How much money will you make during your first year in real estate? It’s hard to say. So much comes into play to determine your real estate income. Your market, the overall state of the industry, how many agents you are up against, and how well you manage your time will all affect your bottom line.
As many tenured agents can attest, the first year in real estate can be grueling. And while some agents make big money very early, many don’t. Truly understanding your financial picture—and being prepared for what’s to come—is the most important step to achieving success during your first year in real estate.
Use the following guidelines to develop a sound financial plan for the year ahead.
Set a realistic financial goal for your first year in real estate
Decide how much income you will need to support yourself, and establish a financial goal. Just be realistic. Talk to other local agents about what they made in their first year—and what it took to reach that number. Do your research and analyze your local market. While it’s possible that you will far exceed your initial goal, you don’t want to set yourself up for failure—or assume that you will make more than you will. Many agents have to work another job while they build their business, so keep that in mind as you start your real estate career. That doesn’t mean you won’t succeed, however.
Understand your employment status
The majority of agents affiliate with their brokers as independent contractors rather than employees, according to the IRS website. In fact, most real estate professionals operate their business as a sole proprietorship. What does that mean? It means you aren’t an employee, you haven’t formed a partnership with anyone, and you haven’t incorporated your business.
As with most agents, you likely are considered “self-employed” or “a statutory non-employee,” because your payment is tied to your sales, rather than the number of hours you work. As a result, you have federal tax obligations, including both income and employment taxes, and other obligations that most American professionals have covered by their employers, including:
- Health, dental, and retirement benefits
- Fees for licensing, dues, and continuing education
- Office expenses, marketing, advertising, and postage costs
- The full share of federal Social Security and Medicare taxes
- The same federal income, state, and local taxes as other workers
Financial experts advise that you should set aside 35% of your income to cover those costs. Although they will also be offset by certain deductions and tax credits as well, the 35% range should safely keep you from having an unexpected tax debt at the end of the year.
As you establish your financial goal, make sure that you factor in that percentage. For example, if your first year’s goal is to net $50,000, you need to actually gross $67,500.
Track and calculate business deductions
Now for the more positive aspects of running your business. Although you incur additional costs that regular employees do not, many of them count as tax credits come Tax Day in March. Deductible expenses include, but are not limited to:
- Advertising costs
- Office equipment
- Phone bills
- Mileage and other automobile expenses
- Meals and entertainment
- Rent, mortgage, and utilities (if you have a “home office” as defined by the IRS)
- Health insurance premiums
- Professional membership fees
- Licensing and education fees
- Additional one-time business start-up costs
To be deductible, the expenses must fit the official CRA definition; be directly associated with your real estate duties; be paid for by you, not your broker or another party; and be documented with receipts, written files, or a computer log.
It’s critical that you are extremely organized to ensure that you can account for all your expenses should the IRS have questions. It’s always a good idea to contact a certified tax professional to receive more detailed information. Or you can visit the IRS website for details specific to real estate professionals and self-employed professionals.
Outline a plan to meet your real estate career goals
Now, once you have set an annual financial goal taking your tax obligations and deductions into consideration, sketch out a plan of how you will actually meet that goal using the PALS approach:
- Prospects: The number of prospects you must contact to get an appointment.
- Appointments: The number of appointments it takes to get a signed listing agreement with a buyer or seller.
- Listings: Listing agreements result in actual completed sales and, therefore, commission dollars.
- Sales: The number of deals you actually close.
Talk to your broker to find out that information based on your local market area. Then, plug them into a financial worksheet. From there, you can set measurable, real-world tasks by the day, week, and month to ensure that you meet your annual financial goal. The plan should basically tell you what you must do—at any given time—to keep progressing toward your goal.
The first step in your career in real estate may seem a little overwhelming—if not outright scary. That's why it is very important to choose a right brokerage to be part of. With Harcourts your successful career in real estate is accelerated by our long standing brand and reputation, the latest technology, our strong culture and extensive training. At Harcourts, we genuinely believe in putting people first. Successful real estate business is based around establishing excellent personal and professional relationships. Strong paths of communication are a necessity. With the Harcourts One product suite, we can provide better customer service, work more productively and sell more real estate in today’s highly competitive market. You’ll benefit from our industry-recognised apps, such as:
- eOne - our contact, task and listing app
- eCampaign - to bring you the best in marketing
- eInspect - making property inspection even easier
Our technology is highly regarded in the industry and we are proud to be at the cutting edge of this technology.
Harcourts supports all of our offices with two robust and engaging marketing campaigns each year, which you can customize through our automated marketing system. This also gives you the opportunity to streamline your clients’ marketing campaigns, and track your spend against your budget. We also have several popular publications with global, national and local reach, helping to market your clients’ properties to a wide range of buyers, through our Harcourts Bluebooks and Luxury Property Selection Magazine. You’ll also benefit from the market research performed by our dedicated marketing team, ensuring we identify key market trends early. A strong reputation means you’ll have access to partnerships with our dedicated business partners, benefit from our established social media presence and gain public relations and media support.
Events and Recognition
On top of the obvious financial rewards are the personal achievements that Harcourts can offer. We’re not slow to recognize victory, after all success breeds success. Through regional, national and international awards events, industry publications and an internal awards structure, we make sure our people performing at the highest levels have the opportunity to shine.
To conclude, take the time to plan upfront, set goals, and create a plan to reach those goals. Doing so will drastically increase your chances of success during your first year in real estate. New year brings you lots of opportunities. Never be afraid to make a step to see what's out there, and we at Harcourts will help you when you need it.