If you’re a real estate agent, you know the benefits of being your own boss firsthand. You get to set your own schedule, develop your own client base, and work as much or as little as you’d like.
While pursuing a career in the real estate industry comes with many perks, it’s quite competitive. It’s your job to stand out from other agents and close deals on a regular basis, no matter what the market conditions may be.
As you focus on growing your real estate business, you may unintentionally let personal matters like financial planning fall by the wayside. Since a strong financial plan is the key to a high quality of life, it’s essential to make it a priority.
Challenges of Financial Planning for Real Estate Agents
Everyday, you work hard to help buyers find their ideal home and sellers to get the most from the sale of their property. So if you have minimal experience or no time to dedicate to your own financial planning needs, don’t worry, it’s not in your job description. You can continue to do what you do best transacting real estate and hire a financial advisor to support you with your personal finances.
Fortunately, there are financial advisors who specialize in assisting real estate agents like yourself who understand the unique financial planning challenges of being a real estate professional.
By reading this guide and partnering with a financial advisor experienced working with professionals like you, you can create and maintain financial security and avoid the stresses that real estate agents often face throughout their careers.
Financial Planning for Real Estate Agents
There are a number of topics to consider as well as questions you’ll have when you’re planning your finances as a real estate agent. Here’s a brief overview:
Living Well on a Real Estate Agent Income
When you work in real estate as an agent, you often own your own business, or at least have much more autonomy than many people in other professions. You also have much more control of your income.
If you work hard and make real estate your full time venture, you can live quite well. According to the U.S. Bureau of Labor Statistics, the average salary for a real estate agent in 2021 was $48,770 per year or $23.45 per hour, but many real estate professionals earn considerably more than this average, especially after years of building their reputation or working in a hot housing market.
When the real estate market is booming and you’re closing deals left and right, you may be tempted to splurge. If you do so, be careful as you want to ensure you have enough money saved up for slower times.
Here are a few questions a financial advisor can help you answer so you can make the most of your income as a real estate agent.
- How much does my real estate business need to earn each year in order for me to meet my financial goals?
- What are some ways to budget with a fluctuating income?
- What financial planning insights have you gained working with other real estate agents like me?
Repaying Your Student Loans
To become a real estate agent, you must participate in your state’s required pre license education curriculum and pass your real estate license exam. Even though you don’t need a college degree to pursue a real estate career, many real estate agents hold undergraduate degrees in business, marketing, finance, or a related field.
If you do have a college degree, there’s a good chance you have student loans to pay back. In the event you are left with some student loan debt, it’s important that you design a realistic repayment plan. A financial advisor can help you determine whether you should repay your student loans quickly or prioritize other financial goals instead.
Making the Most out of Your Real Estate Agent Benefits
When you work for someone else, you may receive a variety of benefits like health insurance, 401(k) with a company match, paid time off, training opportunities and bonuses. As a real estate agent, you’re likely an independent contractor or small business owner.
This means, you’re responsible for your own benefits. You need to figure out which benefits you need and want as well as how you can obtain them. When you meet with a financial advisor, they can help you answer questions such as:
- Which health insurance plan should I purchase?
- How much time off can I take without falling behind on my financial goals?
- What type of retirement plan is right for real estate agents like me?
Buying a House as a Real Estate Agent
Helping others buy houses may be what you do best. But that doesn’t always mean you’re a mortgage expert or have the ability to buy your own house without roadblocks. Since you may not have W2s or pay stubs to show you can repay a home loan, it can be harder to get approved.
A financial advisor experienced working with real estate agents can help you explore your options for buying a house despite the mortgage challenges you may face as an independent contractor or small business owner. Rather than a government backed or conventional loan, they may recommend an alternative mortgage option.
One example is a bank statement loan, which is specifically designed for small business owners who may not be able to verify their income via traditional methods. A financial advisor can also help you figure out how much “house” you can comfortably afford on a fluctuating income.
Saving for Retirement as a Real Estate Agent
Even though you likely won’t have an employer-sponsored retirement plan like a 401k or 403b with a match, you can still save a lot of money for retirement. You may want to consider investing in common self-employed retirement vehicles like SEP IRAs, Simple IRAs and SOLO 401ks.
Believe it or not, some of these plans will allow you to save even more for retirement than you’d be able to if you had a traditional 8 to 5, W2 job. If you work with a financial planner, you can design a feasible retirement strategy. You’ll uncover answers to questions like:
- Which retirement plan(s) should I open as a real estate agent?
- How much do I need to save to meet my preferred retirement lifestyle?
- What is my long-term investment strategy?
Expenses and Deductions: Keep More of Your Income
If you own a real estate business or work as an independent contractor, there are plenty of deductions at your disposal. These deductions can help you save on the high taxes you may face as a self-employed individual.
Some of the most common tax deductions for real estate agents include commissions paid, home office, marketing and advertising expenses, software, and business tools. If you work with a financial advisor, they can help you address questions such as:
- Does it make sense to take the standard deduction or itemize?
- Which deductions am I eligible for as a real estate agent?
- How do I keep track of all of my expenses?
Your Insurance Needs as a Real Estate Agent
As a real estate agent, you’ll need to invest in health insurance unless you can obtain it through your spouse. Professional liability insurance is also vital as it can cover the professional services you provide and protect you from property damage claims as well as bodily injury. A financial advisor can help you decide which types of insurance you need and how to go about finding the right policies for your unique situation.
Financial Planning is a Necessity
Being a real estate agent is hard work. To earn a healthy income and expand your client base, you must think out-of-the-box and put in long hours. For this reason, it’s vital that you develop and stick to a game plan for your personal finances. A financial planner can help you through this process so you can ensure your hard work truly benefits you and your loved ones.
Enjoy a Secure Financial Future
Financial planning is key if you’d like to figure out your short and long-term financial plans and eventually meet them. It can eliminate stress in your future and set you and your family up for a life of happiness and security.
Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. Before making major financial decisions, please speak with us or another qualified professional for guidance. The original version of this article first appeared on Wealthtender written by Brian Thorp.