How Real Estate Professionals Can Set (and Stick With) a Budget
To succeed as a real estate professional, it’s important to run your business …like a business. That starts with creating — and following — a detailed budget.
Creating and following a budget helps keep your spending in check in relation to your revenue. In a profession with high overhead and unpredictable income, a budget can help ensure financial health.
“Real estate agents put out a lot of costs before they receive commission on a sale,” says Holly Hayes, CPA, tax supervisor at the Doty Group, a tax and business consulting firm in Tacoma, Washington. “Sometimes what they spend on a client doesn’t result in a sale at all. But they may still be able to deduct those expenses from their tax returns.”
In addition to monitoring your income and expenses, budgeting may help you set and stay focused on financial and career goals. “Budgeting is your expectation of what you’ll bring in and what you’ll spend per client or per property,” says Hayes. “Just like budgeting for grocery shopping, you have to determine what you can and what you’re willing to spend.”
How to create a budget
To create a budget, you have to know what you earn and what you spend. If you use an accounting software you can easily generate a profit and loss report, which details the current year’s gross and net income and various expenses.
According to QuickBooks, a small business budget typically includes the following:
- Income. This includes money you earn from commissions, brokerage profit share, base salary, coaching and other revenue.
- Fixed expenses. Essential expenses that don’t change much from month to month. Examples include rent (office and/or home), mortgage, utilities, Multiple Listing Service (MLS) and other dues, auto insurance and health insurance, among others.
- Variable expenses. Controllable expenses that fluctuate. Examples include groceries, meals out, clothing, gifts, fuel and personal care. When you need to trim expenses, this is the first place to look.
For a detailed list of real estate income and expenses, download our real estate budgeting template.
Don’t overlook any expenses
Real estate agents and brokers spent about 10 percent of their commission income on marketing and advertising according to National Association of Realtors. When budgeting, don’t forget the little things, like client Christmas cards, business cards and client gifts.
Most real estate agents also spend a lot of time driving to and from appointments, open houses and showings. Are you tracking all those business miles? “Many of my clients don’t track mileage as well as they should,” says Hayes. If you tend to forget to record mileage, consider an app to help you out.
How budgeting can help you achieve your goals
Think of your budget as a financial road map. When you know where you want to go, a budget will help you get there.
If you want to increase your income by 20 percent next year, you can use your budget to find out how much you need to sell to achieve that goal. You can also develop a marketing plan that fits your budget.
New agents may not have past data to work from. In that case, Hayes suggests consulting with a mentor. “Ask what their first year was like in terms of commissions and what’s possible in your office,” says Hayes. “Mold a budget from that. Then set goals based on what you think you can achieve. Once you build a reputation you can move up to higher price points.”
How often to review your budget
Hayes suggests real estate professionals review budgets monthly to stay accountable. If you start veering into the red, you have time to make course corrections. You can also celebrate budgeting “wins” along the way.
Creating and following a budget not only helps ensure you won’t spend more than you earn, but can also help you plan to earn more as you grow your real estate business.
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