JD hosts another episode of the podcast to discuss how to reward and incentivize your employees as well as other professionals you may work alongside as a real estate investor.
Compensation is one important aspect of motivating those around you, but JD also breaks down some creative strategies that he uses to boost morale and create a healthy long term working relationship with his team members at CT Homes.
Listen to the Podcast Here:
How to Incentivize Your Team Members
Hello, everyone, this is JD Esajian. Welcome back to another episode of the FortuneBuilders real estate investing show. Man I am so excited to be here. So excited to talk about today’s topic. I just am off the heels today of getting acupuncture. Now the show is not about acupuncture today. But I’ll tell you what, when you go in for an acupuncture little cupping session where they put those suction cups in those bottles on your back and it pulls your muscles, you got pins and needles in you, man, it’s gonna be a good day.
I go about every three weeks. It’s good for my back, good for my body, and good for my soul. But I digress. So I’m ready for today’s show. We have got a lot to cover. We’re going to talk today about compensation pay. Now I understand some of you are just getting started. I understand many of you are much further along in your careers. I also know that some of you may never have employees, but real estate’s a people business, and this means you’re going to be dealing with people and those people aren’t going to be doing stuff for free. So we’ll talk about ways to think about that whether you have employees or not. I’m going to give you kind of a big picture overview of how we do it at CH Homes.
Word of the Week
No intro is complete without the words or phrases or words or quotes, the Words of the Week. Today’s Words of the Week is our base salary. I know that’s groundbreaking. I know those words are probably two you’ve never heard put together. But they directly relate to what we’re going to be talking about today and are important for you to understand in whatever area of real estate you’re going to be in so we’ll get into that and much much, much much more in today’s episode.
Compensation
We’re a team of now 10 full-time people and one intern for the summer. Our intern is actually a family friend and studying at school down here. And he’s going to be getting a crash course in entrepreneurship and real estate with us. So 10 full-time people. Again, I understand, that you may not have any employees now or ever, but I’m going to talk about how we do. And then you can obviously, break that down into what works for you and your business.
Now moving forward. So in our business, CT Homes 10 full-time team members, and we have two kinds of people in regard to employees. For the company, we have managers who are on salary, plus bonus and commission. And we have people that aren’t managers that work under managers that get paid an annual pay salary, but it’s divided up hourly. And they also have bonus opportunities. Okay, and I’ll talk about those. Now, why did we do it that way?
Well, first off, I should disclaim or disclose or remind everyone that whatever, wherever you’re at whatever state you’re in, you better believe that that state’s going to have guidelines and requirements around how people have to get paid whether it’s the minimum pay, or how you have to structure for the kind of work that they do. So first and foremost, if you’re going to pay people part full time, etc. As an employer, you definitely want to understand what your state requires and benefits and insurance and all those kinds of things.
We’re in California, San Diego specifically. And so we break it up that way based on what our state requires. So understand that first from the state level. But really the intent of this, today’s show, and what I’m going to be talking about is why we do what we do, and why we pay people the way we have been to. So you can start to think about how to motivate and incentivize people that you work with, really independent of dollars and cents, because the pay is one thing, but
“How someone experiences working with you and other benefits you provide, can make all the difference in terms of a healthy long term working relationship.”
Manager Structure
Now as we talk about compensation, let’s focus first on our manager structure at CT homes. Now our managers, as I said, are on an annual salary. That’s a fixed number, I’m not going to talk about what the numbers are, because it’s not really relevant to this particular conversation for everyone. But I will talk about why it’s set up that way and other benefits besides just pay. So there’s a fixed number, an annual salary that our managers that managers in our company receive.
Now, we’ve always structured at CT Homes our pay around some, some base, okay? And then some amount of money that that individual can earn, and really create based off of what they control in their position. And so from that standpoint, their earning potential can really ramp up and be limitless if they really hustle, work hard, use the systems that are there for them and earn and at CT Homes we never want someone who is just happy punching a time clock like just satisfied with the minimum requirements. They’re not going to last too long in our environment. And ultimately, it’s not a good fit either way.
Okay, so managers have an annual salary. It’s not hourly driven its annual base salary, which I feel is a pretty good time to talk about our phrase of the week, which, in fact, was base salary. I’ll read you the description that I pulled off of the internet. It is no surprise to a degree. But it’s interesting to talk about base salary defined as an initial salary paid to an individual without or before any benefits, bonuses, or raises. Okay, and we’re going to talk about what I think are some of the key takeaways from this particular show: those benefits and bonuses. Okay. So that is base salary, our phrase of the week, and to circle back or to come back to what I was talking about.
So our managers have a base salary. It’s not hourly derived, it’s a fixed number for the year. But again, that’s not the number that that individual would ultimately want to earn for their hard work, how they make up the difference between their base salary, and ultimately, their earning potential with bonuses, their commission, and the things within their space and the things that they can control. Okay.
So let’s talk about that on the manager level with the key managers that we have acquisitions, renovations, sales, and then transactions, like the overall kind of X’s and O’s of the paperwork, etc. So, acquisitions, we’ll start there, the way we incentivize our acquisitions, team members, managers, or acquisitions associates, is by the volume of the deals that we lock up and buy, because that’s what they can control.
So acquisitions, Director, Dan, who you’ve heard on the show, many times, he is has an override over all the properties that we buy, because he’s directly involved in every property, we buy, helping to analyze it, going into the property, helping you negotiate it, working with our acquisitions, team members to help structure the strongest offer, negotiate a counter, etc, all these different things.
And so from, from his perspective, he’s tied to every property, now I make the final decision on what we buy, but Dan’s right there with me. So he has an override based on actual profit at the end of the transaction not projected, meaning what we think and hope we are going to make when we underwrite and buy, but what we actually make. That’s, that’s the manager position.
Benefits and Bonuses
And then the other component or bucket that’s available to our managers a bonus, manager bonus. And that’s derived quarterly by how the overall profitability of the company after we pay our bills and pay estimated taxes and all the different things that go into salaries, all the different things that go into running our business.
Now, I’m going to talk about some other benefits, bonuses, and compensation really at the end of the day that our acquisitions team members have access to but these are generally these are available to all of our team members. So at CT Homes, one of the things that I really champion with everyone that works with us, and really, this is something you can do as well, whether they’re employees or just vendors or contractors or real tours, whoever you’re working with is we want to be able to help specifically in our office, all of our team members grow wealth in real estate. Now how do we do that? Well, one thing is to get your name on deeds.
So we have a plan in place at CT Homes where if you are looking to buy your primary residence to a home that you’re going to live in the townhome or condo that you’re going to live in CT Homes locks up a property that could work in that scenario for that individual, we have a reduced number that we would sell the property to that team member for. So while we may be estimated to make 60,000, we will dial that back and sell it to the individual at a lower profit number to the company.
Not losing money or breaking even but making money and getting that team member into a new primary residence, not investment property, although a good primary residence will turn into an investment property, their primary residence, and we’ll help them buy that primary residence. It’s something that we’ve been doing for years, we’ll never stop doing it. Because when you own real estate, you’re locked into the market better, you’re a better investor, you’re happier person. And it’s just a it’s you’re building wealth, there’s a lot of wins in there. So that’s a benefit that’s available to every one of our team members at CT homes.
Summary
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