Mortgage Broker: Freedom Business… or Sales Treadmill

Mortgage broking looks like the perfect business.

No stock.
No shopfront.
Flexible hours.
And commissions on every deal.

But behind that model is a very different reality.

Pipeline pressure.
Delayed income.
And a constant need to generate deals just to stay afloat.

In this episode of Good Bad Business, we break down mortgage broking using our MOAT framework, Margin, Operation, Advantage, and TAM, to understand what it really takes to make this work.

We unpack:

•  How brokers actually make money - upfront and trail 
•  Why cashflow timing matters more than commission size 
•  The role of referrals, approval rates, and lender relationships 
•  And whether a broker can realistically hit $1M in year one

This isn’t a passive income business.

It’s a volume and consistency business.

Because the deal doesn’t pay… until it settles.

And we don’t want you to get into a pickle.

If you’re thinking about buying a business,
 listen first.

If there’s a business you want us to break down,
 send it in.

And if you got value from this, share it with someone before they sign something they shouldn’t.

Because we don’t want you to get into a pickle.

Transcript

SPEAKER_01 0:00

Imagine a business where you don't hold stock, no shop fit out, no inventory, no big upfront cost, just a laptop, a phone, and a lender panel. And every deal you write pays you upfront. And it keeps paying you for years and years on end. That's the pitch for the mortgage brokering industry. But here's the real question: is this a genuine wealth-building business or a high-stress treadmill disguised as flexibility? Because right now in Australia, brokers write over three-quarters of all home loans. That's massive demand. So today we're going to break it down properly. The business model, the unit economics, the moat, the TAM, and then one brutal test. Can you actually make a million dollars in year one? Fabs, let's get into it. Let's get into it. Good bad business. Are you people? Good bad business. Okay, so let's uh zoom out. The mortgage brokering in Australia is relatively new, early 90s. Borrowers wanted choice, not just one bank. And then we enter the mortgage brokering, all the mortgage brokers, the aggregators, we've got Aussie, we've got mortgage choice, we've got loan market, all built on the same idea. Don't be the lender, distribute to the lenders. And that's the first insight into this industry. Because if we fast forward to today, brokers now control the majority of new residential loans. That's dominance. But at the same time, regulation has tied it, best interest duties, which is bid, which is caught in the industry, compliance, audit trials. And so now you've got more demand, more volume, but also more reels. And that's where the tension really starts to begin within the business, and that's where it lives.

SPEAKER_00 2:09

So yeah, um, and this is an area that you and I are quite familiar with, Pete. So let's strip it back. Um, and you know, to really hit the point home here, a mortgage broker doesn't sell loans, they sell advice, access to those loans, and the execution. So you're the middle layer between the client and the lender. You structure the deal, package the application, and push it through to settlement. And here's the twist: most clients don't pay you. The lender does. Now that sounds great, but it does change behavior because now your income depends on volume, approval rates, and lender relationships, which we know all about.

SPEAKER_01 2:50

I really didn't want to do this one.

SPEAKER_00 2:53

I wonder why.

SPEAKER_01 2:54

Because this is the one, um, this is our industry, it's our network. We know a lot of mortgage brokers, we know a lot of lenders, you know, and we've we've got this particular topic that most of our clients wanted us to do. And then our network's going, no, no, no, don't do it, don't do it. Well, here we are, we've done it. Um, it's either going to be really good or we're going to piss off a lot of people. We might get kicked out of the industry with this, God knows. So it might work for us or work against us.

SPEAKER_00 3:25

Yeah, yeah.

SPEAKER_01 3:25

We might be rage baiting with this sort of you know, when when it's an industry that you know really well, and it's one thing that we're very, very passionate about, you know, helping businesses get out of a pickle. But not only do we negotiate people's debts, but then we consolidate the chaos. And we deal with a lot of mortgage brokers. We love mortgage brokers because in most instances they are referring their matters to us where they have registered caveats and they can't consolidate. And so this not only is an industry that we're very passionate about, but we really wanted to sort of break it down because we do have a lot of new mortgage brokers that are entering into the industry. And so, therefore, hey, you know, why not do it? If it means that we can help the mortgage brokers uh that are entering this fabulous industry, then why not? So here we are. Here we are. So let's really just sort of break it down what the industry is all about and why customers actually love it. It's really it comes down to speed, hand holding, the clear communication, and first home buyers, especially, they sort of come to mortgage brokers with a lot of confidence. Now, here's what they actually hate. It's when a mortgage broker doesn't get the callbacks. There's delays, there's confusions with the lenders, and there's also potential sort of trust issues. Every negative review in this business is an operational failure. And if your process breaks, then the reputation also breaks in respect to the mortgage broker. So I just want to start off with that premise before we sort of head into the margin component, because this podcast is all about the moat strategy. So over to you, mate, when it comes to M for margin moat.

