Budgeting for Real Estate Agents 101

I’m not a businessman, I’m a Business, Man ~ Jay-Z

As a new(This is for you seasoned agents as well that have never had a budget) agent just getting started in the real estate business you are going to need to know how to effectively budget your commission checks to make sure of a couple of things:

  1. Having enough money left over at the end of the month so you can eat and pay your bills
  2. Allotting a certain amount towards generating new business for yourself

Number one is a given.

What a lot of Agents don’t realize is how important number two is.

I am going to go out on a limb here and make a generalization, most REALTORSĀ® do not operate their real estate business, like a business. A lot of Agents I have talked to have their blinders on and are only seeing what is in front of them, their next check.

This is a mistake.

I was told this when I first got into the business: This is a lag business, you are always 90 days away from your next payday.

This is the mindset that you need to be in to stay hungry and to generate more business for yourself. However, if you have no money to facilitate that, it is going to be a hard go for you.


Setting a Budget for your Real Estate Business

First off, stay away from the ‘Commission Advance’ companies.

Here is why: The goal of every agent should be consistency.

A consistent stream of leads, turns into a consistent stream of clients which turns into a consistent income stream. If you take away from that consistency, you will find yourself forever behind the 8 ball. If you budget correctly, you will never need a commission advance.

Ok here are 4 suggestions on how to set up a budget for your real estate business:

  1. Incorporate. Yes, set up a corporation, the tax you will pay to the federal and provincial governments will be far less  in the long term
  2. Set up 2 Corporate Bank Accounts. Sounds simple it’s almost stupid right? Do it and make sure EVERY one of your commission checks is directly deposited into a checking account
  3. Deductions. You should be deducting a minimum of 33% off of every check for Taxes. Look at a 20% deduction for marketing. Investments/Savings: 15%. These deductions go into your corporate savings account.
  4. Pay Yourself. Now that you have your deductions figured out, we know that you have 32% of your commission check left. You need to pay yourself a monthly wage and keep whatever is left in your company account as operating capital. Determine what your house expenses are and how much you need to live and pay yourself on set days every month, the 1st and the 15th work well.

If you aren’t doing this currently, you should be. It will take some work in getting set up but it is well worth the time and effort.

To make it easy on yourself, do up a budget for your house and do up a budget for your business. You will know, at that  point, how much you need to live and how much it’s going to cost to grow your business on a monthly basis.

Write down everything that you spend your money on, if you use a credit card for most things, look at your credit statement. If you use debit, print off the last 3 months of your bank account statements. Your eyes will be opened to where your money IS or ISN’T going on a monthly basis.

If you do not have a business plan for your real estate business, you need to have one. Look at a business plan like a road map for your real estate business. How will you get to your destination without a map?

Lastly, start looking at your real estate business for what it is: A Business, Man.