When you start learning about becoming a real estate agent, you hear a lot of "it's a numbers game". That saying gets old pretty quickly, especially (for me at least) since it's usually tied to "so then to get to X number of closings you must then cold-call X*Y*Z number of people". I have a different numbers game for you today.
It's a fun one I think - how to find the number of dollars I could expect to walk away with after a transaction.
I'm not talking gross commission or the split between brokerage and agent though those are both certainly calculated along the way, but focusing on estimating the net I'll actually be able to spend after expenses, taxes, and so on. Also, I wanted an easy way to visualize all the pieces of the pies. Also, I wanted a way to determine how many transactions at a particular price point would be required to replace my "day job" income (and really, hubby's day job income too).
At first it was downright depressing - one sobering estimate was for less take home than I could make at a minimum wage job. No way was I going to jump into a new career where I would likely make less! So between the interviews with the brokerages, a zillion questions asked and most answered, and some additional research, I gathered the following information:
- Most expenses incurred as a cost of doing business (expenses that go out regardless of anything else) or as a part of a particular transaction are not taxed.
- Referral fees are customarily taken "off the top" prior to any brokerage / agent split. Same with franchise fees.
- The average transactions per realtor per year runs just under 3, but this is due to many agents being non-compete or non-active, or choosing doing only a handful every few years and so on.
- 12 - 24 transactions per year is not considered unreachable for a motivated, industrious "part-time" agent.
Armed with all this plus the growing list of monthly expenses that I've earmarked, I built spreadsheet after spreadsheet and projected my earnings for years one through five based on five different scenarios. But I wasn't really happy with it. I eventually tweaked and revised enough that I came up with a workbook that I call The Other Numbers Game. I'm sure I'll tweak it extensively as I actually dive into reality after getting my license, but it's enough for me for now.
The median home price in my area runs around $300,000 so I imagine that's where I'll be hovering to start. If you've been following along with my "lessons learned" posts, however, you might already know that my target range runs to 750K per transaction. This is because while I want to get out of my day job and make real estate my full-time activity, I don't, ultimately, really want it to be full time. I also want to fully replace current NET income for both myself and my husband. Thus at some point I'll need to up the average $value of the transactions. Also, currently I work 55-60 hours a week 48 weeks a year so I started with that as the basis for this as well.
I settled on a target of 13 transactions per year as that's averaging one every 4 weeks (of course they won't happen that neatly spaced.) Then I was also curious to know what the value would need to be to reach the target net income with one, yes one, transaction per year. Then, what if I could do that one transaction working only the equivalent of 20 hours a week for 26 weeks a year? Hmmmmm, that would be one sweet hourly rate equivalent indeed! :0)
Here are the results (KODJ = "Kill Our Day Jobs") ...
* The ultimate goal is to be able kill off both our day jobs, but in this scenario 13 transactions are enough to kill off MY day job so I can focus 100% on real estate. :0)
Soooooo, the Other Numbers Game workbook (.xlsx) is available for download if you wish to play. :0)