SPEAKER_00 5:17

Yep, let's do it. So M for margin. So brokers get paid commissions, uh, you know, compose your upfront and trail. And that sounds great, but that's revenue, not profit, which we're very, very big on. And with that operational cost, you have aggregator splits, compliance costs, staff, software, insurance, and the most dreaded uh component of this industry, clawbacks. Uh so if a loan and and what is a clawback, right? I mean, you know, to put a comparison, if a doctor, you know, if any other industry, let's just say you're a lawyer. He's already started. I'm very, I'm very passionate about this part of it because, you know, we've all been bit by a clawback. But effectively, it's imagine, you know, you you sought advice from a lawyer, and then for whatever reason, the court case doesn't go according to plan, you get charged guilty, you get found guilty, and the whole thing stacks over. And then just because of that failure, you end up um claiming back the commission or the payment that you made to the lawyer. That doesn't happen in legal terms, but it does definitely happen in the brokerage industry. And basically it happens with if the loan refinances, if the loan discharges due to a sale, if it usually does so within two years, then you're gonna get clawed back.

SPEAKER_01 6:29

So, what you're saying is that you do all this hard work within, and it and it could take you six to eight months to close this deal. And then the clients refinance within the first six to eight months, and you get clawed back. You get called back, and on top of that, you already pay tax on that too, by the way. What a terrible industry. This is horrible. It sounds like you know what you're talking about. It sounds like this has happened to you, Fed.

SPEAKER_00 6:52

So, yeah, so that that's really the the gist of it, right? I mean, the margins can be good because you know it's not a high capital-intensive kind of industry, but it is one that does have those risks involved.

SPEAKER_01 7:04

It's interesting because, you know, in our space, when we're dealing with distressed businesses, a lot of the private lenders have essentially become non-banks. I mean, their rates at the moment are sometimes more competitive than some of the third-tier lenders. Because now you're sort of encroaching that coded component, what's coded and non-coded and things like that. Because if a business is in distress, they're gonna have to consolidate. They've got to consolidate personal debt and obviously commercial debt. And there's only a few operators that are actually in a position to be able to do that. And obviously, with us as financiers, that's something that we really sort of break down. Um, and we're in a position to do that. And I think that's what separates us from a lot of the other financiers and mortgage brokers that are out there. But the point is, is that can we build a brand that enables us to separate ourselves from the financiers, from the mortgage brokers, that enables us to scale. And I suppose that's what we also want to try and sort of break down as well. Because if a mortgage broker is going to enter into this industry, what makes you better than anybody else? Because you've got the generalist and you've got the specialist. A doctor, a GP is a GP, they're giving general advice. So the prescription that he or she prescribes is going to be exactly the same as the doctor that's next door. But if you're a specialist and you're specializing in a certain sector, if you're a brain surgeon, for example, there's only a few of them. So therefore, that is a specialist. And so that's something that we always try and sort of differentiate being a generalist and being a specialist. And I think, you know, if mortgage brokers get anything out of this particular sort of topic in today's podcast, it's really how do you scale? How do you differentiate? So leading into operations, again, I've gone on to my tangent. You went off on one in relation to a callback. So I thought I'd do, I thought I'd do my usual when it comes to sort of branding and specialist and and and being being that um that that specialist and not a generalist. And I think that's really important to sort of break down. Yeah. It is. So operations. This this is a workflow business. Because you know, you might get a lot of leads, but it really comes back down to workflow. And so, how do you aggregate and facilitate that that demand? Um, leads, then it's through to the fact find, through the assessment, through the submission, through the approval, then over to settlement. I'm starting to get anxiety just thinking about because it's what we do on a on a daily basis. Every step must be tight because if a deal falls over, then you've done all of this work and you've got you've got nothing out of it.

SPEAKER_00 9:56

That's right. Yeah, and and on that note, you know, scaling also means building a team. Um, you know, a broker, loan writer, processor admin, we know this better than anyone. When you try and be a one-man band and fly solo, yeah, you might keep all the margin, but you're gonna be in for a horrible time because you're just gonna be a slave to your own business because you're effectively just gonna be swamped with trying to generate leads, prospect referrers, but also manage the pipeline, do all the admin, all the compliance. So, in order to scale, you you're gonna need to build a team.

SPEAKER_01 10:26

You need a team.

SPEAKER_00 10:26

Yep.

