Many people are attracted to a career in real estate because of the financial perks. There are few barriers to entering the profession and starting your business is relatively low-cost. It’s one of the few areas where professional-level income can be earned without 4-9 years of (potentially expensive) post-high school education. It’s a profession where you are paid in direct relationship to your skills, effort and production. So there is no income ceiling, but also no floor. You hire or fire yourself each day by what you choose to do.
Here’s the big question everyone wants to know: Exactly how much money can I make in real estate?
Our answer? Well, it depends.
There are a lot of factors that influence your potential income in real estate.
These are the most important:
• Whether you work part-time or full-time.
• How long you’ve been in the game.
• How much you are willing to commit your time and resources.
• How you use your real estate license.
• What your commission split is with your Broker.
• Whether or not you have a solid business plan and are focused on a goal.
Are you working part-time or full time?
Your income largely depends on how much time you invest in your career, and this is especially true with real estate. With few exceptions, full-time real estate agents make more money than part-time agents. If you’re only working part-time, you’re likely not making the volume of contacts, leads, or commissions that full-time agents are.
The catch? Starting out as a full-time agent is tough! Making connections, building momentum, and turning a sizable profit simply takes time. There will likely be months where you spend money on your business and receive little to no income in return. Having savings or other investments to act as a cushion while you’re getting started can be a great help.
Ultimately, you have to do what is right for you. One of the biggest perks about a career in real estate is the flexibility and there is a unique path to success for each individual. If your lifestyle and finances don’t make sense for starting out as a full-time agent, then you should consider beginning part-time, at least until you get your feet wet.
How long you’ve been in the field of real estate.
With each year you spend as a real estate professional, you’ll acquire more connections, leads, and skills. In general, the longer you’re in the business, the larger your potential income.
You might not make your ideal income in your first year or so of business, but if you set your income expectations low and create a 5-year plan detailing how to grow your business, you’ll be hitting your profit benchmarks in no time.
A survey done by NAR showed that Realtors in business for more than 16 years earned $70,200 and made 15 transactions. On the contrary, those with three-to-five years earned less than half that amount ($30,100) and had 10 transactions.
Translation: if you commit yourself to working hard and being in the real estate business for the long haul, then it’s probably going to pay off. You have to find the right way for you to enter the field, push beyond the first-year threshold, and toward the income you deserve.
How much you are willing to commit your time and resources.
This really isn’t about part-time or full-time. You have to be willing to devote both your time and resources (money $) into this career, whether you are going at it full or part-time. Have you ever heard that saying, “You have to spend money to make money”? Well, a career in real estate is certainly no exception. In order to build your business you have to spend the time and money marketing and establishing yourself in the market. You will need to invest in a website, blog, yard signs, business cards, postcards, flyers, cell phone with unlimited everything, MLS fees, association fees, advanced designations, lockbox fees…the list goes on. Bottom line, it takes time and money to establish yourself in this business.
How you use your real estate license.
Real estate agents make money when they take part in the sale of a property. Many people don’t realize that there are several ways to use a real estate license and make great money beyond the traditional listing and selling agent roles. Many agents decide to specialize as well.
Here are some ways that you can use your real estate license:
• Listing Agent: Listing homes for sellers.
• Buyer’s Agent: Working primarily with people looking to buy a house.
• Referral Agent: Get paid a fee for referring clients to other agents.
• FSBO Market: List FSBO (for sale by owner) properties for homeowners who cannot sell.
• Foreclosure Market: Buy and sell homes owned by banks and government lenders (FHA, VA).
• Short Sales: Listing and selling homes where debt exceeds value.
• BPO’s: Prepare broker price opinions for lenders and asset managers, which are detailed reports similar to appraisals, used to value a home.
• Property Management: Manage rental properties for investors and home owners.
• Commercial Real Estate: Typically work for a large firm for salary and/or commission.
• Investor: Invest in real estate, fix-and-flip properties and save money on commission by buying and selling these homes yourself!
• Start your own brokerage: Once you’ve held your license for the minimum amount of time specified by your state, get your broker’s license, open your own office and collect commissions from agents who work under your license.
Income varies drastically according to license type. In 2013, managing brokers earned $66,300, while the median earnings for agents was $35,000.Brokers make almost double what agents do.
What your commission split is with your employing broker.
Real estate agents get paid on commission when they help someone buy a house or help someone sell a house. Standard commission for an agent is between 5 and 6 percent of the sales price, which is usually split evenly between the buyer’s agent and the seller’s agent, though sometimes it is split unevenly.
How you split commission with your broker determines how much money you make on each real estate sale. There is no “standard” split. The percentage of the split will vary based on the services and support provided by the broker and the volume of sales that the agent brings in.
Some brokerages also offer a 100% commission split model, in which the agent gets all of the commission for each sale. In exchange, the agent pays a monthly “desk fee” to the broker. This method of compensation is preferred for more experienced agents because, while their costs are capped each month, their income is not.
Percentage split-commission is the prevailing method for REALTOR® compensation, with 68 percent of respondents indicating this method of compensation, similar to past years.
Do you have a goal and a business plan?
This one seems obvious, but your effort truly has a direct effect on your financial returns. Rather than treating real estate as a regular job, you need to be entrepreneurial. Have a business plan and create concrete goals for yourself. Think outside the box and use all the tools at your disposal: websites, social media, professional associations, networking events, special-interest courses to expand your skill set. Going the extra mile makes all the difference.
How long will it take you to make money in real estate?
As we’ve shown, there are a lot of variables that influence your potential income in real estate and there is no way to accurately estimate the time it will take for you to hit your financial goals. The reality is that a career in real estate is like running a business; it takes time, effort, and financial investment to become profitable and successful. Your real estate income will depend on how quickly you earn clients and get referrals.
The latest numbers.
According to a recent survey done by the National Association of Realtors, median gross income increased to $47,700 in 2013, which is a 9.6% rise from 2012. Income and sales volume for real estate professionals jumped in 2013 for the third year in a row. (This reflects the 11.5% increase in home prices last year.)
• These numbers are based on a survey of 6,462 NAR members, and members of NAR make up only half of the estimated 2 million active real estate licensees in the US. The data is also skewed because the incomes for the large number of active part-time licensees bring down the “median gross income” figure in the report. But, while the data is not comprehensive, it can help us paint a picture of who is making the most money in real estate and how they’re doing it.
Want to find out if you have what it takes to be a Real Estate Agent or Broker?
About Tom Davidson — Tom Davidson is Vice President of Express Schools, LLC. which operates online education providers Real Estate Express, Insurance License Express and License Tutor. Follow him on Twitter.