Identifying Real Estate Agent Expenses
It's critical in your real estate agent career that you not only cover your real estate agent expenses, but your personal living costs as well. Here we'll provide you with a spreadsheet to calculate these expenses.
Identifying Your Personal Expenses
Try not to forget anything, and get all your personal living expenses that will need to be paid by the real estate business into the sheet. In other words, if someone else's income can pay for 30% of your living expenses, then only enter 70% of each item's amount. You can enter a number into either the monthly or annual column for each expense.
Again, be as accurate as possible. Enter amounts in either the monthly or annual columns. Estimate marketing expenses as best you can. Don't just zip through this process, as you are likely to overlook expenses and they mount up. You will have vehicle expenses, office supplies, possibly advertising, business cards, etc.
These days you better add in the cost of building and maintaining a website. This can vary widely based on how much you're willing to do yourself and your abilities. If you want a turnkey site hosted and pre-filled with content, you may spend anywhere from $100 to far more than that in a year. You can self host a Wordpress site for as little as around $100 per year using the free software and a free theme. However, you'll have to build it out and write your own content.
The thing about the website is that just because it exists doesn't mean that visitors will come. If you can afford it, you may want to kickstart results with some PPC, Pay Per Click marketing. With Google Adwords you can set a budget for daily and monthly click costs. The good news is that you won't pay for clicks until they happen and someone actually comes to your site.
For years I set a $150/month Adwords budget and got around 200 clicks to the site every month. By offering emailed special reports with forms, I got leads that I could work. They're anonymous visitors unless and until you get them to tell you who they are.
Enter an estimated percentage of income by season. If you're busy in the summer and dead in the winter, try and estimate that as the red example numbers indicate. Replace the red numbers with yours. Estimate how many transactions you will do in the year. Note that the sheet will calculate your average commission after you replace the red example numbers about each transaction.
Don't Panic at the Results
The sheet will compute an approximate monthly cash flow by subtracting your monthly total expenses from the estimated seasonalized income. Hopefully you see mostly positive amounts, particularly the final total annual cash flow amount. If it's negative, you need to either decrease expenses or find a way to comfortably believe that you can increase the number of transactions, average transaction amount, or your split percentage (unlikely).
Even If You're Not Happy With the Result, Be Glad You Have the Estimate
Even the largest corporations have budgets that attempt to accurately determine costs and income over time. You cannot expect to succeed without the same type of knowledge and a plan.
Once you've figured out what you need to survive personally and in your business, then you can do the behavior and marketing to make that minimum income and hopefully more.
Make another copy of the spreadsheet for your monthly actual expenses and income. Track what you're doing to be sure that you're not over-spending or under-performing. At the end of each month, enter your actual expenses. Adjust the annual number of transactions for better or worse performance. There is no substitute for constant financial discipline.