How to Budget for Expenses and Marketing Activity in Real Estate

Businessman as a property agent or investor calculating growth of return on investment in real estate before signing contract at the office
••• Witthaya Prasongsin / Getty Images

Almost every successful business owes that success to careful planning and budgeting. Knowing your personal and business expenses, as well as planning your marketing activities to produce your desired income is an extremely important budgeting activity. Revisit your plan regularly and make changes if necessary, then follow it.

I've seen various estimates that as many as 75% of new real estate agents fail in their first year. Some quit completely, and others may try part time for a while. However, with E&O insurance, license renewal fees, and continuing education costs, part-time is a difficult road to take.

So, why do they fail at this high rate? There are various reasons, and it's usually a combination of:

  • They don't have basic sales or business skills.
  • They don't have a strong drive for success, though it would be easier.
  • They didn't get enough advice from people in the know about how their first year would go.
  • Little knowledge of effective marketing, especially on a budget.
  • Not enough money to start with.
  • No idea of income as related to marketing and prospect flow.
  • No working budget for expenses and marketing.

It's that last couple that we want to look at in this article. The average new agent passes their test and gets their license. They've already chosen a broker, and they're excited to get started. The reality of this business is that a broker has little or no money invested in taking on a new agent. Usually, they provide them a desk with a phone on it. And, that desk may have belonged to an agent who lasted only a few months.

The broker may put the agent into some already-contracted marketing, such as brokerage newspaper and magazine ads or on the brokerage website. However good this may look to the newbie, it's rarely going to result in a commission any time soon. The best bet is floor duty. But, if floor duty is effective, and that depends on location and traffic flow, then there will be competition for it.

So, the agent, even if they try hard, will find that they're not seeing a flow of prospects coming their way; at least not at a rate anywhere near what they expected. It's a shame, as a little more preparation on the front end and the formulation of a plan and budget could have helped half or more of these failed agents to make it in the business.

So, the two hours or so that it's going to take you to go through this exercise could be the most important two hours of your life; at least if you want to have a career in real estate.

Difficulty: Average

Time Required: Two hours

Here's How:

  1. As a self-employed independent contractor, you first need to know your personal expenses to maintain your lifestyle. By spreadsheeting these expenses and even seasonalize them if necessary, you will be able to better determine what you need to do in your business to generate the necessary income.Here's information and a spreadsheet for personal expense calculations.
  2. Once we know what we need for income personally, then a budget for our real estate business can be calculated. It takes into account expenditures for marketing and the expected results from it, as well as a seasonal breakdown. Here we need to be realistic with our expectations for income that will be generated by our various marketing activities. One approach is the sales funnel, so named because we're estimating income out the bottom of a funnel for prospects coming in by type of marketing.
  1. For those who would like a more structured and supervised approach, you could check out the CreateAPlan® Agent Business Planning System or the corresponding system for brokers.

Tips:

  1. Be conservative with your income expectations and careful not to leave out any expenses.

What You Need:

  • Microsoft Excel to use the spreadsheets.