The worst thing you can do is lose a lead, not follow up, and make your client feel
like they were just a transaction to you. You make them feel like family, they might just
trust you to help theirs in the future!
Read MoreOver the course of my career, I’ve had the opportunity to meet and work with countless real estate agents. The situations are as unique as the individuals. I’ve seen agents succeed greatly, and I’ve also seen agents struggle with the “business” side of their job. As a 1099 agent, you are a business in the eyes of the government. Because of that, there are certain things you should know and do. But they aren’t always common knowledge. In this list, I’ve handpicked the 10 most important things for you that I’ve learned over my career. I’ve worked in a real estate brokerage, I’ve done bookkeeping for realtors and I’ve prepared taxes for realtors. So I’ve worked with agents in many different capacities.
Here is what you should know:
1 - Use a separate bank account for business
It is important to use a bank account for business that is separate from your personal bank account. Use your business bank account for anything that’s business-related.
2 - Keep personal and business expenses separate
This goes along with item number 1, but it’s so important, I feel it’s worth mentioning twice. Don’t mix the two. Don’t take personal expenses out of your business account, and don’t take business expenses out of your personal. Mixing them up can make it a huge headache when you’re reviewing your records come tax time.
Protip: If you need money from your business bank account for personal expenses, then transfer the money from your business account and put it into your personal account. Then take the expense out of your personal account. Likewise, if you are low on funds in your business bank account and need to incur some more business expenses, then transfer money into the business bank account from your personal and take the business expenses out of there.
3 - Keep financial records
If you’re just starting out, then hiring a professional for regular help probably isn’t needed quite yet: you can probably do it yourself. But if you’re a little more advanced, consider hiring a full-time bookkeeper. If you do it yourself, you will want to focus mostly on tracking your income and expenses, especially when you are first getting started. Why?
Here are a few reasons:
a. It helps you track progress towards your goals (see item #10)
b. You need them to prepare financial statements and make business decisions
c. They’re a must for filing taxes, anyways
d. They help you spot fraud when you’re looking at things regularly There are three main ways to keep track of your business income and expenses:
1. Keep track on an Excel spreadsheet, or paper
Pros: Free, keeps you in the details so you know what’s going on
Cons: Time-consuming, higher potential to be inaccurate
2. Use accounting software like QuickBooks
Pros: Higher accuracy, good for reports and taxes, can include receipt tracking; can outsource to a professional. Frees up time to spend on business; tax time is easier
Cons: Accounting software can have a learning curve; cost to outsource if you choose; often subscription-based.
3. Do nothing. This is not a good option. And I don’t recommend it because you’ll pay for it later in one way or another. Panicking is usually involved down the road.
4 - Understand your tax basics As a self-employed individual, you will end up paying more in taxes. So it’s important to know a few things up front. You’ll end up paying 3 different taxes on your commissions:
1. Federal Income Tax - this tax is on assessed on your yearly 1040 tax form and goes to the IRS.
2. State Income Tax - this tax is also assessed on your yearly tax return and is state specific to where you earned the money, like Utah. This tax goes to the state.
3. Self Employment Tax - this tax is not called an income tax like the other two, even though it is on your income. This tax is also known as the payroll tax and is 15.3% of your income, in addition to the income taxes. As you can see, it’s really easy to get hit with a lot of taxes on your commissions. You need to be aware of this so you can plan for it ahead of time. Note: When you have a traditional W-2 job, you pay half of the payroll taxes and your employer pays the other half, without you even seeing it on your paycheck. But as a 1099 individual, you are both employee and employer, so you get to pay both sides. Protip: Designating your business as an S-corp can help shelter your income from the self employment tax. There is a bit of upkeep with an S-corp, since you have to file payroll and complete an extra tax return. But if you are making a profit of at least $10-15k each year, then the S-Corp option could be the right option for you. Talk to your tax professional.
