Six Figure Real Estate Income

Six Figure Real Estate Income

Setting and achieving a six figure real estate income is realistic and not out of reach.  The reason why you’re not earning a six figure income in real estate sales is likely because you don’t have clearly defined goals.  It’s easy to imagine what it would be like to earn a six figure income in real estate, and the financial freedom it will bring to your lifestyle.  But making it happen is another undertaking altogether.  In order to get started, let’s look at identifying what you need to figure out to set a six figure income goal in real estate sales.

What does your lifestyle cost?

Unlike salaried employment or a ‘job,’ real estate sales is purely commission based.  Commission income is based on your performance.  The more you sell, the more you earn.  Since commission sales income is pretty much whatever you want it to be, it’s a bit more difficult to set a benchmark without knowing what you’re after.  It’s easy to say “I want to earn six figures…” but why do you want to do this?  Is $100k enough, $250k, $500k?  When your goal is vague, it’s a lot more difficult to reach.

Start by determining the most basic figures when it comes to setting your income goal.  And that is — figuring out how much your lifestyle costs.  How much does it cost for you to live comfortably?  Include your mortgage payments, car, life necessities, groceries, food, entertainment, dining out, buying stuff, family vacations — anything you spend money on.  Add that up and figure out how much you actually need to sustain your lifestyle.

If your lifestyle costs amount to $5,000 per month, you only need $60,000 per year ($5,000 x 12) to survive.  But if your lifestyle costs are $10,000 per month, you need at least $120,000 per year to survive.  Figure out this number and write it down.

How much income are you earning outside of real estate?

Do you have other businesses that earn you income?  How about investment properties?  Or dividend paying stocks?  If you’re married, does your partner work?  Do they earn income?  It is important to know how much money you will earn per month in addition to the other income you will earn.  For example, if your lifestyle needs $10,000 per month to suffice, but you have a partner who earns $4,000 in income, you only need $6,000 in real estate income per year to hit your target.

What’s the average price of real estate in your area?

Now this is where it starts to get interesting.  To figure out how you’re going to go about achieving your real estate income goal, you need to figure out a few key numbers.  One of those numbers is the average price of real estate in your area.  If homes in your area sell for an average of $400,000, you’ll have to sell more than if homes in your area sell for $800,000 on average.  Go to your real estate board’s website or browse through real estate statistics to find the average selling price of real estate in your area.  Make sure this number is current.

What commission could you earn on an average sale?

Now that you know the average price of real estate in your area, what would you earn on the average sale to generate six figure real estate income?  If you earn 3% commission on one end (either buying or selling), and if the average price of real estate in your area is $400,000, your commission is $12,000 per deal on a gross basis.  Remember, you’ll have to factor in splits with your brokerage as well as real estate licensing fees, marketing and other business expenses.  So if you need to bring in $6,000 in income as per our example above, you need to do one deal every two months to hit your goal.  You’ll definitely need to make more sales if the average price of real estate is low, and fewer sales if the average price of real estate is high.

How many deals do you need per year to get six figure real estate income?

Let’s go back to our example of $10,000 per month or $120,000 per year.  Assuming your partner brings in $4,000 in income per month, you need to bring $6,000 in income from real estate deals.  Using the $12,000 commission per average sale, you need a deal every two months, or six deals a year, to hit your target.

What if you were the sole earner and you needed to earn $120,000 with just real estate income?  Take the average commission of $12,000 and divide it into $120,000.  You’ll need ten deals per year to make things happen — and remember, that’s on a gross commission basis.  You need to factor in brokerage splits and other real estate business expenses.

How many deals do you need to earn six figure real estate income?

The simplest calculation to figure out how you can hit your six figure target is as follows:

Target income: $120,000

Average commission: $12,000

$120,000 divided by $12,000 = 10

To simplify, take your target income, divide it by the average commission, and you’ll figure out how many deals you need to arrive at six figures.

While this may seem like a simple exercise, you need to actually do it in order to have clarity when it comes to figuring out what you need to earn.  Real estate salespeople fail at simple business planning and the basic math of goal setting which is why they never reach their target income.  Take a piece of paper and write this down, or use spreadsheet software on your computer to calculate this.  The important thing is you must have a clearly defined income goal in order to hit your six figure income target in real estate.

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