Ep. 3 - How Much Money Can I Expect To Make In Real Estate?

 

Before you start into real estate you MUST "Know Your Number". In this episode, Kenny teaches HOW you can figure out what you need to make to thrive in real estate all within your first year. It's possible, find out how now.

Hello my friends, Kenny Stephens here and welcome to Rookie Real Estate, where your road to success begins right here, and right now!

Whether you are looking to transition from your day-job to your dream-job or you are on the road to your first 50 transactions…..

Success is in the details my friends and we are going to unpack the fundamental principles required for you to thrive!  Are you ready? Let’s do this!

Welcome back my friends!  Thank you for subscribing and keep the stories coming!  It’s so great to hear of your success stories AND I love hearing about roadblocks you’ve overcome.  Things you didn’t see coming and how you were able to push through. Soon, we will start working those stories into the podcast and answering some of your questions….  There is strength in numbers and with all four of you guys listening, were gonna be unstoppable! haha

If you are using the Anchor app, feel free to hit record and ask your question or share a quick story.  Your contributions could be the encouragement a listener needs to keep fighting their way to success.

There are so many things that fill our minds.  So much noise in our heads that keep us running the rat race with little to no results.  We constantly fill our lives with busyness, often to impress people we may not even like that much.  I know there have been times in my life I’ve struggled with this balance.

When I was 16 years old my sister was diagnosed with Acute Leukemia on HER 17th birthday.  After an intensive 11 month battle she died just two weeks before her 18th birthday. I can’t tell you how many different ways that shaped my life.  But the point I want to focus on today is, life is short and there is a lot of needless noise that we allow to fill our minds and as a result steer our life into a maze of unproductive turmoil.  Gaining clarity at a young age has helped with my love for life. I’m great at knowing what I want and finding a way to get it. I’ve never been scared of a challenge and hard work. Guys, this journey of life requires a little sweat equity at times but please don’t forget your “why” and enjoy the adventure!   I’m hoping this podcast will help you weed out some of the noise and avoid the things that just make you appear “busy”.

Because:

Depending on where you are in this process, either considering a career or already a licensed agent, You are the boss! Finally, you’ve made it to the top of the food chain.  The CEO(Chief Executive Officer) of YOU INC. casting a vision for your career in real estate, building a vision statement, launching your 1,3 & 5 year goals systematically, dreaming big and hopefully implementing a strategy for success…. Right?   Your also the CFO(Chief Financial Officer), I’m sure you’ve itemized every possible expense, calculated your risk, built a scale of compensation, to finally pay yourself what you’ve always deserved…. Right?   OH, and don’t forget you are also the COO too, the (Chief Operations Officer).  You’ve met, vetted and built your strategic business alliances with all the possible partners you will need, to thrive in this business.  The road is bright! Energy is pumping through your veins…. Forbes 500 is rapidly coming within reach.

Then, you wake up from your dream, roll out of bed and turn off the alarm clock….

It’s 5am.

Now what?  

Although I’m making light of all these fancy titles, there is truth mingled in.  You have just launched into YOU INC. In most states you will be an independent contractor that will merely hang your license with a Broker.  Nobody is there to micro-manage you. It’s you baby….. YOUR responsible for going out there, killing something and dragging it home. Your family is counting on you.  There are bills to pay and mouths to feed.

At some point in this process, hopefully pretty early, you’ve asked the question: “How do I make money in Real Estate”

Of course, you’ve got to sell houses….. But, how do you do it?  How many do you need to sell to survive? How many transactions do you need, to justify the transition in careers?  How many do you need to THRIVE? To save for retirement?

So, I’ve told you the first question I usually ask people looking to break into this business.  But, one of the first questions I’M often asked: How much money can I expect to make? What does 100% commission really look like?   

I’ve talked pretty highly of my Billion Dollar mentor, Terry DeSelms who launched his real estate career at the age of 38….  Did I mention that his first year in the business he spent 115% of what he made. Yep, he spent more money that he actually made, in his first year.  I bet you weren’t expecting to hear that.

Have you ever known a highly successful person?  If you have, it’s not likely that THEY were the one to tell you they were highly successful… You tend to hear that from other people.  The kind of success where nothing really seems to get them worked up. A cool cat. They are as solid as a rock with their emotions. Decisive, confident and their speed implementation is astounding.  They function with surgical precision. When you meet a person like that you may automatically assume it BECAUSE they are rich that they can be this cool cat….. Right? What could they possibly worry about?  They are already rich!

That couldn’t be further from the truth.  I know rich people. I’ve picked their brains.  They are massively wealthy BECAUSE they only focus on what matters most.  Expending the maximum amount of effort on the dollar producing activity. They let everybody else drown in the logistical rat race.  They know exactly what makes them money and they do THAT!

