I have been asked about what REALTORS® do and received comments such as “How hard is it do be a REALTOR®?”. I have decided to break up those questions into separate blog segments and really dive into the meat and potatoes of what us agents actually do.
My first segment will focus on the barebones fixed costs of a REALTOR®. These are costs that are born to most REALTORS® and by no means am I inflating or deflating these cost amounts. Reflecting on my own experience of starting up in the industry about two and a half years ago, I have broken out my basic costs of doing business as I started from Day 1. Below is a recreation of a spreadsheet of a Rookie REALTOR® fixed costs:
Based on the spreadsheet above, your cost of just doing business is $3,245 per month, not including your advertising costs with the exception of your website and business cards. You don’t have any listings to spend money on so you are focusing on open houses and finding buyers. The business is costing you $106.68 just to show up for work with NO INCOME. WELCOME TO THE WORLD OF A REALTOR®.
You then need to take into consideration that you may not receive your first paycheque for at least 6 months. Cash timing and cash flow is critical for any business but Real Estate is a beast of its own. You may do a deal in your first few months but you will not get paid until the completion date.
For example, you put together a deal during month 3 of your real estate career. I’ll use a typical first deal as an example in this exercise. More times than not, you will represent a buyer that you probably met at a Sunday open house and you will be receiving a buying commission of 3.22% on the first $100k and 1.15% of the balance. You are buying a condo for someone at $500,000 giving you a commission amount of $7,820. Not a bad payday, right? Well this is what the general public sees but let’s shed some light on the reality of what is really going on in your pocket.
Using normal timelines, subjects are removed, the deposit is paid, and the completion dates are in 90 days, which is about normal. So, from day one, you will be 6 months into the business and about to receive your first EXCITING paycheque of $7,820 and you are pumped!
Well, now you have a deal fee to pay your brokerage and each deal fee varies. Less your paycheque by $350 (this is about average unless you are on a low monthly fee but high deal fee agreement). Now, you are down to $7,470 net received before taxes.
Back to the spreadsheet! Your monthly fixed costs or burn rate is $3,245 per month. You are now 6 months into the business and receiving your first paycheque. Hopefully, you have other client relationships and potential deals lined up for future months by this time. You would have now spent $19,470 on your business to earn $7,470 keeping you in the RED for about $12,000. Don’t look at this as a loss though, look at this as replenishing some of the kitty to buy you time as you move forward. Oh, and remember you probably have living expenses similar to the rest of the world as well. Pretty daunting, isn’t it?
Well this is why only 20% of REALTOR® make it past year 2. When you start off your business in real estate, throw your concept of money out the window. I look at money as time. The more money you have, the more time you have and the remaining money that you have should go right back into the business.
So if you are deciding to get into the business, put away about a years worth of expenses before venturing into this industry as it’s going to be HARD but it can be VERY REWARDING on many levels. Like I always say “if it were easy, everyone would do it”.
If you would like me to write about any other business related topics about Real Estate, please let me know and I’ll make a point of doing so.
If you have any comments or questions, please feel free to comment below or you can e-mail me directly at firstname.lastname@example.org.