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Unexpected Expenses to Plan For When Getting Into Real Estate

Bill Gassett's picture
Unexpected Expenses Getting Into Real Estate

Costs When Becoming a Real Estate Agent

Becoming a Realtor doesn’t have the exact startup costs as many other businesses. But despite this, there are real estate expenses you need to be ready for when entering this career.

There are unexpected costs when becoming a real estate agent that you need to have the funds to cover. With a better understanding of the costs involved, you can plan for the expenses you will face once you are a real estate agent.

Everyone understands the lure of entering the real estate industry. For lots of folks, it is to make a very profitable living. How much a Real Estate agent makes can be significant. Potential agents, however, should understand that not everyone gets rich.

Maximum Real Estate Exposure has an excellent resource covering how much Realtors can make in a year.

It is the upper-end top producers that make an incredible living. The average real estate agent does not. To think you will enter the industry and see the money come pouring in without incredible effort is unrealistic.

Real Estate involves many hours of hard work. Unfortunately, there are times when all your efforts lead to no paycheck. It is a commission-based business where there is seldom any salary paid. You are paid to perform, all the while racking up expenses. These costs are something every agent should be prepared for.

Let’s examine the real estate expenses involved when entering this career. It's one of many things to know when becoming a real estate agent.

 Real Estate Course Fees

To become a qualified real estate agent, you need to pass an exam, but pre-licensing courses need to be completed before that. These can cost from a few hundred dollars to well over a thousand dollars.

You will often be able to complete the coursework online, however, which will be cheaper and save you travel expenses.

Your education may not end there, with classes required during your career to meet licensing requirements.

Exams and Licensing

With the coursework completed, you can take the exam. There will be a small fee of around $25 for each exam, and there could be other charges as well. A background check or fingerprinting might be required, with fees typically between $50 and $75.

Then there is the real estate license fee to pay when you pass the exams. This could be $150, with total costs reaching more than $300 to get your real estate license.

Brokerage Fees

You will need to join a real estate brokerage to be able to operate as an agent. There will be costs involved, which could be a recurring fee or a percentage of your commissions. However, being part of a brokerage will reduce some of your business expenses, including office supplies and insurance.

Membership Dues

There will be fees when you become a certified Realtor as part of the National Association of Realtors and local and state associations.

Membership in local and state real estate boards is another cost, though. Fortunately, these fees are usually a tax write-off.

Gaps in Your Income

Once you have passed your real estate exams, there could still be a long time before you actually begin earning money. Though you might find a client, you aren’t going to earn anything before the home sale closes.

If you don’t have a second job or a side hustle, you will need to have money saved to cover the gap before the first home sale. You might wait many months before getting paid commission from helping a client buy or sell their home.

The same thing will apply going forward, with gaps in your earnings. If you don’t like the idea of inconsistent income, perhaps another career choice would be better.

Business Costs

While your brokerage will cover some office expenses, other costs are involved. Things like cell phone costs, vehicle use, business lunches, and office space may be down to you.

Your brokerage might provide some insurance, like errors and omissions coverage, but other insurance will be your responsibility. Business owners’ insurance and liability coverage will be an additional cost.

Real Estate Advertising and Marketing

Marketing costs are easily overlooked but could be one of your more significant expenses. You could spend more than $5,000 annually on advertising to help your clients sell their homes.

Investing in having your own website is essential, along with marketing on other websites to attract home buyers.

There are many other sites and tools to use for your real estate business. Technology tools for real estate are changing all of the time.

Income Taxes

While taxes will always be due, becoming self-employed changes how you pay them. As a real estate agent, you will pay the self-employed 15.3% tax rate, and income tax will also be due. This could mean paying more than 40% tax per year.

Health Insurance

As this isn’t a conventional job, you will need to set aside more money to pay health insurance premiums. Real Estate agents are typically on their own to find health insurance, as they are considered independent contractors.

Retirement Savings

If you enjoyed matched contributions to your 401(k) in a previous job, you would need to contribute more of your own money for the same outcome when you are a real estate agent. There can also be tax benefits when you pay money into your 401(k).

Because real estate agents are considered self-employed many will use a Keogh account to fund their retirement income.

Your Time

The last expense is often overlooked - your time!

The saying time is money certainly holds true in real estate. There is a substantial amount of time where you will not get paid for what you're doing.

While not a monetary expense, your time is very valuable. Being a real estate agent means being available to your clients when they need you. This will mean inconvenient phone calls and not getting as much time off as you might want.

Final Thoughts

The best real estate agents have the potential to make quite a bit of money. However, real estate is a challenging business to enter. The majority of agents spend a lot of time with money going out the door before any is coming in.

Keep this in mind as you enter the real estate industry as your career. Does becoming a real estate agent sound appealing? If so, see how to become a real estate agent in the reference provided.

About the author: The above article on unexpected expenses when becoming a real estate agent was written by Bill Gassett. Bill is an experienced writer who writes for numerous prestigious real estate publications. He is considered a trustworthy expert is the field who is often quoted by mainstream news sources.

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