You Must Know Your Numbers to Create Predictable Success
Goal setting for real estate agents can be challenging and involves something that most people do not like to do: Budgets. In fact, budgeting is practically a “dirty word” to most people. However, the number one reason that most businesses fail is due to cash flow problems-not bringing in enough income to pay the expenses. If you want to succeed in real estate, you need to understand your income and expenses, and that means you have to do some preliminary budgeting and income forecasting.
In the Millionaire Real Estate Agent, Gary Keller states that you must “know your numbers” to succeed as a real estate agent. By understanding your income needs and expenses early on, you can set effective goals for your real estate business, including your overall financial goal as well as other key real estate goals, such as:
- How many houses will you need to sell?
- How many appointments do you need to set?
- How many agreements do you need to get signed?
- How many contacts do you need in your database?
These are some of the numbers that you need to know to guide your actions and reach your financial destination.
What Not to Do When Calculating Your Budgets and Income
Most new agents take an overly-simplified approach goal setting. Something like this…
I want to make $100,000/yr and my average commission is $15,000
so I need to sell 7 houses this year ($100,000/15,000).
There are multiple problems with this overly simplified approach to goal setting in real estate. First, unless you have figured out your start up costs, monthly business expenses, and actual household expenses, then you don’t really know how much money you need to make for the year.
Second, even if $100,000 will cover your household, business, and startup expenses, will it cover your taxes? You must include your income taxes in the equation if you want to set realistic goals.
Third, if the average commission is $15,000, that doesn’t mean you will bring home that entire amount for each transaction. Your broker will keep a portion of the sales commission (called a “split”) based on your compensation plan. Plus, you will usually have transaction fees and other broker fees for each transaction.
So, if $100,000 will cover your income needs, and you are in a 25 percent tax bracket, then you will actually need $133,333 to pay for everything. And if you are on a 70/30 split with a $100 transaction fee, then you will only average $10,400/transaction. So, with these more realistic numbers, you need to sell 13 houses this year-not 7 houses. That’s quite a difference!
How Much Money DO You Need to Get Started?
If you are just starting out on your real estate career, then you are probably wondering what it will cost to get your real estate license. These fees vary from state to state. You can find information on these costs on local real estate schools’ websites or your state’s real estate licensing organization website. A helpful place to start is an Internet search for “how much cost real estate agent in YOURSTATE” where YOURSTATE is the name of the state where you plan to work.
Costs to Get License
Most states require mandatory education to learn the contracts and the real estate laws of your state. The fees that real estate schools charge varies and you will need to do some research to find out the costs in your area.
There will also be fees to join your local association of Realtors, your MLS, etc. You may also have application fees at your state.
Plus, you’ll probably need to pay for real-world training AFTER you get your real estate license and you may want to buy some real estate books, so there will be other costs at the beginning of your career.
NOTE Don’t count on your broker providing a complete training course! Most of them do not have formal training and even Keller William’s training is not for EVERYTHING you need to learn as a new real estate agent.
On average, you’re probably going to spend somewhere between $2000-$4,000 to start your real estate career.
Basic Business Items You Need
The following table lists the basic business items that you will need to start your real estate career. These costs will vary from agent to agent, so you will need to do your own research to calculate the costs. You may already have many of these items and may not need to purchase them.
- Car (preferably a 4-door)
- Computer (preferably a laptop)
- Microsoft Office (Word, Excel, and PowerPoint)
- Desk and chair
- B&W printer (preferably capable of double-sided printing)
- Color printer with scanner (with sheet feeder for scanner…not one-page at a time)
- Cell phone with excellent camera (or buy a good-quality digital camera)
Total Start-Up Costs
Now add the totals from the two previous tables to calculate your Total Start-Up Costs.
Estimating Your Monthly Business Expenses
To continue your goal setting, you should think about the monthly business expenses you will have in your new career. You will have to investigate some of these fees to know their exact cost, and you will refine these numbers when you decide on your marketing strategies and write your business plan.
The median business expense amount for real estate agents (in 2021) was approximately $4250/year-or $354/mth. So, if you have no idea what your business expenses will be, you could use $400/mth as a starting point. Personally, I think $600 or $700 a month is a more reasonable number. Some agents (who pay for a lot of advertising) may spend $1500-2000/mth.
There are two types of monthly expenses to think about when goal setting: Mandatory expenses and Optional expenses.
Mandatory Expenses:
- MLS Membership
- Supra Key Fee
- Appointment Service
- Broker Admin Fee
- Broker Desk Fee
- Other Broker Fees
- Cell Phone
- Internet Service
Mandatory fees will vary per broker and whether you office at their location or at home. Not all brokers charge “Advertising” or “Marketing Fees” but some do. Some mandatory fees may be paid quarterly instead of monthly. If so, divide quarterly fees by 3 to calculate the monthly fee.
Optional Expenses:
- Office Supplies
- Notecards
- Stamps
- Website Host
- IDX Subscription
- Auto Responder
- Direct Mail Fees
- Membership Fees (Networking)
- CRM System
- Online Ads
Optional expenses depend on the marketing activities you implement as part of your lead generation strategy.
Calculating Your Monthly Household Budget
The next step for effective goal setting is creating a monthly household budget. The fastest way to do this is to fill in a worksheet with the costs that you know first (such as rent and car payment), then go back through the items that you are not sure about, and look at your credit card receipts, online receipts, bank statements, and checkbook to estimate your monthly costs for the other items. This may take some time but you can’t run a successful business without knowing your numbers and setting goals!
Determine your real household budget for what it takes to pay your bills and to achieve the things that you want to achieve as a real estate agent. This will help you do a better job at forecasting your income and setting your goals.
Finding Your Primary Goal
Now you can add your start up costs, estimated annual business expenses, and annual household expenses to determine the Total Income Needed, which is also your Primary Goal. Then you can calculate how many houses you need to sell in order to achieve your Primary Goal.
Your Primary Goal is the most important part of goal setting for real estate agents.
Setting Your Real Estate Goals
Now that you have determined your Primary Goal, you can set the other important goals needed to succeed in real estate. These are the “targets” to “shoot for” on a monthly basis, including:
- Number of contacts to add to your database to get it the right size for your goals.
- Number of appointments (either buyer or seller) to go on
- Number of signed agreements needed (either buyer or seller)
Some agents use even more metrics and set even more goals, but it’s best to start off your career with a simple system.
Know Your Numbers—Hit Your Income Goals
with Clarity and Confidence
Set Real Goals. Make Real Money. Build a Real Estate Business That Actually Works.
Most new real estate agents have no idea how many homes they need to sell to earn a real income—and even fewer understand what it actually costs to run their business.
Print this guide, and use the worksheets, to finally have clarity, direction, and a clear target to hit every month.
MORE INFO
- NAR Membership Statistics
- IRS Guidelines for Real Estate Agent Deductions
- BLS Data on Real Estate Agent Income
