“Ray Kroc of Real Estate”

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JOIN OUR FREE LIVE TRADING SESSION!]( Hello investor, “Ray Kroc of Real Estate”: An Extraordinary Success Story Of An American Entrepreneur Dave Liniger, the founder of RE/MAX, is the feature of our American Business Success Stories edition. His entrepreneurship journey was extraordinary, starting with the IRS padlocking his office for not paying taxes and creditors pounding on his door for payments. (Photo: Castle Pines Connection) Dave grew up on the farm in Marion, Indiana, where he woke up at dawn and worked until nighttime. He attended but dropped out from the University of Indiana. Chasing the lure of the adventure of the military, he joined Air Force and moved to Phoenix, Arizona. His military career didn’t go far, but he bought a house in Tucson at 19 years old. Remodeled and sold it for a $4,000 profit. He was hooked. He plowed his military salary into down payments and scaled up his house flipping business. By the time he was 24, he owned 20 single-family homes. The natural path took him to become a real estate agent. Immediately, he soared to become the top producer. Eventually, he stumbled upon a unique business model that changed his life forever: a 100% commission concept. For most brokerage firms, sales agents split as much as 50% of commissions with the brokerage’s owner. In return, the firm will pay rent, advertising, and other overhead expenses. Dave loved the model as he could make more money for himself. But despite all the success he had in Arizona, he was not a fan of the desert. Dave set out to a greener pasture by moving to Denver and immediately became the top producer in the new brokerage he worked at. But he hated giving away 50% of his money. He tasted the 100% commission structure in Phoenix, and he couldn’t go back to the conventional model. So, he started his new brokerage firm using a 100% commission concept. The company’s name was RE/MAX -- an acronym for "real estate maximums." And of course, Dave needed money to get it off the ground. Using his polished salesmanship skills, he closed five Denver developers to invest $300,000 in his venture. Troubles from the start: The first month was solid. They opened eight offices right off the bat. But the troubles began from there. The Arab oil embargo caused a worldwide energy crisis and delivered a severe blow to Denver’s real estate market in 1973. So, Liniger’s developers (who backed his venture) were cash-strapped and backed out their $300,000 investment. Immediately, Liniger had eight offices with no money to run the operations. Moreover, he struggled to recruit top agents to his company. These agents were top in their markets, and they were reluctant to take the risk to join an upstart brokerage. - "We interviewed 204 agents the first month that we were trying to kick RE/MAX off," Lininger said in an April 1990 interview with Nation's Business. "But only four agents signed up--and they weren't the four best ones." As a result, RE/MAX was losing $30,000 to $40,000 a month in cash flow. RE/MAX immediately teetered on the brink of collapse. Dave couldn’t pay quarterly federal withholding taxes, so the IRS padlocked all of his company’s offices. But Dave told the IRS that the government has no hope of getting money if his offices stayed locked. And the government wasn’t the only one knocking on his door. Creditors chase Dave down as Dave owed $780,000 in debt. While Dave’s wife Gail fended off the creditors and the IRS, Dave got his head down and recruited agents fiercely. By the end of the company's first year, the Linigers had 21 sales agents under their employ. Then the FBI came. RE/MAX started to succeed in recruiting agents, but another trouble followed. Denver brokerage firms saw him as a big threat to their existential commission model. They worried that Dave might steal their best agents with an attractive 95% commission system. So, they attacked RE/MAX with full strength. They spread nasty rumors that RE/MAX engaged in engaging in illegal stock offerings, that its sales agents were illegally dealing in government-backed mortgages, and that Liniger was using home buyers' escrow accounts to pay for existing bills. Those rumors caught the attention of the FBI and the SEC. They investigated RE/MAX’s practices. The state of Denver also started its own investigation, sending auditors once a week for six months to examine RE/MAX's books related to escrow accounts. Each investigation failed to find any wrongdoing. Surely, these years were brutal as Dave reminisced in one of his interviews: - “Those first few years were tough on everyone,” said Dave. “Long hours and extensive traveling … every senior executive at the company was divorced.” Eventually, the business found its momentum when Dave Liniger embraced the franchising business model, mastered by Ray Kroc and his McDonald’s model. He recruited entrepreneurial brokers to start their RE/MAX offices from the ground up. That concept took off, and Dave was finally in the green: - "Our cash flow exploded, we took over the Denver market, we paid off our debts, and the rest is history,” said Dave Liniger. By the end of the 1980s, RE/MAX stood as a towering