SPEAKER_01 10:27

And you need automation. And it's something that you and I and our team talk about on a daily basis. How do we automate the task? Yeah. You know, how do we aggregate and facilitate that demand? Because if you can't create a CRM that has potential AI and automation and things like that in place, you're just a ticket holder. That's right. You're collecting a ticket and you're trying to process it.

SPEAKER_00 10:55

Yep, and you're gonna spend your time doubling up, right?

SPEAKER_01 10:57

And there's only so many hours in a day.

SPEAKER_00 10:59

Yep, that's right. And we know APIs historically, we we know this because we've been going through it, they don't seem to speak to each other as well as we'd like. So a lot of the times we're spending minutes, if not hours, trying to double up on the data entry, which is taking up the, which is probably uh arguably, I don't know what you think, but operationally it's the biggest friction.

SPEAKER_01 11:17

Well, you've got the collections companies that are out there, the collection CRM, we won't we won't name them because you know it's it's our industry, but you've got collections and they've got a collection CRM, but the collection CRM is not talking to the aggregator panel. And then the aggregator panel is not then speaking to the lenders. Yep. Correct. And so, all right, let's wrap it up. Operations. What do you score it, mate? I don't know.

SPEAKER_00 11:45

Operationally, I mean, look, look, to be fair, because the cost operational costs are generally low, I would probably yeah, look, I'd give it a good you know, seven out of ten, I would give it. Um, namely because the operational costs are low, although the hurdles can be quite high and the friction points can be high.

SPEAKER_01 12:04

Yeah, for me, we're gonna be at around probably two to three because I just think that the APIs, the CRMs, everything that's out there at the moment, the left hand's not talking to the right hand, so I'm gonna give it a low score.

SPEAKER_00 12:21

Yeah. So we've got it as I'm just gonna take these notes down too. So you got we got two out of ten for you and seven out of ten for me. Perfect, and then all right. So now, and um, so on that note, um, Pete, uh, regarding margin, what's your score?

SPEAKER_01 12:45

Margins are terrible.

SPEAKER_00 12:47

Yeah, two years clawback.

SPEAKER_01 12:48

And two years clawback, and they're not gonna pay me for 90 days.

SPEAKER_00 12:52

Yep, yep.

SPEAKER_01 12:54

Like, how do I survive from the time that I close, from the time that I settled to the time I get paid?

SPEAKER_00 12:59

Yeah, that's right.

SPEAKER_01 13:00

So the m margins are terrible. Yeah, yeah. Um, and then with all of this additional cost in respect to building out the team, branding, and everything else, knocking on doors, trying to get leads, um, there's just not enough. And hence why, you know, focusing on the uncoded space and dealing with private lenders, for example, certainly the strong reputable ones, have high margins and you're getting paid on settlement. So, and that in itself is a very tricky component of our industry. Um, there's certainly a lot of skill in navigating that path because you you want to deal with the right lenders. Yeah. But the majority of mortgage brokers are dealing with the lenders and it's a terrible margin. So I'm gonna give this a one.

SPEAKER_00 13:51

Yeah, I'd agree as well as a one out of ten. And I would say that this is especially, and look, it's not to say, and this goes off your point, Pete, what you said before about specializing. If you're a generalist broker, I would say definitely you're gonna be at the one out of ten because you you're gonna be beholden to very vanilla deals that you're submitting to the banks en masse. You've got payslips you're uploading, you know, P A Y G clients, first home buyers. But the problem with that is the easier something is to do, the thinner the margin's gonna be. And also the more likely in the age of automation that could be replaced.

SPEAKER_01 14:24

But the banks are the banks are automating the process. Exactly. The application process, the banks are automating. We use Uline at the moment with the CBA. So if they know that they're losing margins by paying the mortgage broker, why wouldn't they just do it themselves? That's right. Which is what they haven't done. Exactly. And so the mortgage broker that's entering into the industry, be aware. Because if the CBA is doing, it's only going to be a matter of time before all the banks follow and they have their own branded product or sub-branded product that enables them to achieve more margins. I hate to break it to everybody, but banks like margins. Yes, they do. And if they can rule out the mortgage broker and capitalize that themselves and create an automation um AI platform that aggregates and facilitates all of that demand and keep it within their ecosystem, they're going to do it every day of the week.

SPEAKER_00 15:20

Yep. And then the best example is um, you know, you've we've spoken about this the other day. Um, you know, one of the major banks basically, you know, doing an audit on on, I think it was like, I don't know, one billion dollars worth of loans that they found they weren't in arrears, but just because obviously they're APRA obligations as a deposit um holding institution, they had to do an audit. They found that they were fraudulent and they had to report all those um brokers. So effectively, you know, it was over a billion dollars. That's right.

