New to Real Estate? Expenses to Plan For in Your First Year (2024 Updated!)

Close-up,Of,A,House,Models,With,Percentage,Symbol,In,FrontReal estate can be a very lucrative career field, but the first year in business can be tough. With no guaranteed income, you will be struggling to convert clients while dealing with the expenses involved in getting your business off the ground. 

Fortunately, there are ways to improve your finances when you are starting out as an agent. This will involve creating a budget and learning how to cut corners. This article will discuss the expenses you will be looking at and provide tips that will help you cut back on spending, save money, and get off on the right foot in your real estate career. 

What Fees are Most Agents Dealing with in the First Year?

Here are some examples of what most agents will be dealing with in terms of first year expenses. 

Initial Expenses in the First Month

Hand,Of,Business,People,Calculating,Interest,,Taxes,And,Profits,To1. Pre-Licensing Classes and Exams – $1,000

It costs most agents around $1,000 to get their real estate license. This includes pre-licensing courses, real estate exam prep, and exam fees. Even though you may be done with these courses in your first year as an agent you may still be paying them off.

There are many things to think about when choosing a real estate school and going with a quality choice can make all the difference when it comes to getting off on the right foot with your career. Here are some to consider:

  • Price: Courses average around $350 but you don’t necessarily want to choose the cheapest one out there. Remember, you get what you pay for.
  • Business Building Courses: Some schools offer extras that will help you be successful once you become an agent.
  • Good Reviews: Look at what other students had to say about the school before signing up.
  • Pass Guarantee: Many schools provide a pass guarantee so you can retake classes or the exam for free if you don’t pass on your first try.

See Course Options

2. Post Licensing – $50-$450

Some states require that you take a post licensing course before your first renewal. You won’t need to renew your license for 2 years so you can put these expenses off until your second year in real estate. However, it’s not a bad idea to get a jumpstart on renewing so you don’t miss your deadlines. 

Expenses in Month 2

Workplace,Of,Architect,-,Construction,Drawings,,Scale,Model,And,Tools.3. Broker and Desk Fees – $35-$75

Most brokerages will require you to pay broker and desk fees that cover things like the use of office supplies, mentoring, marketing materials, and more. The amount a brokerage charges varies from location to location but it will typically fall between $35 and $75. There are also some online brokerages that don’t charge fees at all. 

Ultimately, you want to find a brokerage that provides you with quality materials, especially in terms of marketing and training, in return for a reasonable fee.

You will also want to consider how you are being paid. Most brokerages offer a commission split with 60/40 being the average split. If you complete a lot of transactions, you may start getting a larger split, but this depends on company policies.

And while most companies offer a 60/40 split, others offer a 70/30 or even a 90/10 split.  Obviously, you will want to go with a brokerage that provides its agents with a generous percentage. If you’re trying to do real estate part-time, you want to make sure you’re picking a brokerage with no or low fees.

4. REALTOR Association Fees – $150+

Happy,Real,Estate,Agent,And,Young,Couple,Shaking,Hands,AfterJoining the National Association of Realtors is not necessary, but it could be beneficial to your career as it offers the following perks:

  • Marketing guidance, tools, and technology
  • Designation as a REALTOR
  • Networking opportunities with millions of associates
  • Exclusive discounts on technology tools, insurance, and automobile-related expenses
  • Policy advocacy
  • Resources that offer advanced training and aid with career growth

If you join at the local level, dues will be $150. You will also need to pay a $35 certification assessment. Your local real estate board may also charge fees that add up to a few hundred dollars a year. 

5. Errors & Omissions Insurance – $30-$60

Home,Buyers,Meet,And,Negotiate,With,Real,Estate,Agents,AboutNot all states require agents to hold errors & omissions insurance which protects them from negligence claims, but several of them do. The policy typically costs $30-$60 a month depending on the provider. Even if your state doesn’t require it, E&O insurance is a good thing to budget for if you plan on doing real estate long term. 

6. Health Insurance – $450

Health insurance costs around $450 for an individual and $1150 for families. Rates will vary depending on the provider and the plan. Some brokerages will help cover premiums which is beneficial to real estate agents just starting out. 

Expenses in Month 3

Real,Estate,Agent,Welcoming,Young,Visitors,Coming,To,Open,House7. MLS Fees $150 – $300

Realtors will need a Multiple Listing Services (MLS) membership to keep up with the competition. The MLS is a network of 580 regional databases that are used to match buyers with residential properties. In most cases, your brokerage will provide you with an MLS membership. But if they are unable to, you will need to take on the expenses yourself. 

8. Marketing Expenses – $1,000

Real,Estate,Agent,Holding,House,Key,On,House,Shaped,KeyringDuring the first year in real estate, you will need to work hard to grow your business. This will involve launching a marketing campaign that will come with its share of expenses. You are likely to be paying for a real estate website, an email service, online advertising, social media tools, mailings, signage and more. 

