5 money mistakes to avoid in real estate
You went into real estate to make money. Even if you like to help people find new homes, love architecture, crazy about negotiations or whatever other nonsense you told yourself, when you were starting out, money was still a big part of your motivation. Yet, many agents find themselves either unable to make money or unable to hold on to it. I am going to give you 5 common money mistakes realtors make when it comes to making and keeping their money.
Setting low goals and not achieving them. This is a double whammy. You work on setting your goals every year and unless you aim for growth, your business will decline, instead of at least staying flat, as you had hoped. Let’s assume you break down your plan into daily actionable items and work on them. By setting your goals at a certain level, you are estimating the gap between now and the future and ways of getting to the other side. The closer you get to your destination though, the more relaxed you become. There are two parts to this: first: it is natural to loose motivation at some point close to your goals and start coasting, and the second: the less challenging your goal is, the less motivation you have to start with. On the other hand, if your goal is too ambitious, you will be very motivated, but will burn out. You will not be hitting your milestones and at some point will understand that your goal is out of reach. You need to find a sweet spot, where you are motivated enough to keep going until you achieve what you planned. Also, since your motivation will decrease as you get closer to your goal, you will have to push yourself through this last mile. Going over your goals daily will help you with the “last mile” challenge.
As a rule of thumb, once you establish your performance baseline, which does not exist when are you are just starting, increase it by 30% for the following year and you should be reasonably close to that sweet spot.
Not putting money away for taxes every time there is a transaction. Do you remember that there are taxes to pay at the end of the year? Are you allocating money from each transaction for your estimated tax payment? If you do put away about 35% of what you make, you will simply have the money put aside to pay your taxes at the end of the year. It is a big deal. Allocate a further 25% towards financing your business and your life during seasonal market slowdowns. The remaining income will give you an idea of how your income compares to your expenses. If you feel strapped, decrease whatever expenses you can immediately and start working on increasing your income. You are in sales after all.
Allocating too much money for marketing. Do you believe that the most efficient way of getting leads today is through paid internet marketing? Make sure to watch the impact of paying for leads on your bottom line closely. Also, there is a lot of free options. Do you think that if you pay for leads you don’t have talk to them, pre-qualify them or compete with other agents when you go on listing presentations? And going on listing presentations is a big assumption, since most online leads would be for buyers. You need the skills to move a lead along to the status of a client. And if you have the skills, it does not matter where a lead came from, you would still be able to convert. You can’t buy these skills, but you can train them into existence. The best way is through daily prospecting. Buying leads before you have the skills is a waste of money. Buying leads when you have the skills is an excellent supplement to the leads you generate through prospecting. Stay conservative with your advertising/lead purchasing budgets and monitor your profitability monthly. If the market starts shifting, you will likely have to make changes to what you are spending and do this quickly and decisively.
Not accounting for the annual market cycles and seasonal fluctuations. If you have been in this business for at least a year you know that the market goes up and down depending on the time of the year. It is generally quieter in July, August, December and January. You will book fewer appointments and have lower volume of sales. This will impact your commission payments 2 to 3 months down the road. You need to account for this, when you are planning your year out and not make the mistake of allocating your income evenly throughout the year. Remember, it will fluctuate along with the market.
Creating and trying to execute on business plans not grounded in reality. If you don’t have a baseline to rely on, it makes it harder to project what you want to do next year. Establish your stats first. Then create your first plan based on your best version of your realistic assumptions. This will now serve as your starting point. With a year of experience under your belt, you may feel the confidence to triple you current results for the next year. May be not. The safest way of projecting your effort and your income is to increase it by 25% to 30% and stick to the execution. See how you do in the second year and how much effort it took you to get there. Now you can adjust your next year plan based you your performance stats.