the bulk of their commission, then after that they just get a little residual. But you keep multiplying those residuals by hundreds of clients. There are some insurance people making a ton of money every year and they're not even actively working insurance anymore. I want you to consider this concept of residuals in your real estate career.

When you decide to get out of real estate, what are you going to do with your past clients? You can take your client base, your referral business, and sell it to another agent. But, you can't sell it to another agent if you don't have good systems in place where you can quantify the money you're making from referrals. You need to be able to show another agent, "Here's my system, here's my client base, and here's how much money I've been making from these people." You're selling a system, not just a list of names. So the sooner you get this system in place for yourself, the better that will position you for when you want to get out of real estate.

A perfect illustration of this is Jay Bayliss. Jay lived in Fairfax, VA, and he used to list and sell. When he got out of real estate, he sold his client base to another agent for $10,000. He did this because he could show that agent how much money he generated just from his referrals. Could you put a dollar value on your book of business?

Here's a formula that I find works really well.

Take your last three years (because three years is substantial enough to show somebody that any given year was not a fluke) of income you generated from your client base and come up with an average. You could sell it for 80% of that average. This percent is not an exact number, but it sounds good to me because it would take less than one year of business from just that client base to pay for itself.

So, let's say that your average comes out to $50,000 a year; 80% of that is $40,000. You would then sell your book of business for $40,000. Now, there's a good chance that the agent you're selling it to is not going to have $40,000 in his bank account to buy your business, so here's the best way to get paid. I would not do referral fees—in other words, arranging that every time he does some business with one of your past clients, he sends you a referral fee—because that's a nightmare to track. Instead, you create a note. You tell him $40,000 at X percentage spread out over X years. With a balloon, without a balloon, pay interest only for a period—whatever you like. If you sold your book of business for $40,000 at an 8% interest rate for a period of four years, you would receive almost $1,000 a month. And what's really great is that this is completely passive income. You are now benefiting from the groundwork you laid throughout your real estate career.

Your Retirement Planning Guide

Your Retirement Planning Guide

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