SPEAKER_01 15:46

Look it up.

SPEAKER_00 15:47

Yep.

unknown 15:47

Yep.

SPEAKER_01 15:48

We won't go into detail on that now, but I mean it's it's there. So again, if they're paying out referral fees to the mortgage brokers, and then the mortgage brokers are then able to offer a referral fee, or the banks have offered a referral fee. I think it was the aggregators. The there was a couple of aggregators that got caught up with that as well. Accountants, too. Yeah, that's right. So if the if the referral partner is receiving, I think it was 0.3%, was it 30% of the loan? I can't remember what it was. Yeah, something like that. Less than the broker was. Less than the broker, yeah. So if the referral partners are receiving that and there's an element of fraud, then they're just gonna rule that out. And so that also means that they're gonna want to try and sort of keep it within their ecosystem as well.

SPEAKER_00 16:33

Yep, that's right. So A for advantage. So what's where's the moat? Not in the products. Um everyone has lender access, including clients themselves, they can walk into a branch. The real moats are distribution, referral networks, and trailbook. And really, um, you know, just to go on a little side note here, I mean, I'd say referral networks is probably one of the biggest ones. Um, because look, everyone can uh, you know, everyone knows how to write a deal. I when I first in the industry, and I'm sure you're the same, Pete, everyone assumes it's all about how much credit knowledge you have, how much of a loan writer you are. But that means nothing if you can't get it. And it's something that a lot of people don't prepare for. So yeah, I would say um, you know, from an advantage perspective, actually, no, sorry. Well, what's your take on the advantage?

SPEAKER_01 17:27

Well, there is no advantage because you're offering the same product that everybody else is.

SPEAKER_00 17:30

Yeah, that's right.

SPEAKER_01 17:32

So from day one, there's no moat, it's just hustle.

SPEAKER_00 17:34

Yeah.

SPEAKER_01 17:34

So it's all a matter of you as an individual that's able to get those deals. Because you're offering exactly the same thing that the other mortgage broker is. So there is no advantage as far as I'm concerned. God, we've been harsh with this, but it's gonna, it's it's gonna be a two. I'm gonna score this. Yeah, two. Two out of ten. And there's no advantage.

SPEAKER_00 17:52

And and and look, and both of us can agree, if we didn't have love for this kind of field of the industry, even though we're technically not in this category of broking, um, or we don't like to even call ourselves brokers. We we are but we love the finance and debt space, but that's only that's driven mainly by passions. Without passion, you're not going to be able to make the margin date.

SPEAKER_01 18:12

But that's also reflective upon our brand, because we are in the distress space. We are financiers, we are negotiating people's debts and KV tours and getting them removed and then consolidating the same way that a mortgage broker would. But consolidation is one thing, but if the if the LVR is higher than the consolidation component, like if your debts are 110% of the value of the asset, well, then you need someone to negotiate down from 110 down to 75, 80%. That's right. And then consolidate. That's right. So, you know, we've been able to tap into a market that separates us from everybody else. And that's very, very hard to do. That's five, six years of trial and testing to get us to where we are today. A mortgage broker entering into the industry, there is no advantage. And that's just the one thing that we want to sort of put across.

SPEAKER_00 19:07

That's right. That's right. And and look, I'll I'll touch on this. Speaking of the space we're in, I found that a lot of junior brokers, one of the things that they're actually more terrified of when it comes to dealing in this space is yes, there is a complexity, but it's also they're actually very terrified of selling high rates because a lot of new brokers will be fixated on, you know, I want to refinance this person for 10 basis points. But this is where they get stuck. They're selling on rates. Exactly. They're not selling on rates. Exactly. And you know what?

SPEAKER_01 19:33

We're selling on solutions. Well, we say all the time. What's the solution? That's what about the rate?

SPEAKER_00 19:37

Exactly. And how many times have we had a conversation? I'm sure you've had the same pay. For example, it might be a 9% rate, for example, right? They'll huff and puff about the rate because in their mind they've been advertised, you know, that this major bank has got 6%, right? They're at their friend's barbecue, he's bragging about his rate. But then when we break down the actual dollar-for-dollar nominal repayment figure, all of a sudden there's a light bulb moment. And why is that? Because think about it, right? Other than outside of lending, you don't go into a Maccas and say, you know, I want to purchase this property, I want to purchase this double whopper, and it's going to be 2% of my wage per annum compounded daily. We don't do that. We just say whether there's five. Mediterranean, Middle Eastern. I mean, what else are you going to say? Yeah. Um, but yeah, but effectively, yeah, that that's the main part, I think. Um, you know, being being uh hesitant to sell at a high rate, but also be able to frame it.