real estate giant. Today, the company had passed Coldwell Banker in the industry rankings, trailing only Keller Williams Realty, the largest broker of residential properties in North America. - “I grew up on a farm with a good work ethic. I understood what it was like to get up at 5 o’clock in the morning and work until after dark. The consistency of sticking with a business plan over many years instead of just trying something for two or three months and giving up saved us.” Dave Liniger, the founder of RE/MAX (Photo: Jenny Brundin/CPR News) Invest In The Next “McDonald’s” With A New, Exploding Segment Today’s Stock Pick: RE/MAX Holdings, Inc. (RMAX) Dave Liniger isn’t only an extraordinary entrepreneur, but also, he built a marvelous franchising company that some experts call the next “McDonald’s.” And I believe RE/MAX will become one of your favorite stocks to own. Let me explain why. First of all, RE/MAX’s share price was a textbook case of being in the wrong place at the wrong time. The stock was coasting to its all-time high in 2018 at $67.20. And then, the cyclical nature of the real estate industry saw a downcycle. Existing home sales were down by 10% in 2019 from the prior year. You can see the downcycle for existing-home sales in the chart below: (Source: tradingeconomics.com) You can see how RE/MAX’s stock price was down during 2018 downcycle: (Source: TradeAlgo) As soon as the industry bounced back, the pandemic hit the industry like a wrecking ball. RE/MAX, like all other stocks, nosedived. After a brief boom, the real estate sector went through another downcycle. The real estate sector has struggled in the high-interest-rate environment. However, the sector is poised to turn around once the Federal Reserve begins to cut interest rates. The stock is still 83% off its all-time high in 2017. There’s no reason to believe why RE/MAX wouldn’t get back to its 2017 level. RE/MAX has been named among the top-rated franchise brands by Entrepreneur’s Franchise 500 for 40 consecutive years. Here are some more highlights about RE/MAX’s business: - RE/MAX is ranked #25 on Entrepreneur’s top global franchise brands in 2020. - RE/MAX agents — more than 120,000 worldwide — sell more real estate than any other brokerage. - According to the 2024 RealTrends 500 survey, RE/MAX agents averaged twice as many transaction sides as competing agents – for the 16th consecutive year. - RE/MAX had the most brokerages qualify for the REAL Trends 500 rankings. Of the 1,367 participating brokerages that qualified for the survey, 23% were affiliated with RE/MAX. Simply said, RE/MAX agents proved to be among the most successful in the industry. This is vital because it’ll only attract even more agents to join the company. (Source: RE/MAX) What’s more, RE/MAX has quietly built another top franchise brand which we will cover next… A booming mortgage franchise: RE/MAX made a brilliant business move. It saw a white space in mortgage franchising. It started a new company called Motto Mortgage, and it’s the only national mortgage brokerage franchise in the country. Motto Mortgage is already one of the fastest-growing franchises, according to Inc. (Source: RE/MAX) Right now, investors are overlooking this potential gold mine. Right now, it remains in the investment stage where it loses money on the adjusted EBITDA basis. Once it turns profitable, it will represent yet another cash-generative business for RE/MAX. And the stock market will certainly notice and reward shareholders fabulously. (Source: RE/MAX) In other words, RE/MAX isn’t a smaller company than it was in 2018. It’s bigger, and the future is unquestionably bullish. Not only that, RE/MAX used to be one of the best dividend payers. The company stopped paying out dividends in August 2023 due to industry difficulties and a lawsuit. The company lost money last year, as well. Once the company becomes profitable again, they are certain to pay out dividends again. Using the previous number of $0.90 per share, it would be about 8.3% yield. RE/MAX’s quarterly TTM dividend payout from 2015 to 2024 (Source: MacroTrends) Still a very young company. You’d get excited by just looking at RE/MAX’s market cap. It’s around $204 million. The largest competitor is Anywhere Real Estate, which owns Century 21, Coldwell Banker, Coldwell Banker Commercial, Corcoran, and Sotheby's International Realty. Obviously, that’s a long list of well-known names. Realogy has a market cap of about $548 million. The point? RE/MAX can be as big as it wants to be. With its Motto Mortgage taking off, it can easily add another $500 or even $1 billion to its current market cap. What more can you ask for? RE/MAX has a terrific business model with a long growth trajectory. It likes to boost dividends annually, and the stock is cheap compared to its 2017 level. You’d get a nice dividend yield if it restarts paying dividends, along with a potential share price appreciation. RE/MAX is one of the best stocks out there, and you might thank yourself every time you see a RE/MAX sign outside a home for sale. Buy and own it for a decade. [EARN WHILE YOU LEARN! JOIN OUR FREE LIVE TRADING SESSION!](       © All Rights Reserved, Trade Alliance [Unsubscribe]( | [Manage Preferences](