When I first got my license and launched full time into real estate myself there was this guy always walking around the office, making his rounds… saying hey, asking how you were doing.  A genuine caring guy and as relaxed and cool as a cucumber. I really liked this guy but also could not figure out how such a high producing successful realtor who closed more transactions in a year than most do in a career, could be walking around so chill….. Here I was with two deals working, both of which were holding on by a thread and I’m running around the office like a chicken with my head cut off…… full of determination but bouncing into everything and having no idea which direction to run.  I was just running until all the blood ran out, each day. I already told you that I wasn’t the sharpest knife in the drawer and sometime a little slow on the uptake….. But let me tell you what I learned, very quickly by being around highly successful producers, such as this guy…. what they focused on was so much more simple and massively productive. They had already learned what dollar producing activity was necessary in order to be successful. To reach their goals. To win, to thrive! It’s a simple formula, one I’m going to share with you.    

Today my friends, I’m going to save you a lot of time and wasted energy.

After last week’s episode on how to develop your “why”

I can now help you…. “Know Your Number”.  

Extreme laser focused intensity.  People are always talking about setting goals but HOW can you set a goal without knowing the formula necessary to reach said goal.    

I want to help you figure out what level of effort is necessary for you to complete a business plan, to be able to set obtainable but challenging goals.  Guy’s let’s get this right. There are some amazing men and women in this profession who crash and burn from all the NOISE that distracts and drowns, otherwise productive agents.  

Being the CEO, CFO and COO of YOU INC.  You’ve got to have a business plan outlining your goals and how you plan to reach those goals.  You will have to create a business budget to cover the cost & expenses of your business plan. This will require a detailed business budget.  Some of you just turned off when I said budget…. Stick with me here… it’s simple. Not only do you have to pour money into your business in order for it to grow, you will have to create personal family budget and personal growth goals and family goals.  This is where clearity comes from.

I personally feel you will need a family meeting with those who will be affected by your launch into real estate.  Building a family budget, creating expectations based on FACTS and not necessarily on “the dream”. Remember, hope for the best but plan for the worst.  

Each year my wife and I create a word or phrase as a theme for that year.  We began this concept when we started having our New Year Launch Party with our team members.  We celebrate the accomplishments of the past year by giving out awards. We also reveal that given year’s company wide goals and how we plan to reach those goals.  My wife and I’s job is to create an environment where our agents can thrive. This requires the same effort I’m asking of you but on a larger scale. But, it’s the same formula. One year, our theme was  “KNOW YOUR NUMBER” and Terry DeSelms broke down what that meant. But, he started with the END in mind. He asked us, how much money per month would you need in order to retire successful and happy? Then, he started working the numbers necessary in order for you to reach that desired amount.  He made it as simple as 3rd grade math. Merely adding and subtracting a few simple numbers…… All of our retirement goals may be different, but if you can see the finish line before you start the race, you know where you are going. The entire route may not be clear and surely will be challenging…. But, you know where the finish line is.  Dave Ramsey always said “if you aim at nothing, you will hit it every time”.

KNOW YOUR NUMBER!   

Here we go!  So the question at hand is: How much money can I expect to make in real estate.  


Keep in mind that this is a nation wide podcast and every city & state may be a little different.  There is no “set” commission in our industry.... period! So, I’m going to talk in generalities. With just a little research in your area, and speaking with a broker or your broker…. You can gather an accurate range for commissions where you live.    

Just for this example, let’s assume that traditionally listing agents get their sellers to agree to a total of 6% commission based on the final purchase price of the home.  And, let’s assume that the listing agent is willing to split that 6% with a cooperating buyer’s agent. Therefore both agents(listing agent and buyer’s agent) getting 3% commission each for a total of 6.  

The next figure we need to establish is the average sales price of a home in your area.  That too is a simple internet search of your area or speaking with a local Broker.

For this example, let’s assume $400,000.00 is the average.  

Take $400K x .03 and that will give you $12,000.00 commission.  Likely you will have an agreement with the managing broker of the firm you hang your license with, for the broker to deduct their “split” of that $12K.  We will soon discuss the process of locating a brokerage to hang your license and what some of the different ways companies do their splits. But, again for simplicity here, let’s assume YOU generated this lead and your broker’s split is 10% of the $12K. That means you just earned a $10,800.00 paycheck.  Assuming you are in a 25% tax bracket, you will be able to take home $8,100, after Uncle Sam get his cut.

Let’s summarize that: You closed a $400K home and netted a little over $8,000.00 after your broker’s split and holding out taxes.

How many self generated closings will you need to meet your desired results.  To achieve your goals? $8,000 x 12 Closings is $96,000.00. You’ve only got to get 12 people to agree to work with you in a given year to make almost $100K?  What? That’s only one person a month! Surely in a 30 day period you can get ONE person to agree to let you help them buy or sale a home….. Right?

Let me put that into perspective: There are over 14,000 agents in my market here in middle Tennessee, the Greater Nashville area.  7,000 of those agents did not close 1 transaction last year, which was one of the hottest real estate markets in our lifetime. The other 7,000 averaged 3 transaction.  

In our example we are assuming that $8K is the net and the average agent sells 3 homes, that’s $24K income…..  But, don’t forget…. There are another 7,000 who didn’t make ANY money.

In our example, one closing per month would generate $96K gross profit.  Even if you spent ½ of that on business development, marketing, expenses and the given overhead necessary to be an agent….. You would still net $50K.  