SPEAKER_01 20:28

When you have a personal debt that's been originated from company activities, everything is commingled. Now, what do I mean by that? If I take out an unsecured loan and I've now defaulted on that unsecured loan, and that lender then registers a caveat against my personal property, that's when it's commingled. That's right.

unknown 20:52

Correct.

SPEAKER_01 20:52

And so at that point, it's not about rates, it's about the solution because now you need someone like a pickle or a financier to be able to rebalance that property title. And rebalancing a property title needs a skilled individual to remove that caveat off the title at a reduced amount. You want to be able to reduce that debt exposure, then consolidate. Yep. And so that becomes an element of solution, not rates.

SPEAKER_00 21:27

Yep. Yep, 100%. And I think the most fundamental part is you're converting, you know, we're calling that revolver debt, right? So you've got the caveats that are liable for you. You've got you've got you've got debts that are outside of that. And I always tell clients this you want to convert all that debt that's going to a bottomless caveat, a a credit card, ATO debt that you're not receiving any benefits from, and you're converting that into future home equity. So, from a perspective, you've got the implications of that debt, which is what we discussed before and what you said just then, you know, statement of claims for the caveats, but on top of that. Hash flow as well.

SPEAKER_01 22:00

And what happens now with the ATO? Mm-hmm. That's right. Because then you get I knew I knew you'd like this sort of because if you're issued with a director's penalty notice, you've got 21 days to be able to pay that out. Correct. And if you haven't, obviously that's under your company. But then it gets moved over to your personal ATO portal. So that's also commingled. And the ATO debt is at 11.5% a day, compounded daily.

SPEAKER_00 22:29

Not tax deductible either. Okay. Like it used to be.

SPEAKER_01 22:32

So who gives a shit about the rates now? Because you might have a CBO rate at 6% per annum, but now you've got an ATO debt that's that is commingled at 11.5% compounded daily.

SPEAKER_00 22:45

That's right. Exactly.

SPEAKER_01 22:46

So what's the solution?

SPEAKER_00 22:48

Yeah. 100%. 100%.

SPEAKER_01 22:50

So this industry is not about rates. And it's some of our it's some of our peers that own very, very successful mortgage brokering agencies that specialize in the one thing and they do it really, really well. And this is what frustrates me the most about this industry. Now I'm going to go on my bandwagon now.

SPEAKER_00 23:08

Please do it.

SPEAKER_01 23:09

That you can't specialize in everything. And now I'm going to piss off the aggregators because one of the things that annoys me the most about the aggregators is that the first thing that they say is that you need to do finance, you car finance, home loans, consolidation, debt refinancing, asset lending, invoice factoring. It is a total contradiction of what the term specializing means. You can't specialize in everything. That's right. Yep. Jack of all traits. It just doesn't work, but they force you to do that. Yes. And so you can't specialize in everything. That's right. It's a contradiction of terms.

SPEAKER_00 23:47

It is.

SPEAKER_01 23:48

Again, we always talk about food. KFC just sauce friggin' chicken. Yeah, literally. But and so you you've got to specialize in the one thing and you've got to do it really, really well. And that enables you to scale it out, which comes back down to what we're talking about before. Operationally, it enables you to streamline your operations because you're doing the same thing day in, day out, day in. So therefore, you can start to scale up the CRMs and the APIs and things like that. You can automate that, you can integrate AL because you're then in a position to understand what your business model is, what your specialty is. And it also comes back down to sort of general advice that we say on this podcast all the time. If you're speaking to a CEO specialist, it's not sorry, CEO, um SEO. Yeah. And the first thing that they're going to ask you as a marketing agency, well, what do you do? Because how are you supposed to tell Google what you specialize in if you don't know yourself or you specialize in everything? A lot of our peers as mortgage brokers, they've spent a lot of money on SEO. Yeah. But it's gone nowhere because they don't know what they specialize in. So therefore, how does Google index what you do? They might send you the lease, but it's not what you do.

SPEAKER_00 25:02

Yeah, 100%. And and try putting an SEO that's very generalized and you're going to be up against big corporations. You can't afford it. If you pay for that ad words, is it going to send you broke? 100%. And the funny thing is, the ad words, ironically, the main ad words, they're actually captured by the lenders that that broker would be submitting this to, right? So you're going to get eaten up by the very lender that you're relying on to make it.

SPEAKER_01 25:21

It's like we've asked remove KV. It's a cheap, it's a it's a cheap keyword. Yeah. Probably shouldn't say that now that all the big banks are going to say.

