This article last updated on June 1, 2022.
According to NAR, a record number of agents are working in today’s market, and those numbers just seem to keep growing. Driven by the great resignation and the promise of a white-hot real estate market, more and more folks are trading in nine to five for the 24/7 life of an active real estate professional.
One of the most difficult things for most real estate agents starting out is maintaining their financial life while launching a real estate business. Because you don’t get paid until a closing, you can go several months without income, even if you sign a client on your first day as a licensee.
How do you plan ahead and make sure you are spending wisely throughout your first year in real estate? We talked to agents and financial planners to get some of their best tips and must-dos to keep your financial life on track.
Planning and initial expenses
Making a switch from another field into real estate requires thinking ahead and an open mind, said Jennifer Birchett, principal wealth adviser at TrueWealth, an Atlanta-based financial planning and management company.
“Before making the full-on jump, I would conservatively say an individual should have six months of absolute, must-pay expenses saved up as an emergency fund. If it’s a couple, and they are both working, that number could go down to three months,” she said.
While many agents and brokers say you must launch your real estate career full-time, many new agents instead make real estate a side hustle until they get established. Birchett suggests turning that equation around. Make real estate your full-time job, but put together a side hustle like retail to create a steady income for necessary expenses.
Upfront expenses will include, at a minimum, business cards and initial license fees as well as brokerage fees when you sign on with a company. If you plan to go for listings, you may also have to purchase signs; check with your broker and see if they provide these.
Budgeting and tax planning
It’s essential to create and to stick to a budget. Spend some time tracking your day-to-day expenses — ideally before you launch. Birchett advises using a personal financial management app like Mint to see where every penny is going, both before you start your real estate career and on an ongoing basis.
You may want to pare down expenses to the bare minimum to make your savings last longer. This may involve canceling cable, eating out less or switching to a less expensive grocery store. You may want to learn to make your own coffee at home rather than making a daily Starbucks run.
The other reason for that phone app is so that you can track business expenses, Birchett said. “Everything that you do that is ordinary and necessary is deductible. Track mileage and business expenses to make sure you are getting everything you are entitled to.”
Marketing and promotional materials, business cards, food for the open houses, business gifts for referrals — track everything. Now that you are self-employed, Birchett said, your health insurance premiums are deductible 100 percent. (Note: If you are on your spouse’s employer-provided insurance, this will not be the case.)
Publications, subscriptions, license fees, continuing education: These are all 100 percent deductible.
Getting your first commission
At this point, you may have had your first closing. Congratulations! Now is not the time to go and spend that big check, though. You will need to set aside a significant portion for long-term planning needs.
“Once you do get paid, don’t forget about taxes. Set aside money in your savings account for taxes. Once you get behind on saving for taxes, you will start a cycle of always being behind,” said Omaha agent Amber Tkaczuk of Nebraska Realty.
Tkaczuk sets aside at least 30 percent for taxes in an external savings account. “The money goes directly into that account, so I never see it. I then add to my personal savings, invest in the business, and give 10 percent to my church off the top.”
Birchett agrees on the importance of careful budgeting, saying, “Once those commission checks come in, don’t spend it all. The real estate business is cyclical; you could have fewer closings from one month to the next. Early on, limit your spending to essentials. You can cut back on wine and expensive dinners.”
It’s important to take taxes and essentials into account when setting a yearly sales goal, Tkaczuk said. Many people plan their year around how many sales they need to make a certain level of income — that planning needs to include non-disposable income like taxes, marketing, supplies and fees.
It’s also important to remember that some of your sales will probably come from referrals. That means a significant portion of your commission will be paid out in referral fees.
Marketing and promotion
At this point, you have some experience, and you may have had some clients. Much of your early promotional work will probably involve following up on leads from your broker and cultivating your sphere.
“Put together an Excel spreadsheet with names and addresses and utilize your sphere of influence,” Tkaczuk said. “Set aside money to send notes or do pop-bys for them. Stay in front of those people so that when someone talks about real estate, you’re top-of-mind.”
Tkaczuk also suggests using social media. “Even if you occasionally place a cheap ad or boost a post, that is worthwhile and cost-effective,” she notes.
You will probably want to start putting together some branding ideas, including a color scheme and logo for your business. A graphic design platform like Canva will give you a lot of options for these as well as allow you to create branded graphics for your social media shares or to accompany your blog posts. The best part? You’ll have access to a wide variety of materials at no cost.
Re-evaluating the budget
At this point, it’s time to take another look at your budget and expenses. It’s easy to let small luxuries drift back into your spending, especially once you’ve started earning some commissions. But it’s important to get through a full year so that you get a sense of the ups and downs of your local market and your income.
You may be frustrated by the need to be so careful with your money, especially if you’re transitioning from a career where you had a much larger income. It’s important for you to treat yourself in other ways so that you don’t end up overspending.
If you do have some money to spend, try to spend it on something that will benefit your business. Invest in marketing, training, coaching, branding or promotional materials to ensure your spending becomes an investment. In addition, marketing and professional development are tax-deductible, so you’ll benefit both now and later.
Bootstrapping your digital footprint
At some point, you will want to put together a website and some digital marketing initiatives. You may have been putting it off because you think it will be expensive. In fact, however, you can put together a decent online presence for less than $200.
