The Most Important Thing You Need To Do To Succeed In Your First Year In The Real Estate Business
How much money can you earn during the first year that you are in real estate? It is difficult to know for sure. There are many factors that influence that amount of real estate income you earn. How well you are able to manage your time, the number of agents you are competing with, the industry’s overall state, and your local market all factor into your bottom line.
As numerous agents will tell you, your first year in real estate can be quite challenging. And although some agents are able to make good money early on, most do not. Thoroughly understanding your overall financial picture and getting prepared for what is ahead – is the best thing you can do to be successful during the first year that you sell real estate. The following guidelines can be used to develop a solid financial plan for the upcoming year.
Set realistic financial goals for yourself during your initial year in real estate. Determine the amount of income you are going to need for supporting yourself, and then set a financial goal. Just make sure you are realistic. Speak with other local agents about the amount of money they earned during their first year – and also what it took for them to be able to reach this number. Analyze the local market and do some research. Although it is possible you can earn much more than your initial goal, it is best to not set yourself up to fail – or assume you can earn more than you actually will. Many agents need to work another job as they are building up their business, so as you are starting your new real estate career, make sure to keep this mind. However, that doesn’t mean you can’t succeed.
Understand what your employment status is
The IRS website states that most agents are affiliated as independent contractors with their brokers instead of as employees. In fact, a majority of real estate professionals runs their businesses as sole proprietorships. So what does this mean? That you are not an employee, and you have not formed a partnership with anybody or incorporated your business.
Like most agents, you are probably considered to be “a statutory non-employee” or “self-employed,” since the amount of money that you earn is based on your sales instead of how many hours you work. This results in you having federal tax obligations, which includes both employment and income taxes as well as other obligations that are covered by employers for most American professionals, including:
Retirement, dental, and health benefits
Fees for continuing education, dues, and licensing
Postage costs, advertising, marketing, and office expenses
The full share of Medicare and Social Security taxes
The same local, state, and federal incomes taxes as other workers
It is recommended by financial experts that you set 35% of your income aside for covering these costs. Although certain tax credits and deduction will offset some of these expenses, the 35% range should be able to keep you safe from winding up with a big unexpected tax bill at the end of the year.
As you are establishing your financial goals, be sure to factor this percentage in. For example, if your goal for the first year is to net $50,000 then you will need to gross $67,500.
Also, keep in mind that self-employed professionals who are planning on owing over $1,000 in federal taxes are required to pay them in advance in quarterly installment. Late penalties will be inflicted by the IRS if you wait until the due date of your yearly tax return.
Record and calculate your business deductions
Now let’s discuss some of the more positive parts of running your own business. Although it is true that you will incur extra expenses that regular employees don’t have many of them will count as tax deductions in April on Tax Day. The following are some deductible expenses:
Mileage and other vehicle expenses
Entertainment and meals
Mortgage, rent, and utilities (if you have your own “home office” that meets the IRS definition)
Education and licensing fees
Professional membership fees
Health insurance premiums
Other one-time business start-up expenses
In order for expenses to be deductible, they must meet the IRS official definition; they must be associated directly with our real estate obligation; must be paid for by you, and not the broker or a third party; and be documented with a computer log, written files, or receipts.
It is essential for you to be very organized to make sure you are able to account for all of the expenses you claim in case the IRS has any questions. Contacting a certified tax professional is always a good idea in order to obtain more detailed information. You can also go to the IRS website to get details that are specific to self-employed professionals and real estate professionals.
Develop a plan for meeting your real estate goals
After you have created your yearly financial goal that factors in your tax deductions and obligations use the PALs method for coming up with a plan for how you will reach your goal:
Prospects: How many prospects you need to contact to get one appointment.
Appointments: How many appointments it takes in order to get a signed listing agreement with a seller or buyer.
Listings: Listing agreements are what results in complete sales, and commission dollars in turn.
Sales: How many deals you close.
Speak to your broker to determine this information based on the local market conditions. Then, enter them into your financial worksheet. You can then set real-world, measurable tasks by the month, week, and day to make sure you achieve your yearly financial goal. Basically, your plan should tell you what you need to go – at what time – in order to continue to progress towards your goal.
This all may appear to be a bit overwhelming – or even downright frightening. However, just take the time to plan ahead of time, set your goals, and then develop a plan for reaching your goals. If you do this it will significantly increase your chances of succeeding during your initial year of selling real estate.