Real estate agents love the flexibility that comes with being self-employed. Being able to take time off whenever you want to, organize your schedule in a way that fits your lifestyle, and have unlimited income potential is a luxury many don’t have. But with this freedom comes financial unpredictability and ambiguity. 

How can real estate agents manage a nebulous financial future?

Not only is it possible, but it is imperative for real estate agents to take the bull by the horns when it comes to their finances. It may be tempting to bury your head in the sand, work hard, and hope everything works out – but that’s a recipe for disaster.

As I’ve grown in my career, financial planning has become one of the most important parts of my business. Without a strong grip on my finances, I feel lost and operate out of fear and ignorance. When I have a handle on my financial outlook, I am able to work with clarity, confidence, and intentionality.

Here are 7 ways real estate agents can manage finances, alleviate stress, and ultimately build wealth.

1.Consider all expenses

A lot of real estate agents keep close tabs on their income, calculating exactly when they are going to get paid on a closing. But many agents neglect carefully thinking through expenses, which creates unnecessary stress and unknown factors.

Be sure you consider all of your expenses, including personal, business, and unexpected expenses. As real estate agents, last minute business expenses are part of the territory, and we need to factor those in. 

Common business expenses for real estate agents include:

• Work cell phone
• Office space (if not covered by your Broker)
• Marketing
• Website hosting
• Bookkeeping software
• Signage
• Membership dues
• Client gifts
• Federal and state income taxes
• Business cards

Unexpected business expenses could include:

Take time to really consider all of your expenses. It may be overwhelming, but looking at reality is the only place to start when planning for the future. 

2.Use a good bookkeeping system

To manage your income and expenses, you’ll need a good bookkeeping system. This will show you actual numbers versus what you think you are spending or making. Learning some basic bookkeeping skills will go a long way for the real estate agent looking for a long career. Find a bookkeeping Instagram account or YouTube channel to follow and learn some quick tips and receive timely reminders.

There are a few software programs that can help you manage your books, like FreshBooks and Wave. FreshBooks costs a small amount, but Wave is a great free option. In my experience, most real estate agents don’t need the complexity that QuickBooks provides, but that’s another popular software you can look into if you plan to build a more complex business.

3.Save for investment opportunities

Make it part of your budgeting strategy to save money for real estate investments. Your credibility as a real estate agent skyrockets when you have skin in the game with your own real estate investments – and it helps you diversify your income streams (which we’ll expand on later). Setting money aside allows you to make a move when a great opportunity presents itself and won’t put you in a position to scramble for cash or miss out on a great investment.

4.Plan ahead for taxes

As a self-employed individual, your taxes are one of the most significant pieces of your finances. You pay employer taxes along with your own. 

How can you calculate how much you need to save for taxes?

Generally, 92.35% of your net earnings from self-employment is subject to self-employment tax. The self-employment tax rate is 15.3%. Do the math on your income and set aside funds accordingly. There are great tax breaks and deductions for those self-employed and working with an experienced CPA will definitely help you save. I do not recommend that real estate agents use services like TurboTax for their taxes. A CPA will provide a much more personalized approach and the savings will be worth the expense.

5.Manage your debt-to-income ratio

Taking a lot of deductions with taxes means that your income will look a lot lower to a potential lender. If you’re planning to invest in real estate, you need to keep this in mind. Anyone who owns a business has to mitigate this risk, and the best way to do so is by keeping your debt low. That way, your ratio is not thrown off by what looks like a lower income when deductions come into play. 

6.Think bigger about your income streams

Anyone who has been in real estate for a little bit knows that some months will bring in a lot of money and other months won’t. Diversifying your income streams can help you weather some of the bad months. Now, I’m not talking about starting up an unrelated side business. There are ways to make money in the real estate industry that don’t include managing real estate transactions. 

Here are a few other options:

1. Referrals to other agents. If you have a seller moving out of state, refer them to another agent and earn a referral fee.
2. Residuals from other agents. In my opinion, eXp has the best structure for this, which you can read more about here.
3. Manage flips for out-of-area investors. If you enjoy project management and home renovation, this could be a fun and natural fit to bring in some extra income.
4. Represent homeowners in property tax appeals and earn commission on the amount of tax savings.

7.Plan for retirement

Finally, you’ll want to plan for retirement since you don’t have an employer offering you a benefit package. A Solo 401(k) can be a great option since it allows you to contribute more each year than IRAs do. The important thing is to start saving now and do it consistently. After you’ve done your part, compound interest will do the work. A good rule of thumb is to set aside a full 10% of your gross income for retirement. If that sounds like too much, start smaller. The important thing is to start and get in the habit of saving. It is always a good idea to talk to a Certified Financial Planner (CFP) when creating a retirement plan.

Being a real estate agent is an amazing career. Nothing beats the flexibility, the satisfaction of working with people, and doing something you love. But don’t let poor financial planning be your Achilles heel. Cash flow is the #1 reason real estate agents don’t make it. Stay on top of your finances, build wealth, and enjoy the peace that comes from knowing you’re being a good steward.

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