SPEAKER_00 25:28

Yeah, yeah.

SPEAKER_01 25:29

Can you take that off the book?

SPEAKER_00 25:31

So all right, so total adjustable market, Pete, all yours.

SPEAKER_01 25:35

Look, the mortgage brokering market is massive. It's hundreds of billions of flow through brokers annually, but there's also thousands of brokers. I mean, there's there's 22,000 registered mortgage brokers.

SPEAKER_00 25:49

Yeah. Yeah.

SPEAKER_01 25:51

So the competition is real. So for me, yes, the total addressable market is huge.

unknown 25:56

Yeah.

SPEAKER_01 25:57

But the competition is real.

SPEAKER_00 25:59

Yeah.

SPEAKER_01 26:00

So look, I'm going to give TAM a big score because it is a big market. Um I'm going to give it a four out of ten. Only because it enables a very skilled company to attract a very large market. But it comes back down to what we just said previously.

SPEAKER_00 26:21

Yep, yep, agreed. Oh, look, I'll I'll give it, I'll probably give it a four out of ten as well. Um, I was gonna give it probably a lower score, but you're right. I think what two things that offset each other, no pun intended, is the total, the actual scale, everyone needs a mortgage, everyone needs finance. But the biggest issue is the filter mechanism for becoming a broker needs to be improved. I'm not an elitist, I don't say you've got to have a master's, you've got to have a bachelor, but at the very least, it cannot be a case where you can't tell the difference in terms of qualifications between someone that's been in the industry for 10 years through 20 years that understands a field versus someone that just literally graduated and got a cert four. So I think that is where offsets it. I'd say if if the credentials and qualifications were fine-tuned a bit better, there was a better filtering, I reckon it'll be an eight out of ten easily. But yeah, but I'd say yeah, four out of ten is a reasonable score.

SPEAKER_01 27:11

Because the majority of mortgage brokers, they've started off working in a big bank and they never decided to become a mortgage broker. The difference between working for the big four and then being a mortgage broker is that the deal's just walked in the door. Yes. Now you've got to go out there and hunt for it yourself. That's right. And the majority of mortgage brokers are doing this as a part-time job. It's like a side hustle. You can't be half pregnant. No, you can't. I've learned that for myself.

SPEAKER_00 27:42

I've learned that. And I I learned that lesson juggling it within the industry. It was hard enough being within the industry. I can't imagine. I hear people, they're like, I'm a bartender, I'm a fitness uh personal training. And do you want a home line? It's like, nah, man. And any deal that's worth its sole is not gonna, you're not gonna have the capacity. If you want to do vanilla P A Y G, no problem.

SPEAKER_01 28:01

You've got to go, you've got to go all in. And that's just isn't with this particular industry. That's every industry. When you're when you're thinking about buying a business or entering into a market, you can't be half pregnant. That's right. You've got to go all in.

SPEAKER_00 28:12

That's right. No, I love that. And on that note, um, the moat score. So we've got one out of ten for both of us for margin.

SPEAKER_01 28:19

God, we've been tough on this industry.

SPEAKER_00 28:21

Our industry.

SPEAKER_01 28:22

We always complain about it.

SPEAKER_00 28:23

So I knew this is never going to be a high score. But I actually think, you know, people are gonna accuse us of a 4D chips thing where we're trying to deter competition from entering. Please, just enter it, please. Prove us wrong. Um, so we've got uh one out of 10 across both of us for margin, and then we've got um uh oh for operation, we've got two out of 10 and 7 out of 10. Then for advantage, we've got two out of 10 for both of us. Then uh for total address wall market, the TAM is four out of 10 across both, which gives us a total score of 23 out of 40, which is a 57.5%. Yeah, okay.

SPEAKER_01 29:00

Yeah, so we weren't we weren't too harsh.

SPEAKER_00 29:02

Yeah, look, we weren't too harsh. And I think honestly, the common theme here is it's it's the generalization that is gonna be the biggest killer. If if no, two things. Generalization, not specializing, and secondly, thinking that just having technical skill is all you need. You need, I would actually argue I know brokers out there that don't have much technical understanding, they can't even read a pay slip. However, they're very good networkers and they were able to scale businesses much more efficiently than the guy that might be a chartered accountant.