5 - Learn up on tax deductions
Generally, if an expense is related to your business in any way, then it is probably a tax write off. Here are some of the major tax deduction categories for real estate agents:
● Mileage - Keep a mileage log! This is a gigantic deduction for agents. Your wallet will thank you at tax time.
● Advertising - This is generally a big expense for realtors because you have to advertise yourself constantly.
● Real estate dues & continuing education - This is another big one for realtors. Agents are always looking to improve themselves in one way or another like seminars, courses, events attended. These can typically be taken as a write off at tax time.
● Cell phone & internet - You couldn’t do your job without them, so they can be classified as a legitimate business expense.
● Travel - If you go on a trip for business, then generally you can take all or part of it as a tax write off. That doesn’t mean you can’t do some personal stuff on the trip, as long as you can show that the main purpose of the trip is business-related.
● Subscriptions - Do you listen to audiobooks while you drive to and from your showings? If so, it can often be a write-off.
This is not an all inclusive list. These are just the major categories for realtors. You will want to get in the habit of asking yourself if an expense is business-related in any way. If it is, then take it out of your business bank account, and ask your tax professional if you can write it off. 6 - Setup an LLC with the State of Utah, and get an EIN from the IRS Having an LLC and an EIN is a good way to manage your tax situation well from the get-go. Your 1099 can be issued to your EIN instead of your Social Security Number. And the biggest benefit is the potential to have your business taxed as an S-Corp. There are tax savings to this. But you must have the LLC and EIN first. I strongly recommend you just get your LLC and EIN from the very beginning. I have seen so many agents who put off getting their LLC & EIN, and they always overpay in taxes. This is the biggest thing I wish every new agent knew and did. You will be glad you did. Consult with your legal or tax professional if you have any questions. Protip: Update your W-9 with your brokerage once you get an EIN so they can issue your 1099 to your EIN instead of your Social Security Number. This will help keep your SSN secure.
7 - Keep your business receipts Bank statements usually aren’t enough.
You have to keep your receipts in case of a tax audit. It’s up to you on how you want to save them. I recommend you write your business purpose on the receipt and save them to a digital location, like Dropbox or Google Drive. Even a simple shoebox would also work. Question: What’s a “business purpose”? Answer: This is your business-related reason for incurring the given expense. Example: Vistaprint was a business expense because you were purchasing business cards. If there is no legitimate business purpose, then be honest, and don’t call it a business expense! Question: Help, I haven’t kept any receipts! Answer: Start now. Gather what you can from the past. And even if you can’t find all your old receipts, I recommend you still keep track of these expenses and talk to your tax professional about what can or can’t be taken as a deduction.
8 - Learn some basic accounting terms
I have an accounting equation I want you to memorize. It’s easy. Here it is: COMMISSIONS - EXPENSES = NET INCOME Or, in other terms: INCOME - EXPENSES = NET INCOME You need to know what net income is as it’ll pop up when you talk to your accounting and tax professionals. Net income is what you are really shooting for in your business, because if you make a bunch of money, but spend it all, are you really coming out ahead?
9 - Don’t underestimate the importance of savings
It’s important to save some of the money you earn. Things will come up and it’s good to have a reserve. First, I recommend you save 20% of each commission in a savings account for taxes. Have a savings account just for taxes. Put a chunk from each commission in there and don’t touch it. Even though it’s in your bank account, it’s not yours. That money is to keep Uncle Sam off your back when April 15th hits. Second, save for yourself. Build up an emergency fund. Start with $1-2k, then build up a 6-12 month emergency fund. The real estate industry has its ups and downs. You won’t get paid every 2 weeks like a standard 9-5 job. Commissions may flow, but then they may stop. Build up a cushion of cash so that when things dry up for a time, you don’t have to take out loans or credit cards to make ends meet.
10 - Set SMART goals and work towards them
Goals propel us towards your dreams. Without goals, dreams remain dreams. You got into real estate for a reason. What’s that reason? Ok, now how are you going to achieve those dreams you have? Write it down. Good: that’s your goal.
