Planning your Real Estate Budget for 2020
Planning your Real Estate Budget for 2020
The year has begun and if you haven't already done so, it's time to start planning
and budgeting for 2020 for your marketing, advertising, and operating expenses, and determine your sales goals for the next twelve months. Real
estate is unpredictable, the not knowing when a transaction will close and how
much money will be earned, that’s why budgeting is important. There could be
months where there’s no money, and others where there’s more than enough then it’s
spent on things that don’t provide the best Return on Investment (ROI). When
budgeting, it’s helpful to use accounting software like QuickBooks, a
smartphone app like Mint, or create or download a spreadsheet for Excel that will
allow you to stay organized. The first steps in any real estate marketing plan is
assessing past performance and making realistic predictions of where your
business will be by the end of next year, and to do that you have to know how
much money is available for your plan.
To create a budget for your business, begin with writing down your sales for the past 12 months (or use 24 months if the two years sales varied significantly), determine income received from those sales, know your personal expenses, and calculate your business expenses by figuring out how much was spent over the past year including dues, advertising, leads, rent or desk fees, vehicle costs, insurance, etc. Don’t forget to include taxes paid for real estate income. Break down each expense into fixed and variable expenses. E and O insurance or rent are examples of fixed expenses, giveaways or ads are variable expenses. It’s helpful to break down fixed and variable expenses further into subcategories like, supplies, advertising, and vehicle expenses. If you’re a new agent and don’t have sales or a year’s worth of expenses, then begin with projected expenses and sales and plan accordingly.
One of the biggest mistakes’ agents make is not having a budget, a marketing plan, or enough money set aside to run their real estate business. Another problem is using the small amount of money set aside on one or two newspapers ads or postcards campaigns, with no ROI. When trying to farm or hit a specific area, it usually takes more than one or two times to get any name recognition. The Rule of Seven applies, and if there’s not enough money in the budget to hit the area or an advertising venue at least seven times, then it might be better to spend the money elsewhere, like participating in a local event and having giveaways, doing an open house and creating a Facebook ad for the open house, or pick a smaller farm where your budget will cover reaching out to them at least seven times.
Once your budget of income and expenses have been calculated, it’s time to figure out the return on your investment. It’s imperative to keep track of where your clients are coming from, whether it be newspaper ads, home magazines, social media, farming, open houses, local events, or paid leads. If money was spent running an ad and no business came from that ad after a determined period of time or after the ad had been revamped, then it’s time to stop running it. If your clients are coming from farming, then ramp up the money into your farm, or expand the farm. If you pay for leads and most of your business comes from them, that’s where you need to spend your money. Don’t guess on where you’re getting your clients, it’s important to have this information so that you know where and how to spend your money. Feel free to experiment with new marketing and advertising ideas, but don’t spend twelve months trying to see if it works. Give It three months then evaluate the new expense and see if it’s providing enough ROI to continue, or if it needs to be changed to be more effective.
Here are some quick budgeting tips:
1.Review your budget quarterly to stay on track and provide a clear view of expenses and ROI. Don’t be afraid to make adjustments throughout the year.
2.Pay estimated quarterly taxes or deduct 15% - 20% from your commission and put in a separate savings account for your taxes. If you have a slow March or April, you’ll be thankful your taxes are already covered.
3.Avoid using credit cards or obtaining a credit line to finance your business. It may seem like a good idea when things are slow, but it’s better to cut variable expenses until business picks up then rack up debt and pay interest on it.
4.Start a reserve fund as soon as possible for unexpected business expenses.
5. Don’t count your commission until the check has cleared. This means, don’t spend your commission before you have it. Ask any seasoned Realtor and they’re sure to have a story where they had a deal fall out the last week, or even the day it was supposed to close.
6.Utilize social media, open houses, floor time, door knocking, obtaining reviews, blogging about your local market, cold calling expired listings or FSBO’s, or participating in local events with no admittance fee: They are all free.
Creating sales goals by assessing past performance and making realistic predictions is the last, and probably the most important aspect in determining a budget and figuring out where you want your business to be by the end of the year. This can be accomplished by calculating the amount of income you’d like to earn for the year, knowing the total transactions you’ll need to close to meet those income goals, determining the number of leads you’ll need to work based on your close rate, and how much you can spend to reach each lead. This information is instrumental in running your real estate business because you need to know what you’ve done in the past to know how to move forward and achieve your goals in the future. Having your own business has tons of benefits, but it’s crucial to have a budget to set clear expectations, limit surprises, and ensure the longevity of your real estate business. Happy 2020! For more information about this or anything real estate related check out KerryKeith.com.
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