SPEAKER_01 29:30

But but no, know your strengths though. Like if you're good at knocking on doors and if you're a good networker, well then you know, employ a loan writer. That's right. Because there's only so many hours in the day. And that's like with any industry, it's with any sector. Know your strengths, and then obviously automate what isn't your strength, or employ a person that's able to do that for you. Yeah. Because the problem with any business is that you've got your peaks and troughs. You're out there knocking on doors, you're you're networking, you get a lot of deals, and then you start processing those deals, and then the next month there's no more deals coming in. There's nothing coming in. So, what is the automation? What is the what are you where are your landing pages? What is your what is your SEO? Um, how are you networking effectively where you're sort of building that moat around you, so to speak. But the reason why, you know, we deal with a lot of insolvency lawyers, a lot of insolvency practitioners, all of the people that refer us deals is that because they know what we do.

SPEAKER_00 30:30

That's right. That's right, 100%. And and you know what? And I want to know your opinion on this as like a final kind of uh thought on it. So I found that, you know, people always talk about on LinkedIn, for example, any kind of social media, right? I've tested the strategy of posting content, you know, you know me, we were both big on content, right? But one thing I noticed is I think the wrong strategy, and this is just you know some unsolicited advice, but I think the wrong strategy a lot of people take to marketing, especially as brokers, is you you everyone goes, you know, why do you post on LinkedIn? Do you want other brokers to see what you're doing and that's it? And there's no direct customers on there. But I actually don't want direct clients half the time. Why? Because I want something filtered through people. And what is it, referral partner? Referral partner. I want I want people to know that a referral partners, because from that one referral partner, you're gonna get five pre-qualified leads that have a bit of a pulse to it, as opposed to let's say you just get 50 with a very generalized SEO optimization, and all of a sudden you see that you're getting just you're just spending your days going through absolute bad quality leads, and that's taking up time, and you're not making any revenue from it.

SPEAKER_01 31:34

Well, it comes back down to understanding exactly what you do as a business. Exactly. Yep. And so then when you're networking, you're obviously looking at potential referral partners that can complement what you do. That's right.

SPEAKER_00 31:46

That's right. Yep. So yeah, um, you know, for all those that are looking to enter the game, the key word is specialization. Don't be a generalist.

SPEAKER_01 31:55

Absolutely. Yep. First year, over to you. Can you make a million dollars in the first year of being a mortgage broker? Because that's what this podcast is all about. We want to break down the moat strategy and then we want to find out whether or not you can generate a million dollars within the first year. Because if you're not generating a million bucks within the first or second year, you've just got a job. So for all the mortgage brokers that are thinking that you can do it, just stay working for the big banks. You'll probably make more money out that way if you're not going to start implementing strategies and a lot of the um specialist discussions that we've had throughout this podcast.

SPEAKER_00 32:33

Yeah.

SPEAKER_01 32:33

Um, building a brand, building systems, building processes.

SPEAKER_00 32:38

So what's the verdict? So um with the first with the mill uh first year test, so average loan is around 725,000. Net commission per deal is around 3,700 to 4,500. To hit a mill, you need probably around 220 to 260 settlements per month. Uh sorry, uh per year, uh, which equates to 18 to 22 per month every month.

SPEAKER_01 33:00

So that's a big mortgage. That is a month. That's that's that hard work.

SPEAKER_00 33:03

You're doing that a month, yeah, yeah, yeah. And look, it's possible, but as with anything, you know, uh it will take scale, it takes logistics and yeah.

SPEAKER_01 33:13

18 to 22 deals a month. It's that's a big company.

SPEAKER_00 33:17

That is a big company. And with size, we say you've got to split the margins more. So remember, yes, you're bringing on more staff, but with that, you're slimming your margins as well.

SPEAKER_01 33:26

Yeah, yeah. So that's not a solo on operator. Yeah. I mean, that's a team.

SPEAKER_00 33:30

Yeah, that's a team for sure. Yeah.

SPEAKER_01 33:32

So yeah. So um look, we we know of companies that are doing those types of numbers, but that is a highly automated, finely tuned machine.

SPEAKER_00 33:43

Yeah.

SPEAKER_01 33:44

But that's look, yeah, of course, we're talking about the industry that we know very, very well. But at the same time, with a lot of the businesses that we analyze um on a weekly basis, and also the scenarios that we receive. I mean, our the exact number um mistakes me at the moment, but I know with a lot of the businesses that we're dealing with, they can be generating revenue anywhere between 8 to 13 mil a year. So we're we're dealing with your mom and dad operators and we're also dealing with small and medium enterprises. And I I think the interesting thing about our business is that the general consensus we're dealing with businesses that are in a pickle. Yeah. Yes, we are. However, there are different types of analogies of that because a lot of the businesses that are generating 15 mil a year is that they've grown their business via debt. Now, that doesn't mean that they're a bad business. They just need to be able to shore up their balance sheet, which enables them to generate free cash flow. Yes. And so they can reinvest back into their business. So all businesses at some stage need to be able to restructure and shore up their balance sheet so they can focus on that next phase of growth. That's a different type of pickle.

