We sat down with Chylese Austin, owner and principal broker at Inhabit Real Estate, to talk about her vast knowledge of smart financial decisions every Realtor® should make—these are things that will make a huge difference to your success. Even if you’ve been in business for a while, you’ll absolutely learn something new from our conversation about Realtor® financial planning. If you’d prefer to watch this information in a video, just click below.
Start Your Career on the Right Financial Foot
If you’re just starting out, there are a few financial moves that will really impact your success down the line.
File an Independent Entity
It’s really important to create an actual business for yourself, whether it’s an LLC, partnership, or S-Corp. Doing so protects your personal assets from the liability of a business (in most cases). If you have unforeseen trouble, you don’t want to be personally liable for any business debts.
Creating a company also helps you for tax reasons because it allows you to deduct income that you wouldn’t be able to otherwise.
Plus, it’s smart to have a clear barrier between your business finances and your personal finances. It identifies your business as a business in your mind.
Open a Separate Checking Account
Another tip is to keep your personal and business finances separate: this means you should open a separate checking account. It’s free at most banks, and if it’s not free at yours, find one where it is.
A separate account ensures that business money and personal money won’t get mixed up, and you’ll know exactly how much money you have for each. Plus, it makes it easier come tax time because you don’t have to sift out personal expenses from business expenses.
Save Six Months of Expenses
As soon as you can, save up six months’ worth of living expenses. This will give you buffer room if you have a few famine months as a real estate agent (and many do, especially when they’re first starting out).
Run Your Business Like a Business
When you’re working for yourself, it’s sometimes tempting to treat your business as your personal piggy bank instead of as a business. And trust me, you’ll make different decisions when you treat your business like a business.
Will you spend $300 a month on marketing if it’s coming out of your personal vacation fund? Probably not. But if it’s coming out of your business account, it’s a whole lot easier to view a marketing expense as an investment in the future success of your business.
This has really helped me with investing in Luminary Agent because I don’t see marketing as an expense anymore, but as a way to grow the business.
Pay Yourself on a Schedule
Don’t take your whole commission check and put it in your wallet. Figure out how much you need to pay yourself each month, and take that money out of your business checking account every two weeks. It should be no different than if you were getting paid by someone else.
If you really want to be on it, sign up with a payroll company like Gusto and, for only ~$30/month, they can not only pay you on a schedule, but they’ll deduct AND FILE your quarterly payroll taxes for free. We use them here at Top Left Creative and it’s seriously life-changing.
Save for Expenses and Dry Spells
The longer you’re in the business, the easier it will be to budget for expenses and know how much your monthly and yearly expenses are. Keep track of these expenses so anticipating them, saving for them, and deducting them gets easier.
Additionally, any Realtor® who’s been in business for a while knows that there are dry spells. Make sure you’re saving for them so there’s no need to panic when they come.
When you have money in the bank, you’ll feel secure, confident, and prepared. You won’t feel the pressure of having to get a certain listing or sale. Commission breath turns people off in a heartbeat.
Tax Planning Strategies
Know and Track Your Expenses
First, know and track your expenses. This helps you prepare for filing taxes down the road, and it helps you better plan for what those taxes are going to be.
Hire a CPA
An account will make your job as a business owner so much easier. But first, you need to find one. Ask other agents for recommendations, and then interview a few to find a good fit.
Once you’ve got a CPA, ask for a mid-year meeting. This will help you be prepared for how much of a tax bill you’re likely looking at. Plus, your CPA may have some strategies for helping you minimize your tax burden before the year’s out.
Pre-Tax Retirement Savings
You can cut your tax bill and save for retirement at the same time. This helps you now and in the future.
You can open up a Traditional IRA (not taxed now, taxed when you withdraw) or Roth IRA (taxed now, not taxed when you withdraw) and save up to $5,500 a year ($6,500 if you’re over 55). Just make sure you choose a company that has low administration costs, which can seriously eat into how much your money grows over time.
My top pick is Betterment (https://betterment.com). They’re super inexpensive, their fund is a mix of other indexes so it’s very diversified, and their user experience and customer support is on point.
You can also open a SEP IRA, which allows you to save for yourself and for other employees. One big advantage is that it allows you to save much more for retirement than a traditional IRA or a Roth IRA.
Wealth-Building Strategies
Realtors® are in a unique position to build wealth in a couple of ways. Taking advantage of them early on in your career will put you in a solid financial position, both in the near future and later in life.
Purchase Rental Properties
If you don’t mind being a landlord, investing in rental properties is a solid wealth-building strategy. And as a Realtor®, you have a unique advantage to make this work for you for a couple of reasons.
- You know the market, and you have the upper hand on the best properties to buy.
- When home prices go down, rental prices often go up, providing you with a steady stream of solid income even in poor market conditions.
Create a Business That Can Be Sold
Did you know that your real estate business has value, just like any other business? In fact, you should get your business appraised every five years.
Catalog your clients so that someone who is interested in buying it knows exactly where your clients came from. KNOW your business so you can prove its value to a potential buyer.
We really appreciate Chylese for sharing her expertise about Realtor® financial planning with us. If you have any financial planning tips of your own, please leave us a comment!
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