- The Washington Times - Thursday, October 6, 2005

The real estate sales industry has seen an amazing amount of growth during the last several years as it has morphed into a multiple services industry, rather than simply a sales services business.

Any time an industry experiences amazing growth, you’ll find a lot of people moving to it to get into the flow of money. The mortgage industry underwent this type of growth in the 1990s and into the 2000s when interest rates dropped into the single digits after having been in the low teens in the 1980s.

When you can drop your interest rate from 12 to 6 percent, everyone is going to get in line to refinance, which is what has happened — and ferociously — during the last 15 years. Mortgage companies hired like crazy. Top loan officers even left their current companies and launched their own companies. Fortunes were made.

After everyone refinanced, guess what? Some of those fortunes went stale. The need for more loan officers dissipated and online transactions removed the need for as many mortgage professionals.

The same thing happened to the real estate industry through the 1980s. Membership in Realtor associations rose to nearly 1 million nationwide. Then the early ‘90s recession hit and the drop-off began. Membership dipped to about 600,000 Realtors in 1995.

It turned yet again. Now, 10 years later, the National Association of Realtors has the highest number of members ever.

Real estate is a hot industry today, even in the face of leveling markets across the country.

So what does it take to really carry on a successful real estate business?

It depends.

Getting started is the easiest item to calculate. In the Washington area, it’s about the same for most agents to get into the business. Recruiters here include a sheet with the projected costs of getting started. It amounts to a couple of thousand dollars, and it doesn’t all have to be paid upfront. If you want to stay in business and hold on to your day job, you can stagger when you pay the start-up costs.

The investment of conducting business, however, depends on your level of commitment. Those who try their hand at a part-time career end up paying out a couple thousand dollars per year, hoping to net enough to pay their expenses and have some profit at the end of the year.

For top producers, it reaches into the tens of thousands of dollars per year just in office and marketing expenses, not including staff and a buyer-agent team. Other expenses include insurance coverage, local and state association fees and what you determine you’re going to spend on business setup.

Listed here are a few of the charges you can expect if you want to start your career. While the pricing may differ a tad from state to state and jurisdiction to jurisdiction, the categories will generally remain the same. I’ve provided a range of costs for several items below.

Start-up

• School and test: $330. Each state requires a license, and you must attend a certified school to attain this.

The charges will differ per school.

• Business cards: $25. These are for basic cards. Color with your photo may cost more. If you don’t order these, you’re not really serious.

• Training: $100 to $200. Some companies offer in-house training for free, others for a small fee, still others rely on the local association to provide training for you. There’s usually a small fee for this service to cover materials.

• Trade association, lockbox services: $400 to $1,000. This also differs according to your local association charges. Your association services will reflect the cost of membership.

• Errors and omissions insurance: $500 to $700. This is a policy you’ll pay for every year you’re in business. It’s a policy to protect you from making, well, errors and omissions in your business when dealing with the public. Be careful about the deductible and ask to read the fine print. Some have no deductible and cost a bit more each year, while other policies are cheaper up front, but leave the agent responsible for the first $5,000 or $10,000 in damages.

• Multiple listing service application fees and charges: $400. There are setup charges, then either a monthly or quarterly fee to help maintain this cooperative program.

• Miscellaneous business setup expenses: $500 to $1,000. This is determined by your own personal plan. Do you need new clothes, personal digital accessories, calendar, computer, office supplies? If you’re counting on the office to supply some of these items, be ready to talk to your manager first. Some offices supply this for agents, others don’t.

Total: $2,255 to $3,655

Once you’re up and going, you have regularly scheduled expenses you’ll have to pay. When you’re running your own business, keep in mind that what the company used to pay for in an employer-employee situation, you now must cover month in and month out as an independent contractor (self-employed).

Annual expenses

• Monthly mailings: $2,400. This is referred to as “farming” and quite frankly, not all agents carry this out. It’s amazing to me how many agents are just waiting for business to ring in on the phone. If you want to build a business, you have to let people know you’re in business. The above cost is minimal. Top producers mail to tens of thousands of prospects each year and invest even more.

• Networking memberships and events, chamber of commerce: $500. Again, this is the cost of letting other business people know you’re in business. Most of the cost above is for the networking events — breakfasts, mixers and trade shows.

• Cell phone, 2,500 minutes, minimum: $1,800 to $2,400. The front-line weapon of today’s real estate agent. You’re going to need the best plan you can afford.

• Web site: $500 to $1,000. Some companies offer some sort of Web presence, and it can be free. For a bona fide Web site, include this as a minimal expense.

• Errors and omissions insurance: $500 to $700. This is included in start-up, too, but it is an annual expense. The policy is usually negotiated through your company. You may be able to get a policy discount through your trade association.

• Trade association memberships: $400 to $1,000. For the trade association near you, visit www.Realtor.com and click the link at the bottom of the page.

• Office expenses: $3,000. This will be a personal choice, depending on your use of technology and mailings. However, you still need to feed paper into the printer, use paper clips and pens, along with various other marketing materials, such as open house brochures and property packets.

• Car expenses: $4,800. This could be reflected in either a lease, payment or upkeep. Tires aren’t cheap, and you will be living in this vehicle with your clients.

• Gas: $3,000, based on 1,000 gallons at $3 per gallon.

Total: $16,900 to $18,800

This is a base line of expenses that you’ll need to maintain just to be in a full-time business. Your expenses will fluctuate according to how much you want to market yourself.

If you want to make $50,000 in this industry, you’ll actually need to make about $20,000 more than that just to cover your business investment each year. The industry suggestion is that 15 to 25 percent of your income should be used to market you and your business.

One final note, these numbers don’t include any services you may hire out — assistants or clerical work — or your tax expenses. Also, for the self-employed, you must pay for both sides of the Social Security tax, which doubles your rate from 7.5 to 15 percent right off the top. In an employer-employee situation, the employer pays half of this tax.

M. Anthony Carr has written about real estate since 1989. He is the author of Real Estate Investing Made Simple. Post questions and comments at his Web log (https://commonsenserealestate.blogspot.com).

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