Is Buying Real Estate Leads Worth It?
Lead Profit Margin
To determine if buying real estate leads is worth it, it all comes down to your profit margin. No matter if you want to buy seller leads or buyer leads, you must determine how much you will make in a successful transaction and subtract that by how much it costs to get a conversion from the leads. Let’s look at an example to break this down further.
Realtor Leads Example
Let’s say you are a real estate agent and your niche was vacant properties. The average sales price for your market is $500,000.00 and you typically get at least a 2.5% commission for every sale. As a result, your average commission is $12,500.00 before all expenses.
To assist you in finding vacant properties, you buy a list from a third-party vendor which provides you with 100 vacant houses per month. The cost for this vacant properties list is $500 per month. Unfortunately, the list that you buy only provides you with the address of the homes so, you have to take your marketing efforts a little further.
You then pay a postcard company $400 dollars per month to send cards to your vacant property list. As a result, your total marketing expense is now, $900 dollars per month. Without getting too technical and including the cost of broker fees and phone bills, we’ll assume $900 is your final expense cost.
Last but not least, we must then determine on average how many months it takes to get a conversion or transaction closed on a vacant property from your list. This is where things can get tricky if you are new. Unfortunately, if you’ve never completed a deal before, you won’t know what to calculate here. However, let’s use three months for this example.
So, three months of marketing to vacant properties will now increase our expenses to $2,700. This was determined by calculating the $900 marketing expense times the three since it takes that many months to complete a transaction.
Now we can finalize the profit margin. Since our average commission is $12,500 and our average cost is $2,700.00 then, we can simply subtract the two. $12,500 – $2,700 is $9,800. So with this example, it would be worth it to pay for leads since you could make a profit of $9,800.
On the other hand, using the same example, let’s say it took you one year to finally get one transaction completed. Now you looking at a marketing expense of $10,800. So we would calculate $12,500 – $10,800 which brings us to $1,700. Although this calculation does generate a profit, it may not be worth waiting a year and definitely would not support a typical lifestyle for the average person.
In conclusion, buying real estate leads can be worth it, but you must understand your metrics to determine if it is a profitable marketing expense or not.
Real Estate Lead Generation for Real Estate Agents
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