Fortunately, there are many free and inexpensive resources agents can use. For example, posting on social media is free and effective. Door knocking and mailings may take a considerable time investment, but these strategies are kind on the wallet. 

9. Software Expenses – $1,500+

You’ll need a the best real estate CRMs that will function as your company’s personal assistant. The right tool can help you keep in touch with your real estate leads – plus a slew of data to make more informed business decisions.

After getting your real estate license, you’ll also need to use 2-3 of the best real estate lead generation companies to bring in quality leads. Leads are the lifeblood of any business as they help provide a steady flow of predictable revenue. However, some real estate lead generation methods are more effective than others. Check out the best places to buy real estate leads and know that the quality may vary depending on the type of business you are operating.

Expenses to Consider After First 3 Months

Real,Estate,Agents,Introduce,The,House,Style,To,Clients,While10. Mileage and Vehicle Expenses – $5,300

Realtors drive more than the average person. They must take clients home shopping, drive to and from appointments, go in to work each day, and more. This can really add up considering gas, wear and tear, repair bills, preventative maintenance, parking expenses, and possible violations. 

11. Advertisements and Cost of Scaling Up – $2,500-$4,000

Real,Estate,Agent,Handing,The,House,KeyIf your first year has gone well, you may wonder about how you can begin to grow your business. You can do this by implementing systems and processes to make your real estate business more efficient.

Start to look at your workflow and how you do things day-to-day to find new efficiencies and better habits.

  • Analyze the team members and their talents, examine your goals and how they fit into them, and adjust as necessary.
  • Implement technology for effective communication.
  • Document what is actually going on operationally in your business.
  • Optimize processes for anything in your business, whether it’s inbound or outbound marketing, recruiting, the sales funnel or conversion. When the pieces work, the whole works.

12. Income Tax

Real,Estate,Agent,With,Client,Or,Architect,Team,Discussing,ProjectMost realtors are classified as independent contractors. Therefore, they must pay self-employment taxes. Self-employed individuals pay more taxes than other workers because they need to pay the Medicare and social security expenses their employer would otherwise cover. 

However, income taxes can also work in a real estate agent’s favor. Agents can claim business related deduction such as gas, office supplies and more. This will help things even out when it comes to the expenses they will be facing at the end of the year. 

13. Open House Fees – $1000 – $2000 

Open house fees are another expense a real estate agent will have to cover. They include signage, drinks, snacks, and other amenities. Signage can be especially expensive if you are holding several open houses a year. 

Tips that Will Help Keep Expenses Under Control

Cropped,Image,Of,Businessman,Calculating,Energy,Efficiency,Rate,In,OfficeExpenses can certainly add up during your first year as a realtor. But there are things you can do to make things more manageable. Here are some tips: 

Don’t Spend the Commission From Your First Closing

After your first 3 months you may have had your first closing. Congrats! While it is exciting, it’s not the time to and spend that big initial check. You will want to consider setting aside a big portion for long-term spending goals. Don’t forget about taxes.

Think about squirreling your money in a savings account for tax purposes. Once you get behind on saving for taxes, it can start a cycle that will be hard to get out of it.

Many successful agents choose to set aside at least 30% for taxes in an external savings account. You can even set it up so that you never see the money, and it goes straight into the account. It’s best to start your real estate business with this type of budgeting top of mind as you could have fewer closings from one month to the next.

Contract,For,The,Sale,Of,A,New,Home,(lorem,IpsumSave Up Money for an Emergency Fund 

It’s advisable for agents to save up money for an emergency fund that will cover them for at least six months. This will help them make it through if they are unable to produce much income in the first year. It will also cover them in the case of an emergency. 

Start building a savings account early so you will have enough to live on when times are tough. 

Track Savings and Expenses

House,Model,calculator,And,Financial,Chart,On,Wooden,Table.,Investment,ToAgents should be tracking savings and expenses so they know what’s bringing in a return, where cuts can be made, and so on. You can use something as simple as an excel sheet or a pen and paper, or you may want to invest in an app to keep your budget under control. Here are some apps that are recommended. 

  • Mint: Mint will help you keep track of personal and business expenses through an online interface. It will also send you alerts when you hit monthly goals and send you updates to watch your spending so you can identify trends. 
  • YNAB: The You Need a Budget (YNAB) app will help you budget expenses so you can live off the money you earned previously. It eliminates a situation where you are living paycheck to paycheck. 
  • Toshl Finance: Toshl Finance tracks your expenses so you can organize your budget. It will also alert you if you’re getting close to your budget limit so you can cut back as needed. 

Review Your Budget Regularly

Construction,Worker,And,Contractor.,Client,Shaking,Hands,With,Team,BuilderEvery so often, you should look at your budget to see if anything can be eliminated. For example, if you find you are shelling out a lot to your local Starbucks, you may decide that you’re better off drinking coffee you make at home. 

When thinking of smart ways to spend your money, try to invest in something that will bring a return such as coaching, branding, and promotional materials. As a bonus, these types of professional development resources are tax-deductible. 