Create SMART goals:
S - Specific - spell out exactly what you want to achieve
M - Measurable - you should be able to figure out exactly how close you are
A - Attainable - it should stretch you, but still be attainable
R - Relevant - it should be your goal, not someone else's goal
T - Timely - put a time limit on it and get the “Procrastination Monkey” off your back 11 (Bonus) - Use my financial tracking Excel doc
I am excited that you’ve started on this journey. If you do the things I’ve recommended, I know you’ll save yourself a lot of time, stress, and money down the road. I wish you the best! Feel free to contact me with any questions.
Samantha Jones
Head Accountant and Financial Coach
Sage Mountain Accounting
Mobile: (801)-436-7566
Email: Samantha@SageMountainAccounting.com
Website: SageMountainAccounting.com
With home prices rising again this year, some are concerned that we may be repeating the 2006 housing bubble that caused families so much pain when it collapsed. Today’s market is quite different than the bubble market of twelve years ago. There are four key metrics that explain why:
1. HOME PRICES
There is no doubt that home prices have reached 2006 levels in many markets across the country. However, after more than a decade, home prices should be much higher based on inflation alone.
Frank Nothaft is the Chief Economist for CoreLogic (which compiles some of the best data on past, current, and future home prices). Nothaft recently explained:
“Even though CoreLogic’s national home price index got to the same level it was at the prior peak in April of 2006, once you account for inflation over the ensuing 11.5 years, values are still about 18% below where they were.” (emphasis added)
2. MORTGAGE STANDARDS
Some are concerned that banks are once again easing lending standards to a level similar to the one that helped create the last housing bubble. However, there is proof that today’s standards are nowhere near as lenient as they were leading up to the crash.
The Urban Institute’s Housing Finance Policy Center issues a Housing Credit Availability Index (HCAI).According to the Urban Institute:
“The HCAI measures the percentage of home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.”
The graph below reveals that standards today are much tighter on a borrower’s credit situation and have all but eliminated the riskiest loan products.
3. MORTGAGE DEBT
Back in 2006, many homeowners mistakenly used their homes as ATMs by withdrawing their equity and spending it with no concern for the ramifications. They overloaded themselves with mortgage debt that they couldn’t (or wouldn’t) repay when prices crashed. That is not occurring today.
The best indicator of mortgage debt is the Federal Reserve Board’s household Debt Service Ratio for mortgages, which calculates mortgage debt as a percentage of disposable personal income.
At the height of the bubble market a decade ago, the ratio stood at 7.21%. That meant over 7% of disposable personal income was being spent on mortgage payments. Today, the ratio stands at 4.48% – the lowest level in 38 years!
4. HOUSING AFFORDABILITY
With both house prices and mortgage rates on the rise, there is concern that many buyers may no longer be able to afford a home. However, when we look at the Housing Affordability Index released by the National Association of Realtors, homes are more affordable now than at any other time since 1985 (except for when prices crashed after the bubble popped in 2008).
After using four key housing metrics to compare today to 2006, we can see that the current market is not anything like the bubble market.
We recently shared that national home prices have increased by 6.7% year-over-year. Over that same time period, interest rates have remained historically low which has allowed many buyers to enter the market.
As a seller, you will likely be most concerned about ‘short-term price’ – where home values are headed over the next six months. As a buyer, however, you must not be concerned about price, but instead about the ‘long-term cost’ of the home.
The Mortgage Bankers Association (MBA), Freddie Mac, and Fannie Mae all project that mortgage interest rates will increase by this time next year. According to CoreLogic’s most recent Home Price Index Report, home prices will appreciate by 5.2% over the next 12 months.
What Does This Mean as a Buyer?
If home prices appreciate by 5.2% over the next twelve months as predicted by CoreLogic, here is a simple demonstration of the impact that an increase in interest rate would have on the mortgage payment of a home selling for approximately $250,000 today:
Bottom Line
If buying a home is in your plan for this year, doing it sooner rather than later could save you thousands of dollars over the terms of your loan.
