Plan an Annual Cash Flow Forecast
Before you start making business purchases, do some planning. Determine what you need to take home each month. What are you spending on health insurance? How much do you need to save or invest for retirement, and what are your other essential living expenses? Don’t forget to factor in income and self-employment taxes.
In any cash flow forecast as a self-employed professional, that final number is the baseline figure to aim for. Next, factor in any business operating expenses.
Typical operating expenses for a real estate professional include marketing costs, membership fees, advertising, printing, technology, and, in many cases, the upkeep of an office. You may also have staff, or plan on hiring in the future. All those costs should go into projected cash flow forecasts.
Now that you have a clear idea of what you expect to spend each month or over the course of the year, you can project the number of transactions you need to close based on the level of compensation you’re seeking for your services.
Be sure to factor in potential earnings from rental commissions, and any other income streams, such as property investing and flipping.
Know When You Are Expecting to Make BIG Purchases
On top of everyday expenses and operating costs, many agents also invest in property.
In some cases, that means buying, renovating, and selling or renting out properties. Whether you’re doing this individually, with a partner, family members, or friends, or in an investment syndicate, investing in properties can be lucrative and an excellent way to leverage your real estate and local knowledge.
Generally speaking, the more you improve or expand a property, and the higher-spec the finish, especially in an up-and-coming neighborhood, the bigger the profit you’ll make.
But this, of course, comes at a cost. If you are flipping real estate, then project those big purchases into your cash flow and be clear how you will finance them. And factor in a contingency budget based on potential cost overruns (estimating at least 10% of the total, to be on the safe side). There’s nothing worse than starting to invest in upgrading a house only to run out of money mid-project, as it can be very hard to offload a half-finished redevelopment, and you could easily lose money in the process.
Avoid Mixing Personal & Business Finances
When your personal and business finances are mixed, you risk damaging your credit file, especially if you are investing in developing properties or making big purchases.
This happened to Ana Sandoval, a broker and owner of Realty Way, in Miami, Fla.. Sandoval is also a real estate investor, and as she was only a couple of years into her real estate brokerage and investing career, it was a significant worry.
Her main focus is flipping properties and investing in real estate — alongside her family, friends, and a group of investors she has worked with for years. It’s hands-on work, and money is needed at various points during the development process.
It’s been an exciting journey for Sandoval, and once every new property is ready, it’s either sold or put on the market to rent. Unfortunately, for a time, she was using personal accounts, loans, and credit lines to fund some of this work, and that was knocking her personal credit score and ability to apply for loans at lower interest rates.
Fortunately, members of the National Association of REALTORS® can access finance offers from NAR REALTOR Benefits® partners.
Give Yourself Peace of Mind
Sandoval tried applying for a business credit card with Capital One, but they said her brokerage was too new. At that moment, she thought her only option was to wait at least three years and try again.
As an NAR member with automatic access to NAR REALTOR Benefits®, Sandoval was encouraged to apply for the NAR World Elite Business Mastercard, which is managed by Affiniti Finance.
The application process was quick and easy, and her time as a broker didn’t impact Sandoval’s ability to be approved. Having an NAR World Elite Business Mastercard means that her personal and professional finances are now separate, and it makes managing cash flow a lot easier.
Plus, the unlimited 2.1% cashback on all purchases, and 5% on any brokerage marketing expenses, is like getting free money. It’s a win-win for Sandoval and the other investors she works with in her growing real estate portfolio.
Access NAR REALTOR Benefits®: With the NAR World Elite Business Mastercard
NAR members have exclusive access to apply for the NAR World Elite Business Mastercard, which offers up to 2.1% unlimited cash back on all purchases, 5% cash back on marketing expenses, and the opportunity to get a $500 sign-on bonus to help offset NAR membership dues.
The $500 bonus is available to cardholders who make $30,000 of eligible purchases within the first three months of being approved for their account.
Cash back rewards work like this: You will earn a total reward of 5% cash back on the first $5,000 of eligible purchases made at marketing or marketing software product merchants—then 1% if you do not have autopay set-up, 2.1% if you have weekly autopay set-up, or 1.9% if you have semi-monthly autopay set-up.
You will earn 1% unlimited cash back rewards on all of your eligible purchases; if you have set up weekly autopay, you will instead earn 2.1% unlimited cash back rewards on all of your eligible purchases. With semi-monthly autopay, you will earn 1.9% unlimited cash back rewards on all of your eligible purchases.
Please review the cardholder agreement for full details about the terms and conditions of the rewards and benefits.
About the NAR World Elite Business Mastercard
Affiniti Finance Inc. is the program manager of the NAR World Elite Business Mastercard and is responsible for its operations, including but not limited to card issuance, rewards, management, and customer service.
Cardholders are encouraged to review the comprehensive terms and conditions provided by Affiniti Finance Inc., which can be accessed at affiniti.finance/legal. Affiniti Finance Inc. is not an FDIC-insured institution. NAR World Elite Business Mastercard is issued by Patriot Bank, N.A., Member FDIC, pursuant to a license by Mastercard International Incorporated.