Real Estate Agent Start-Up Costs and First Year Expenses
Becoming a real estate agent is not just about getting a license. There’re a lot of tasks and costs involved in getting started as a working agent. In essence, you’re starting your own small business. You have to invest the time and money to get it off the ground. You are an independent contractor, which means you need a standalone business model and a business plan.
Save NowBefore you begin the process of getting your real estate license, start saving money for after you’re licensed to cover the start-up costs and first year expenses. New agents need income buffers. It will take a little time for business to start flowing. You need to build up your sphere of influence (people you know) to get a stream of leads, clients, and sales. You will be working off commission, so it could be several months, maybe 6, before you see your first check. It may take a month for a sale to close. Also, after you get started, your income may not be steady month in month out.
Business PlanThe business plan is a key ingredient of starting a business. It defines where you're going, how you'll get there, and what’s necessary for success. Real estate professionals with a written business plan are more successful than those without one. Essentials of any good business plan include:
- Goals: What do you want? Make goals clear, concise, measurable, and achievable.
- Services You Provide: Choose residential or commercial, buyers/sellers/renters, and area(s). New residential agents often start with buyers/renters, moving to listing homes after they've completed a few transactions.
- Target market: Real estate products and services are targeted to buyers, sellers, and other real estate practitioners. Tailor your marketing strategy to each group.
- Budget: List current expenses (gas, groceries, cell phone, etc.), and then the new expenses you're taking on (association and MLS dues, increased gas, increased cell usage, marketing etc.).
- Funding: How will you pay your bills with no income for the first three months? With the goals you've set for yourself, when will you break even?
- Marketing Plan: The most effective way to market yourself is to systematically work your own sphere of influence.
Start-Up CostsExpenses will vary by state and market and depend on your arrangement with your broker. Your broker might help with board dues, MLS dues, E&O insurance, office supplies, and advertising or offer a larger commission split. Research the costs in your area and talk to established agents before you take the first steps to becoming an agent. Assuming you already have stuff like a smart phone, laptop, desk, and chairs, other expenses include:
- Office fees
- MLS fees
- E and O insurance
- Marketing materials
- Business cards
- Desk fee
- Computer hardware and software
First-Year ExpensesIt’s important to know your numbers. Set goal numbers and actual numbers for leads generated, listings, contracts written, contracts closed, and money. As an agent, you will be using your phone and your car a lot more, so prepare for increased expenses there. Some agents suggest saving at least six months of living expenses as well as $700 per month for expenses. That doesn’t include start-up costs. Each month, your minimum expenses may be:
- Office fees: $200
- Marketing: $250
- MLS and board dues: $50
- Insurance: $40