When you launch your real estate career, as with any small business, you’ll need to establish a budget for real estate agent start-up costs and first-year costs. Your start-up costs will vary depending on your location.
Real estate agent expenses: Costs to consider
When you’re first getting a budget together, it’s helpful to make a list of all the potential costs you’ll incur. Here’s what we find are the most common real estate start-up expenses.
- Pre-licensing education
- Testing fees
- Continuing education
- Professional development and conferences
- MLS fees
- Association fees
- Errors and Omissions insurance
- Broker costs and desk fees
- Self-employment income taxes
- Health insurance
- Office supplies
- Marketing materials
- Internet and cell phone service
- Technology products and services
- Vehicle expenses
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How to budget for your first year in real estate
There are many different approaches to supporting yourself financially while you launch yourself into the real estate industry, so if it feels too expensive, don’t panic. With some smart financial planning, you should be able to smoothly launch your real estate career.
1. Save enough to support your household expenses
One budget item real estate professionals often overlook when they’re launching their real estate careers is how they’ll support their household expenses while their real estate career is in its beginning stages. Not only do you need to need to be able to afford all the start-up costs of your real estate business, but remember: as a real estate agent you’ll likely earn a commission. Be prepared for a few slow months in the beginning while you’re still learning the ropes.
2. Track your savings and expenses
If you’re not great at using spreadsheets to monitor your cash flow — both personally and for your business — try one of the many money management apps available. Here’s a list of a few apps you could consider:
- Mint — Allows you to manage both personal and business expenses through their online interface. They will send you updates as you hit certain goals or track your spending to watch for monthly trends.
- YNAB — Short for “You Need A Budget,” this site helps you learn to live off the money you made last month so you’re not living paycheck-to-paycheck and can save.
- ToshlFinance — An expenses tracking tool for small businesses that helps you organize budgets and bills. You’ll get an alert if you’re nearing your budget limit!
3. Budget for a cash emergency fund
Financial experts agree that not only should you have an emergency fund budgeted into your personal finances, but it’s important for your business as well. If anything goes wrong with your business — for example, if your computer breaks, you misjudged your taxes or you have to pay an expensive lease on an office — an emergency fund could be the difference between sink or swim. If you have some cash reserves in place you can navigate through problems that arise and keep operating “business as usual.”
4. Review your budget regularly
Your budget won’t be much help if you make it and then never reference it again. Set a reminder on your calendar to have a monthly budget review so you can make sure you’re staying on-track and adjust as needed. Adopt a mindset where you’re firm with your budget but not rigid. Of course there will be some extra expenses that arise, and you want to be able to adapt to these business needs. At the same time, being too flexible with your spending could get you into some financial hot water that could be hard to bail yourself out of, especially at the start of your career.
Don’t give up
Your first year in real estate could be a little lean. That’s completely normal. In fact, our national survey found that agent income doubles after your first year.
For the most part, agents earn more the longer they stay in the game. There are several actions that top-performing agents take to earn more money and one of the key actions is closely monitoring return on investment for funds they spend trying to generate business. Familiarize yourself with these strategies early in your career to increase your earnings sooner.
Getting through your first year in real estate might be challenging, but if you accurately anticipate and plan for real estate agent start-up costs then you’ll have an easier time pursuing this career long-term and reaping the rewards.