6 Reasons Why Financial Planning For Realtors Matters (2022)

6 Reasons Why Financial Planning For Realtors Matters (2023)

As a realtor, you spend a lot of your time making deals. You talk to your clients, you do market research, and you prepare your materials. But how much time are you spending studying financial planning for realtors?

If you want to be successful (and eventually retire), you need to treat your work as a business. Today, I’m going to talk about why financial planning for realtors matters—and what you can do about it.

If you would rather watch or listen to this content, check out the video or podcast below!

Financial Planning for Realtors: Why is it Important?

Being a real estate professional also means owning your own business. If you want to achieve true financial freedom—and build your real estate business—you need to have a strong understanding of your income and expenses.

Here are some of the major reasons why financial planning for realtors is so important.

empty wallet

1. Your Income is Unpredictable

As a real estate agent, your income is unpredictable. You could close three deals this month and no deals next month.

And that’s fine; it’s part of the business. There’s really nothing that you can do about how volatile the market is. Even the best agents will sometimes have bad months.

Unfortunately, this type of volatility is also the most significant risk to your financial freedom.

For the purposes of realtor financial wellness, you need to set money aside to cover future months. That requires knowing what your future expenses are going to be (as much as is possible). The only way you can do that is through a better understanding of your financial plan.

Real estate agents, especially new real estate agents, have to manage their income carefully by managing expenses. They need to spend their money very frugally and reinvest their money into their business.

This is also why many real estate agents start working part-time before making the leap to full-time work—having a paycheck while working can really help.

Making purchases online.

2. You May Have Unexpected Expenses

In addition to volatile income, you may also run into unexpected expenses.

Perhaps you need to purchase a drone to complete a photoshoot. Maybe you just want to pick up some cookies for an open house. You have to be flexible enough to absorb these expenses because they can lead to more income in the future.

Some agents even find themselves paying for things like minor repairs and cleaning before they can sell a property. They’ll be reimbursed later. But it comes out of their pocket right away.

So, real estate professionals end up in a situation where they have volatile income and unexpected expenses. The only cushion against this is having a buffer of cash available. You build that buffer by managing your income and expenses as carefully as you can.

Whether you use a mobile app, an Excel Sheet, or QuickBooks, you have to track your income and expenses. Running monthly income/expense reports and balance sheets will help you gain a better understanding of your personal finance—and will help you make the right decisions to remain above water.

Hands counting coins.

3. You Can Expand Your Portfolio

Let’s say you’re operating as a real estate agent and you realize that you have the perfect opportunity for an investment.

You want to grow your real estate business. But, unfortunately, you don’t have the cash.

Real estate agents have to be able to take advantage of whatever opportunities come their way. The only way a real estate agent becomes a real estate investor is by having the cash.

Toward the end of their career, a lot of realtors have achieved passive income. They may have a huge arsenal of referrals… or they may have a rental property that serves as part of their retirement plan.

But you can’t build this type of real estate investment portfolio unless you have a good handle on your finances.

One of the reasons a real estate agent should have a thorough understanding of their financial situation is so that they are able to take advantage of investments as they become aware of them.

The more well-diversified your real estate investments are, the more likely you are to be able to weather bad months or unexpected expenses.

Person paying taxes.

4. You Need to Plan Ahead for Taxes

For self-employed individuals, like real estate agents, taxes can be brutal. As an independent contractor, you are paying self-employment taxes—the employer’s side of taxes—as well as your own.

You can plan ahead by liberally investing in retirement accounts. Your Roth IRA, Solo 401K, SEP IRA, or traditional IRA can reduce your tax burden. You also need to pay attention to what will be categorized as income tax (sales within the year) and capital gains tax (sales outside a year).

The better you plan, the more you can reduce your taxes. There are frequent changes to the tax code that could affect your taxes and your spending. You might not be aware of these changes if you aren’t checking in with your accountant.

A lot of first-time real estate professionals end up slammed when it comes to their first tax time. They’ve been taking all their profits as though they’re paychecks—and now they’ve got a huge tax bill.

By carefully tracking all your deductions and investing in your retirement savings, however, you can reduce the amount of taxes you need to pay. Keeping track of your finances serves the dual purpose of both preparing you to pay your taxes and ensuring that you know how successful your business has been.

Credit card debt.

5. You Have to Manage Your Debt-to-Income Ratio

If you want to get into an investment property or rental real estate, you have to appropriately manage your debt-to-income ratio.

As a real estate professional, you know exactly how important that ratio is.

But as a business owner, it can be really hard to manage. For one, you’re your own business. So, you’re probably taking a lot of deductions.

Those deductions actually mean that your income looks a lot lower to a lender.

If you’re someone’s employee and you make $60,000 a year, then you’ve made $60,000 a year—period. Sure, you’ll take your standard deduction on your taxes, but it doesn’t affect how much you made.

If you’re a real estate professional and you make $60,000 a year, but you spend $20,000 on business expenses (and take them as a deduction), then as far as your tax return is considered, you make $40,000 a year.

It’s that lower number that a lender looks at. Anyone who owns a business, not just a real estate professional, is a little vulnerable when it comes to their debt-to-income ratio.

It’s in your best interest to take the tax deductions that you qualify for. But that also means that you need to manage your debt very carefully to still qualify for potential loans.

Paying bills with calculator.

6. You Don’t Know What’s Coming Next

Let’s be blunt: The past couple of years have been crazy.

It’s been great for the real estate industry. And it’s probably going to be great moving forward.

But you never know.

During times of uncertainty, you really have to plan ahead—or you could get caught unprepared.

And that’s not always a bad thing. Let’s say that real estate takes a sudden plunge and now you can afford to stock up on properties. You need to be in a great financial situation to take advantage of that.

With the right planning, you can be ready for anything.

expense calculation

Creating a Financial Plan as a Realtor

So, with your income as tumultuous as it is, and your expenses as unpredictable as they are, how do you create a financial plan?

Working with a Certified Financial Planner can help. But, as a real estate professional, you also need to be keeping a good eye on your income and your expenses.

Once you’ve been in the business for long enough, you should be able to estimate your cash flow. When you’re just getting started, though, you should make sure to set aside far more money than you think you need.

It can’t be emphasized enough: Cash flow is the number one reason why real estate professionals fail.

New realtors can overextend themselves, go too long without closing a deal, and ultimately they give up on their practice.

It’s not just that financial planning for realtors matters. It’s that it may be the most important aspect to success.

But with the right financial and tax planning, you can avoid getting backed into a corner. And you can save up enough money for both retirement planning and future investment properties.


Should a realtor get a financial planner?

While a professional planner isn’t necessary for financial success, it can help. Going to a professional at least once a year for financial advice and tax advice can help you make decisions today that will help you later.

How can a realtor create a financial plan?

Take a look at your current income and expenses and produce cash flow projections. You’ll be able to see how close or far you are from your financial goal. Plan ahead for your retirement income and property investments.

Do financial advisors help with real estate investing?

A financial advisor can help you get into a better position for real estate investing. They can advise you on whether you have the personal stability to invest in real estate and can advise you on the best path toward investment.

Kyle Handy

Would You Like To Partner With Me?

I’ve helped hundreds of real estate agents, team leaders, & brokers all over the country increase their sales, online presence, and create scalable systems. I would love the opportunity to work with you. Together, we can make this year your best yet!

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