Florida leads the nation in its number of residents who work in real estate. With a mean annual income exceeding $60,000, with potential to make considerably more, real estate attracts many Florida-based entrepreneurs. If you’re a real estate agent or realtor, you’ve worked hard to become one, passing the necessary training and certifications. Naturally, you want that investment to pay off as much as possible. Qualified local business advisory services can help your real estate business make the best financial and tax decisions.
In your real estate course work you probably studied some elements of running a business, like economics and marketing. Like any other entrepreneur, you need a solid business plan, including a financial plan.
You will need to generate balance sheets, income statements and cash flow statements. If you plan to hire employees, you will need to manage payroll, insurance and withholding for them, too. You need the ability to adapt to economic changes, including adjustments to interest rates, inflation, recessions, and property tax changes.
Then there’s your personal income and associated taxes. It is imperative that you manage your money to sustain you between commissions, especially in the beginning. If you’re just starting out you may need six months to a year’s worth of savings. You will need to plan ahead to make sure you can cover your first year’s taxes.
All of this can be a lot to balance when other demands, like networking and keeping pace with the market take most of your time. Just as you support and advise your clients through some of the biggest financial decisions of their lives, a business advisor can share their expertise to guide you through important decisions.
You should seek advice even before you start a business. A financial advisor can review your business plan with you to spot any potential pitfalls or opportunities.
You could remain self-employed while operating under the licensure of a real estate broker. Otherwise, you can start your own firm but, either way, you are an independent business. You will need to decide whether to operate as a sole proprietorship, LLC or corporation. If you start a partnership you will share responsibility and liability with your partner. A business advisor can help you decide on the best approach.
As you start your real estate business, you will also need to plan for these expenses:
Classes and training, if you haven’t already completed this step
A background check
Licensing fees
Membership dues in the National Association of REALTORS
Broker fees
Office space
Utilities, including phone and internet
A vehicle and gas for transporting prospective buyers
Continuing education
A financial advisor can help you figure out how to budget for these and how to track expenses that you can deduct on your taxes.
Planning for taxes is a key part of running any business. Typically, as a realtor or real estate agent, you're going to be considered self-employed, even if you work for a real estate firm. That means you will pay more in payroll taxes, but you get many opportunities for deductions.
You can deduct many of your expenses that go along with your real estate sales activities. These can range from costs of a home office to gas mileage. Some deductions specific to real estate include:
Printing of yard signs and flyers
Client gifts, up to certain limits
MLS dues
Real estate association dues
Continuing education costs
Commissions paid to other agents
You need a reliable tracking and filing system to keep track of everything. An advisor can let you know what to keep and prevent you from missing any deductions.
You will also need to keep up with ongoing changes to the tax code that affect you, such as the Protecting Americans from Tax Hikes (PATH) Act of 2015 and Tax Cuts and Jobs Act of 2017.
Some real estate professionals buy and sell property themselves, either to flip or to rent for passive income. These activities come with their own tax deductions and requirements. For example, as a real estate agent, you are able to deduct rental property losses from your regular income--something those in other professions cannot.
You will also need to plan well for property taxes and insurance costs on any real estate you buy and sell. A business advisor can help you think ahead and make the most cost effective choices.
Real estate is a great industry to get into here in Pinellas County or the surrounding Tampa Bay area. If you’re in the real estate business, or considering getting into it, talk to us about how we can guide you in making financially sound business decisions.
