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This post was updated Oct. 12, 2023.
As a newbie in the real estate industry, there’s a ton to learn immediately to launch a successful career: How to generate leads, how to convert a lead, how to write a contract, how to effectively market yourself on social media, how to run a CMA or how to price a listing.
Heck, you need to learn how to open a door! We’ve all been there with keys getting stuck or not being able to find a lockbox.
Not often, though, are new real estate agents taught how to run a profitable business, budget for expenses and taxes, or how to employ cost-savings strategies to help them net more of their commissions.
I will never forget the gut punch I received when, after my first year licensed, I was presented with a hefty IRS tax bill — one I wasn’t prepared for. Since then, I’ve learned many lessons on business profitability and fiscal stewardship that I wish were shared with me as a newcomer in the industry. Newbies, take heed:
1. Pay yourself on a set schedule
In moving to a commission-based position, your income will hit peaks and valleys, although the goal is income consistency. Keep a business account where you pay yourself a set salary per month — just enough to cover your living expenses in the beginning. Ideally, you also want reserves in place until you gain consistency in monthly closings.
You never want to fall into the trap of spending full commissions during months with strong earnings, as more often than not, they are followed by months with little income coming in. Ensure you have buckets for your bills, savings, taxes and fun or vacation spending, with a percentage of your pay hitting each one monthly, per your established goals.
2. Play red light, green light with your expenses
Have a budget and stick to it. Check your bank accounts daily and review your bucket monthly. Just because it’s on your budget, doesn’t mean you have to spend it.
Little income coming in? Cease spending. Have a strong cushion? Test a new lead gen lever. Never throw money at problems to solve them without first getting to the root of the cause or allow yourself to get distracted by shiny objects that will disrupt your business, dilute your focus and deplete your bank account for little return.
3. Analyze your ROI on leads monthly
Are you working the leads you’re paying for? Or are you throwing $20 or, worse, $100 bills out the window procuring leads that you’re not following up with properly? By all means, test new lead gen levers. But also ensure you are following up strategically and aggressively, and analyzing ROI regularly.
It’s better to admit failure and stop the bleeding from a non-performing lead source than try to make something from nothing and hurt your budget in the meantime.
4. Invest in education
If you have a small budget as you build your business, the best thing to do is invest it in education. Find free masterminds and attend trainings at your brokerage. Budget for and invest in national sales conferences if you can commit to being a sponge and coming home with actionable takeaways to part into action to fuel your business success. Obtaining a strong mindset and getting your hands on proven playbooks are surefire ways to accelerate your business quickly.
5. Allocate enough funds for taxes
No one likes a surprise come tax season. Remember that your entire commission check is not yours. Budget 30 percent of that commission check for taxes. When starting in the business, open a tax savings account and ensure you are paying taxes quarterly to avoid penalties.
Hire a CPA and a bookkeeper to maximize your tax deductions (mileage, advertising, travel, education, office supplies, etc.) and ensure you keep as much of your commission as you legally can in your pocket.
6. Set up a solo/individual 401(k)
Many agents don’t plan for their future and wake up at age 55 with no 401(k) or savings for the future. Start your first year. Work with a financial planner to set up a solo 401(k) and plan for that contribution monthly to lower the impact at the end of the year.
7. Track your net worth from Day 1
Get your hands on a net-worth calculator and establish a baseline. If the number you see scares or deflates you, work on removing emotion from the data point. We all have to start somewhere.
Just like stepping on the scale before embarking on a wellness journey, you need to know where you are to goal-set and track your results. Aim to be 1 percent better every day. Revisit your net-worth calculator monthly; it will help you make better decisions with your personal and business funds if your net worth is consistently on your mind.
8. Pay less attention to your splits and more attention to your net income
Many new agents hyper-focus on splits to a brokerage or a team, rather than their net income. At the end of the day, if the leverage from a team, more warm leads convert to sales, and the training and coaching make you a better agent — closing more deals in less time — your split doesn’t matter.
Run a proforma for yourself, looking at your expenses vs. what a team assumes and see which will allow you to grow a business more profitably.
9. Join a team
If you got into real estate to transform lives through homeownership and would rather spend your time daily meeting clients, opening doors and negotiating deals rather than scrutinizing P&Ls, analyzing ROI, bookkeeping, paying bills — the not-so-glamourous but necessary side of the business — consider joining a team.
Yes, you’ll have a team split, but you won’t have to pay for transaction or listing management, marketing campaigns or client events. You’ll also have less risk during down months, as you won’t have to carry bills for CRMs, reporting software, marketing platforms and signage that will inevitably stack up.