Save on Marketing Materials

Broker,Giving,Keys,Of,New,House,And,Handshaking,With,CustomerMarketing is a necessary expense for brokers that are just starting out. Fortunately, there are plenty of ways to market on a budget. Here are some money saving ideas to consider:

  • Create or build your real estate website on a free platform like Wix of WordPress
  • Use Canva to create marketing materials and logos
  • Use free social media resources as much as possible. Post often on all your accounts. You may also consider creating a vlog on YouTube. 
  • Door Knocking and Postcard Mailing: Door knocking, and postcard mailing may seem like old fashioned marketing strategies, but many agents swear by them. Not only are they effective, but they are also low cost. They will be well worth it when you consider the potential return. 
  • Rely on Email: Email is a digital marketing strategy said to be among those that bring the biggest ROI. Be sure to integrate it into your marketing platform. 

Find Tax Deductions

Real,Estate,Listing,Contract,On,A,Realtor,Agent,Marketing,PresentationThere are several tax deductions agents can take advantage of. These include:

  • Commissions paid
  • Home office supplies and expenses
  • Desk fees
  • Training and education
  • Marking and advertising fees
  • Standard auto expenses
  • Meals
  • Fees, licenses, memberships, and insurance
  • Software and business tools
  • Client gifts
  • Health insurance

Be sure to mention these to your tax prep expert when you are doing your taxes. Or keep them in mind if you do your own taxes. These deductions can really add up. 

Focus on Growth

Real,Estate,Agent,Woman,With,Clients,Near,New,House.Reviewing your budget will help you determine where you are getting most of your clients from, which strategies are working, and which are not. This may not help you much in the first year, but it will set you on a positive trajectory for the coming years. it will allow you to grow your business as time goes on. 

Plan for Upcoming Expenses

Unfortunately, the expenses an agent must deal with in their first year are ongoing. It’s hopeful that you will be making more money in the coming years to get a better handle on them. However, it’s always a good idea to plan for what’s ahead. 

Set aside a budget for upcoming classes and renewals as well as next year’s marketing campaign, gas expenses, and so on. Decide what you should be saving and what you can afford to spend. This will get you in good shape for the future.  

Choose Your Brokerage Wisely

Couple,And,Real,Estate,Agent,Discussing,Together,At,HomeOne of the first steps you will need to take as an agent is to choose a brokerage. Different brokerages charge different commissions and some charge higher desk fees than others. Shop around to see which offers the best deals. 

But be aware, just like anything else, when it comes to brokerages, you often get what you pay for. Consider what they are offering in return for their desk fees. If they provide quality training and effective marketing materials, they may end up saving you money in the long run. 

Save for Retirement

Businesswoman,Or,Real,Estate,Agent,Looking,Through,Online,Property,Portfolio,Many individuals can take advantage of retirement plans with employer matching such as a 401k or 403b. Some brokerages will offer these plans to their agents, but most will not. However, there are some self-employment retirement vehicles such as SEP, IRAs, Simple IRAs and SOLO 401ks that may even allow you to make more money than you would if you were working a regular job. 

Do some research or consult a financial planner to determine which retirement plans will help you reach your financial goals. 

Consider a Part-Time Job

Asia,Real,Estate,Sale,Agent,,Stock,Market,Trader,Woman,WorkYou may choose to supplement your career with a part-time job before fully committing to real estate. Fortunately, today’s gig economy makes it easy to balance a side job and real estate duties. However, you will need to focus on the quality of your hours as opposed to the quantity so you can make the most of your time. 

Be Aware of Cycles

Professional,Real,Estate,Agent,Shows,Bright,New,Apartment,To,AThe real estate market often runs in cycles, and it can be feast one month, famine the next. For example, people tend to move in the warmer weather and stay in place when the cold weather hits. The economy will also dictate selling and buying cycles as interest rates fluctuate. 

A savvy realtor will be aware of market ups and downs and set aside money when they can. This will ensure they have savings available when the market slows. 

Cut Down on Your Debt

Mid,Adult,Real,Estate,Agent,Showing,To,His,Clients,WhereMost individuals carry some debt, but if it gets overwhelming it can eat into the income you are making. You can cut back on debt by prioritizing high interest balances. This will minimize accruing interest so you can get a handle on what you owe. 

You may also consider consolidating your debt on a low interest credit card to reduce debt.

Real estate agents have the potential to make a good amount of money. But that first year can be rough. The tips in this article will help you set aside enough to make it through and successfully grow your business. Which will you be integrating to create a bright financial future? 

Chris Heller Headshot

About the Author

Chris Heller brings 27 years of experience in real estate. Chris serves on the AgentAdvice Editorial Board and is the Chief Real Estate Officer at OJO Labs. Chris brings deep expertise having held influential industry positions including CEO of mellohome and former CEO of Keller Williams Realty International.

Last Updated: 12/29/2023