SPEAKER_00 35:12

Yep. Yep, 100%. It's kind of like uh I'll I'll give the I'll give a fine analogy for that point you made, which is a very critical point in broking terms. It's kind of like, you know, you you you you spend all this upfront money to pay for leads, right? You get all these leads that are worth, let's say, 250 bucks each, they all end up being crap. You you you you've spent all the very technical, right? That is very and that is actually analogy to a lot of um uh successful businesses with high revenue, as you said, overlever over leveraging themselves. Because the bottom line is profitability. If you're not making a profit, it doesn't matter what your revenue is because you've got nothing left over to reinvest in your business to enrich your own life.

SPEAKER_01 35:52

So yeah, of course, because the the margins and the debts, the debts are compounding into the margins. That's right. So there's nothing left over. So you need to restructure at some stage. You need to shore up your balance sheet. And at that point, too, that's where you start to fall behind with some of the unsecured lenders that you've taken on loans with, and then they start registering sort of caveats against your property. Now, and rightly so, they should because you've over you've over-leveraged yourself. At that point in time, you are able to generate a certain amount of revenue that entitles you to an unsecured loan. But before you know it, you start to fall behind with the ATO and it starts compounding into your margin. So therefore, you do need to restructure at some point.

SPEAKER_00 36:42

Yep.

SPEAKER_01 36:42

And so that's not a fault a fault of the lender, that's a fault of the operation.

SPEAKER_00 36:46

Yeah, exactly right.

SPEAKER_01 36:48

And if you've grown your business via debt, well then Yep, that's right.

SPEAKER_00 36:55

Basically, we're in conclusion, when you know your your cash flow is no longer your collateral, your collateral is going to be your property. Yeah. Simple as that.

SPEAKER_01 37:03

Agreed. It goes back to that old school of, you know, 20 years ago, if you wanted to get a business loan, you had to use security.

SPEAKER_00 37:10

Yes. Yes. Yeah.

SPEAKER_01 37:11

Yep. Now you can achieve an unsecured loan. And and and rightly so. I mean, it's a it's a brilliant way to be able to grow your business. But if the business model has certain faults in it and you haven't quite understood what your business model is, then the more debt that you take on, it's not necessarily the lender, yeah, it's your business model. That's right. And that's what we see all the time with every scenario that we receive, every application. You need restructuring because of the debts that you've taken on, but have you focused on your business model? Have you focused on your branding, your systems, your processes? That's right. What's the final verdict? Look, it is a real business. Being a mortgage brokering and sorry, being in the mortgage brokering industry is probably one of the most rewarding, fulfilling industries you can actually be in. That's right. Um, helping someone purchase their first home, or in our case, helping someone save their home. That's right, is one of the most rewarding things to do because the word turnaround strategy gets thrown around a lot. But what actually is a turnaround strategy? A turnaround strategy doesn't happen in the boardroom. A turnaround strategy happens in the kitchen.

SPEAKER_00 38:30

Yes.

SPEAKER_01 38:31

It's the husband and wife sitting around the kitchen with little fabs over there in the corner. Yeah. It's about to lose his bedroom.

SPEAKER_00 38:38

Yeah, literally.

SPEAKER_01 38:39

And if you're able to help a family and a business generate organic cash flow where they can reinvest back into their business or accelerate the repayments of their home loan, and you've been able to give them a clear exit strategy, that's very, very rewarding. So this is an amazing business to be a part of. So it is a real business, but it's not easy. It's not easy money. Um, it's process, there's compliance, there's pressure. And if you treat it like a side hustle, you're gonna get burnt. Um, there's a lot of struggle. You've got to be able to build the systems. And if you build the systems, you've got something. And if you want to compete with the pickle, you're gonna struggle. That's right. If you think about entering into this industry, reach out to us. Uh, we're we're we're happy to speak uh to a lot of the um mortgage brokers that are planning on on entering into this industry. So you know you've got to throw on a free ad every so often, right?

SPEAKER_00 39:39

Yep, exactly right. Self-promotion. What's the pickle lesson, mate? So low capital does doesn't mean low risk, the risk is hidden in time, compliance, and trust.

SPEAKER_01 39:49

Final close run the numbers first. And if there is a business that you want us to break it down, send it in. We've already done mortgage brokering, so we're not going to do that one again. Yeah. Because we do not want you to get into a pickle.

SPEAKER_00 40:02

Indeed.

SPEAKER_01 40:03

Thank you. Thank you, mate. Awesome lesson.