That my friends, with the proper plan, a powerful “why” and massive amount of dollar producing activity…..  it’s possible, your first year.

Your second year, you’ve gotten the zitters out and have sharpened your skills.  I personally believe and have seen many agents do this on a regular basis, have a business plan to capture 1 new buyer/seller per week, giving them 48 transactions per year and taking 4 weeks vacation.  Because there are 52 weeks in a year. 48 clients, 48 transactions 4 weeks vacation. All with ONE focus in a given week. In a given 7 day period. In 168 hours in a given week, do you think it’s possible to capture ONE person to buy or sell a house with you?  If we use the formula above, that would give you a gross commission of $384K per year. You will probably need to adjust how much you subtract for taxes but you my friend have just bumped up a few brackets. That is possible with just ONE required task each week: Capture ONE new buyer or seller.  How would you like to get up every Monday and only have ONE thing that absolutely had to be done that week?

Before I became a real estate agent my wife wanted to attend a huge conference in Vegas.  It was the Certified Residential Specialist Celebrationthon. Only 3% of agents in the world earn this designation and once a year they get together to share what is working for their business.  The TOP AGENTS across the country vomit all their best ideas all over you and hopefully you can take some of that home with you and apply it to your business. I decided to attend this conference with her because that this point, we were already working on my plan to transition into real estate.  It was an incredible week and I was overwhelmed to say the least. However, one of the speakers was a kid from Texas(I say kid because he looked like he was 14 years old). Each day had a featured speaker and then a bunch of break-out sessions. This kid was one of the last to speak. He stood there and said he had closed 111 transactions his very first year in real estate.  I was SHOCKED. I remember leaning over to my wife and asking her if that was possible….. As if he would lie about it in front of all those people. He also share about how it had almost ruined his life. The stress put him in the hospital. Working excessive hours almost ruined his marriage. I think he even had a kid somewhere in the story….. Two things burned into my memory that day:

  1. I now had a mental picture that it was actually possible to close over 100 homes in a year… That was powerful my friends and secretly I wanted to be that productive.

  2. You must have a plan in order to succeed and enjoy that success.  All the commissions in the world would not be worth losing everything that actually mattered.  

That’s the formula my friends.  I told you it was simple. Anything extra you add to that formula is NOISE, it’s DISTRACTION.  Figure out how much money you need per month to enjoy retirement and how many years you’ve got to get there.  Then, do the math. # of transactions x average sales price… subtract splits/taxes and BOOM! Back that into a weekly goal and you’ve got your formula for success.  

Here is what I’m asking you to do:

*** Start with a family budget.  Normally you would take your salary income and subtract your monthly expenses and whatever is left over is gravy….  Right? Hoping you didn’t run out of money before you ran out of month!

When you are 100% commission based, you make a list of all your monthly expenses first and then prioritize those expenses in the order of importance.  Taxes, Food, Shelter, Utilities, Insurance, gas, braces, tires, oil changes, retirement etc. List everything! If you don’t know how much something is going to cost, estimate high. If you only buy tires once every other year, divide that total expense by 24 and put that in your monthly budget.  List everything! If you are married, do it together!

Then, when you get a commission check, start paying those expenses in descending order, from top to bottom.  Hopefully, you will have money left over at the end of the list.

Keep in mind that you no longer have a guaranteed income.  You are now being paid based on your production. Your first commission check may only cover the first 5 items. The next commission check will hopefully cover several more….. And so on.

In real estate, you are on a 45-60 day cycle.  Meaning, if you had a ready, willing and able BUYER on the very first day you got your license…. AND You were able to lock in a contract on the first home they looked at.  It would still be 30-45, maybe even 60(depending on your market) before you would get paid your first $8,000.00. That’s a lot of “if’s”, right?

Man, did some of the oxygen just leave the room?  Is a career in Real Estate even possible? YES! Success IS POSSIBLE!  That’s what I’m trying to lay out for you. I’m a normal guy who has done well in real estate.  I’ve also recruited, trained and mentored others in their successful journey.

But, you can no longer fly by the seat of your pants.  It’s time to put your big boy or big girl shoes on and get to stepping!   KNOW YOUR NUMBER!

Subscribe to this podcast and I continue with you in this adventure.  Seek wise counsel by qualified professionals. You will want to get a qualified financial planner, a CPA, maybe a tax attorney. I’m want to walk with you through this journey.  I want you to WIN and yes, winning IS possible.

Rookie Real Estate is produced and edited by Scott Parker. All of the content is written by me, your host, Kenny Stephens.

Rookie Real Estate is powered by DeSelms Real Estate in Franklin, TN.  I say that with this in mind. The vision of DeSelms Real Estate is to be an empowering partner, bringing agents, clients and communities home, simply put… we bring you home.

This podcast is not designed to recruit agents, but it does align with our vision.  We want to be an empowering partner to bring agents home. My dream for the content is that it can be used by any brokerage, any agent and the vast communitie of those who have dreamed of a career in real estate.  I want to educate those on the road to their first 50 transactions and I want to help ensure those who transition from their day job to their dream job, succeed in that process…. If at all possible.

Until next time my friends, Better Your Best!