Home values have risen dramatically over the last twelve months. In CoreLogic’s most recent Home Price Index Report, they revealed that national home prices have increased by 6.7% year-over-year.
CoreLogic broke down appreciation even further into four price ranges, giving us a more detailed view than if we had simply looked at the year-over-year increases in national median home price.
The chart below shows the four price ranges from the report, as well as each one’s year-over-year growth from February 2017 to February 2018 (the latest data available).
It is important to pay attention to how prices are changing in your local market. The location of your home is not the only factor that determines how much your home has appreciated over the course of the last year.
Lower-priced homes have appreciated at greater rates than homes at the upper ends of the spectrum due to demand from first-time home buyers and baby boomers looking to downsize.
If you are planning to list your home for sale in today’s market, find a local agent who can explain exactly what’s going on in your area and your price range.
Don’t let those freshly baked cookies or potpourri simmering on the stove fool you. The more aggressive the scent, the greater the likelihood the seller is taking precautions to mask a more offensive odor. When there is too much going on in the scent deparment, you might wonder what they are trying to hide.
Take a deep whiff in every room you enter, and look closely at walls, ceilings, and flooring for signs of pet accidents, mildew, or smoke.
Inspect the tile in kitchens and bathrooms. If the gaps or tiles are slightly uneven, it may indicate a DIY job, which could make you think twice, especially if you the house was flipped. Lazy tiling could indicate that multiple fixes might have been done on the fly, which can add up to big bucks in potential repair costs.
Most houses have hairline cracks, which just indicate the house is settling into its position, but large gaps signal a bigger issue with the foundation.. Other tipoffs: sticking doors or windows, visible cracks above window frames, and uneven floors. How do you know if the floors are uneven? Roll a marble from one side to the other.
Look for signs that the owner might have neglected routine home maintenance, such as burned-out light bulbs, long grass, leaky faucets, or faded paint. These signs indicate the seller may have ignored other ongoing home maintenance tasks that can cause real problems down the road.
An attentive homeowner is going to flush the water heater annually, change air filters monthly, clean the chimney, inspect the roof for leaks, and regularly recaulk around windows and doors, for example, which will keep all those systems in good working order.
That creek might look picturesque now, but it won’t when it comes cascading through your back door. The increasing unpredictability of weather means that it’s vital to consider the possibility of flooding. We've seen people unable to ensure their house against flood risk, which can create giant damage bills on a regular basis.
Take a second to pull back the curtains to check for lopsided frames, and then give the windows a tug to make sure they slide easily. If they stick, it could be a sign of foundation issues, as noted above, or just poor installation.
The only fix for that—and it’s an expensive one—is new windows.
To detect possible signs of mold while wandering through an open house, discreetly open bathroom and sink cabinets to take a look around water pipes or drains. Even small black or gray spots indicate that more serious issues may be lurking. You can also check the caulking around faucets and tubs for black spots, and look for patches on the ceiling.
A musty odor can indicate water damage, even if you don’t see standing water. Check walls and ceilings for water lines; they likely indicate flooding from a leak or a burst pipe that may have caused internal damage. Also, take a peek at exposed piping in basements or laundry rooms, and check for rust, water stains, or leaking.
That one freshly painted wall could be an accent wall, or it could be hiding something like a patch of mold.
Without adequate interior ventilation, moisture sticks around, which can create mold and increase allergies. The tipoff: Look for condensation on windows or slightly bubbled or peeling paint around windows, doors, or vents. This can indicate moisture in the walls and ceiling drywall.
The bottom line: Don’t walk through an open house the way you walk through a museum. Even though your home inspector is likely to detect many of these problems down the line, being attentive to these red flags in an open house ensures that you’re not wasting your time on a home that isn’t the one for you.
Refined Real Estate is a full-service real estate brokerage specializing in residential properites. Whether you're looking to buy or sell your home, find a rental or manager a rental property, we've got you covered.
Powered by Squarespace.
