6 Ways to Invest Your Commission Check
Real estate agents earn a living working on commission rather than working for an hourly wage or a set yearly salary. As a result, full-time real estate agents must learn to maximize their time to increase earning potential and how to best manage their commission earnings to ensure that they can survive on an income that has the potential to be irregular at best.
How big do real estate agents’ commissions get?
There is no limit on the commission real estate agent can make in any given year. However, most real estate commissions checks don’t exceed 6%-7% of a home’s selling price. Some agents make millions of dollars a year by selling luxury homes. The sale price of the property you represent will ultimately determine your commission.
As an example, consider an agent who sells their home for $1.5M. A typical commission breakdown might look like this:
- 6% of the commission on the sale ($90,000)
- Equal payment to both the listing agent and the buyer’s agent ($45,000)
- 60/40 split between the agent (40%) and the broker (60%) ($18,000)
So, at the end of the day, what do you do with $18,000? Here are 6 smart ways you can invest your commission check.
Invest in property to create passive income
As a real estate agent, you know the industry like the back of your hand, and you also recognize the value of investing in real estate, especially property that you can use to create passive income.
You can potentially use your commission to make a down payment on an investment property. When you’re working with a conventional loan or an FHA loan, the percentage you have to put down on a house is only a small portion of the home’s value. This makes purchasing property more accessible.
Some agents will use their commission checks as down payments and then turn the property they buy into a rental. That way, they can make a steady stream of passive income to finance the loan and take home some cash. This is a simple way of turning your commission check into a steady stream of income.
Reinvest in your business: expenses, marketing, scaling
Generating new leads and building influence around your real estate career can often mean the difference between success and failure.
You’ll need to spend money on marketing efforts, professional expenses, and other costs to ensure that that happens. Most in the industry agree that agents should commit about 10% of their commission to marketing and other related business expenses.
Smart agents will look for ways they can automate and scale their business. That way, they can focus their attention more on where they can have the most impact and earn even more commission.
Put some money away for taxes
Since most real estate agents are independent contractors who are not subject to tax withholding, they are generally required to pay estimated taxes to the IRS quarterly.
Generally, it is wise for real estate agents to put aside 30% of each commission check to cover taxes.
Saving a portion of each commission check to use toward quarterly tax payments is a wise decision so that you can ensure that you are not scrambling to cover your income and self-employment taxes when they are due.
Create a nest egg for rainy months
Because agents work on commission and their weekly, monthly, and yearly salaries can be unpredictable, real estate agents should be careful to create a budget that will allow them to live comfortably, even in the lean months.
The nature of the real estate industry is such that you may go through a dry spell occasionally and will have to dip into your savings to cover your expenses. That’s why it is essential for anyone working on commission to put a portion of their income into a rainy-day savings fund.
Reinvest in your education
Reinvesting in yourself is one of the best ways to grow personally and professionally. Although you are not required to take continuing education until it is time to renew your license, you can grow your business and take advantage of new opportunities when you enhance your knowledge and skill set through continued education.
If there’s a conference that would be a great networking opportunity, a training on cold calling, or even an online course that will teach you a new skill set, education is a vital part in growing yourself so you can grow your business.
Enjoy your commission check
If you have taken all of the responsible steps outlined in this article and are confident that you have enough money set aside to live securely, grow your business, and cover your expenses, perhaps you should consider letting your hair down and doing something for yourself.
As a real estate agent, you spend a lot of time looking out for the well-being of your clients, and maybe your next commission check can be used to splurge.
Whether it’s a mini-vacation, a shopping spree, or just spending the day doing something you love, focusing on your well-being every once in a while is just as important as every other activity outlined above.
Final thoughts on spending your commission check
Just like folks earning a steady paycheck at a traditional 9 to 5 job, there are countless ways to use your commission check once you have it in your hands and are ready to go to the bank and cash it out.
However, because of the nature of the real estate industry and the fact that commission checks are not as steady as paychecks from more traditional careers, real estate agents should think about how they can best maximize their commission checks.
With proper planning, you will be able to pay your bills, grow your business, and quickly work at a pace that will allow you to live comfortably and turn your career in real estate into a lucrative career.
TL;DR: Real estate agents get lump sums of cash whenever they close the deal. When you get money in batches, you need to be wise about how you spend it. These 6 ideas will help you reinvest your money to help you grow your business and create a long lasting lucrative career.