How Do You Know Your Real Estate Business Is Healthy?

By Andy Mulholland

He has a background in leading a top real estate team for over a decade and an understanding of the critical role of clear financials, Andy, along with his wife Ellyn, a seasoned real estate CFO, co-founded Simple-Numbers.

The Real Estate Team OS recently interviewed me about what defines a healthy real estate business. It’s not as simple as being healthy or unhealthy. Business health lives on a spectrum, from barely staying afloat to fully thriving. The challenge is knowing where your business stands and what to do if it’s not where you want it to be. With that in mind, here are two questions I usually ask:

Question 1: Why are you still in production? If someone says, “Because I love it,” that’s perfectly fine. In that case, we simply need to factor their output into our evaluation of net profit. But in most cases, that’s not the reason. Many team leaders stay in production because they have to, or their business will not move. They are building a team, but they cannot step away from sales without hurting the company financially. That is the first clear sign of an unhealthy operation.

Question 2: What model are you building? The next thing to look at is the model. This is the most critical factor in determining whether the business is built to last. If someone is running a team and is satisfied with a 5% to 10% net profit, and it aligns with their structure, then that can be considered a healthy business. The model supports the result.

However, if the goal is to exit production and the business operates in a small or mid-sized market, then a significantly higher profit margin is required. These businesses will not rely on recruiting hundreds of agents. They need a tighter structure with more margin built in to allow the owner to step back while still maintaining profitability.

There’s also a different model that appears frequently. It’s the solo agent who wants to keep the bulk of the production but doesn’t want to lose overflow business. They hand off extra deals to one or two agents and keep things lean. This is what I call the shark and feeder fish model. That structure needs to be highly profitable, because the cost of sale is low and the lead agent will always handle the majority of the deals.

The model matters. No approach is wrong, but each one has its distinct economic realities. If the structure does not support your financial goals, or if you cannot reduce your production without hurting the business, that’s the clearest sign something needs to change.

Building a real estate business is hard if you don’t have a clear direction. However, once you determine the model that works for you, everything will fall into place. If you need help thinking it through or have questions, feel free to schedule a strategy session with me today, and I’ll be happy to provide the clarity you need.