If you have a fair amount of experience with design and website building, you may want to use a free WordPress platform. If you need some help or want the convenience of a drag-and-drop or auto-created framework, a Wix website may be a better solution. You can get a premium version, which allows you to attach your own domain, for $14 a month. If you register your domain name through Wix, they’ll provide it free for the first year.
It costs you nothing to create a blog or YouTube channel and promote the content you create through social media. If you’re experiencing some slow times in your business, use some of it to bank blog posts or videos, and roll them out later.
Right now, you may just be getting by financially, but you need to plan for bigger things before they happen. Evaluate your experiences over the last few months, and start to get a sense of where your clients are coming from, what they have in common, and what worked or didn’t work in the process.
This should allow you to get a sense of ways that you can capitalize on what has been working and adjust for what hasn’t. You should also start to develop a sense of what is manageable for you at this point and where you might need some help in the future.
Knowing the potential your business holds is something you should continue to re-evaluate throughout your career, Tkaczuk said.
“When I was first starting out, my husband and I weren’t depending on what I was making to pay the bills,” she said. “As time has gone on, we’ve begun to see the potential in the business, and we work hard to bring it out.”
Finding your focus
As you figure out what you like and don’t like about the day-to-day of your real estate practice, you may find that you want to focus on a particular type of property or a particular market segment. Angela Territo, broker and coach at Angela Territo Training and Coaching, has some tips for effectively defining your niche.
The first thing to figure out is what you like to do and where your interests lie.
Equestrian properties, farm and land, waterfront, luxury or first-time homebuyers — any of these can be a focus for your real estate career. “When you figure out why you’re in the business, you’ll learn where you want to go,” Territo said. “There are dozens of types of real estate specialties so narrowing down is a good idea.”
The next question to ask yourself is: What skill building do you need to have to be able to be a specialist?
“Is there a National Association of Realtors designation? Are there courses you can take through the Residential Council? Learning is key so that you can brand yourself as an expert,” Territo said.
It is part of your duty to ensure that you are being honest in the way you market yourself, Territo said.
“Follow the [NAR] Code of Ethics and make sure you are skilled before you promote yourself as a specialist.”
Finally, develop social media groups and gear your content toward the type of niche you want to pursue. Make your time spent and your marketing dollars more effective by knowing who you’re talking to and focusing your content toward a specific target audience.
Adding more education
Now that you have a better sense of what niche you want to pursue, you should be looking into additional educational opportunities. You’ll also have your first year anniversary coming up, so you may need to take some classes to renew your license.
Your brokerage probably offers classes, and your local association will as well. These are good places to find free or low-cost training experiences throughout your career. It may be a good idea to look for classes on marketing, social media and other promotional aspects of doing business to ensure you are using your platforms as effectively as possible.
If your market is close to another state, look into getting a license in your adjoining state. In some cases, there is reciprocity between neighboring states, and you’ll only have to take a few hours of additional education and a shorter test to receive the other state’s license. This can allow you to greatly increase your potential farming area and your volume as well.
Planning for upcoming expenses
At this point, it’s time to start thinking ahead to upcoming expenses. You’ll need to set aside money for your license renewal. You may also want to have some money set aside for new business cards, especially if you have obtained new designations or have done some branding for your business.
If you’re starting to see some good cash flow, take this opportunity to think ahead, and think about increasing the volume of your marketing.
You can do circle prospecting or geographic farming through door-knocking. You can also keep mailing those people about your services.
If you’re finding that you need help to run your business, consider hiring freelance help. Accounting, marketing, content creation, transaction coordination — all of these can be outsourced affordably, leaving you more time to devote to the revenue-generating parts of your business that only you can do.
If your first year has gone well, you may wonder about how you can take grow your business. You can do this by implementing systems and processes to make your business more efficient.
Start to look at your workflow and how you do things day-to-day to find new efficiencies and better habits.
Real estate investment adviser and operational guru Abhi Golhar shared a few tips for effective scaling:
- Realistically analyze the team members and their talents, examine your goals and how they fit into them, and adjust as necessary.
- Implement technology for effective communication. “A free tool like Slack is much more effective than email and saves everyone a heck of a lot of time,” Golhar said.
- Document what is actually going on operationally in your business. “You can have the best chef in the world, but if he doesn’t write down his recipes, the kitchen won’t run.”
- Optimize processes for anything in your business, whether it’s inbound or outbound marketing, recruiting, the sales funnel or conversion. When the pieces work, the whole works.
Celebrating like a boss
Congratulations! You’ve set and met your goals and launched your real estate business on a firm financial footing. You’ve got a solid marketing plan in place and a meaningful online presence.
You’ve learned a lot, no doubt, and created a plan for the short- and long-term future.
Do something special to mark the occasion, make it memorable, and, most of all, know that this is just the first step in your long and rewarding real estate career.
Christy Murdock is a Realtor, freelance writer, coach and consultant and the owner of Writing Real Estate. She is also the creator of the online course Crafting the Property Description: The Step-by-Step Formula for Reluctant Real Estate Writers. Follow Writing Real Estate on Twitter, Instagram and YouTube.