De Martino, CRS, president of Ocean International Realty, sells coastal condos and houses in Miami Beach, Florida. “From 2008–2010, the market was in a nosedive and everybody was afraid to buy. Everybody just stopped,” De Martino says. There was more than 60 months of inventory for resale in his market at that time, he says. Even investors weren’t buying then.

Always Be Saving

Stretch your income to cover those inevitable slower periods.

By Gayle Bennett

The Great Recession wasn’t pretty for Ralph De Martino.

De Martino, CRS, president of Ocean International Realty, sells coastal condos and houses in Miami Beach, Florida. “From 2008–2010, the market was in a nosedive and everybody was afraid to buy. Everybody just stopped,” De Martino says. There was more than 60 months of inventory for resale in his market at that time, he says. Even investors weren’t buying at that time.

During this period, De Martino was working harder than ever, but it’s hard to move real estate when people don’t want to buy. “I remember saying to my brother once that if I went to the beach every day for the last three months, I would have had exactly the same results as working 65 hours a week,” he says, recalling that he had no sales in that period.

Things were definitely grim for a few years, but De Martino made some adjustments to make it through — cutting all the fat from his budget, becoming a buyers’ agent and selling REOs for a bank, and making sure he always had three months of expenses saved. And in 2011, he was rewarded for his perseverance and smart budgeting when the market came back with a vengeance. He’s now averaging about 2.5 closings a month.

Even agents who got through the recession relatively unscathed might experience seasonal slow periods. According to the National Association of REALTORS^®, historically, sales decline by an average of 16.4 percent in September compared to August. They stay steady in October and then generally dip again in November by 8 percent. December holds and then there’s an average plunge of 27 percent in January.

Experienced CRSs get through seasonal or any other slumps by stretching their commission checks over time. They have three to six months of expenses socked away, have a separate account to easily pay quarterly taxes and know that when things are slow, it’s exactly the right time to be investing in their business.

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Working for Winter

It’s no secret that it costs money to make money — especially in residential real estate. Agents who aspire to reach the upper echelon of the profession must commit to investing in their business.

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*Annual income for REALTORS^®

Source: NATIONAL ASSOCIATION OF REALTORS® 2014 Member Profile

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Savvy Saving

Scott Furman, CRS, with RE/MAX Classic in St. Davids, Pennsylvania, works in the Philadelphia suburbs of Chester, Montgomery and Delaware Counties and has four to five contracts per month. He’s had steady year-over-year growth in business since his start in 1979, even through the economic downturns. But a few years ago he found that even though his business was consistently growing, he was always scrambling to pay his quarterly taxes.

So he started putting 10 percent of every check into a separate account that he uses to pay his taxes and save for retirement. “It didn’t matter if it was a $10 check or a $10,000 check, it was the same process. It never went to me first,” he says. Over time, he knew the idea was sound, but the amount wasn’t enough, so he raised the percentage to 25 percent.

John MacGilvary, CRS, a regional manager with Berkshire Hathaway HomeServices Verani Realty in Londonderry, New Hampshire, also believes in the percentage plan. He was an active agent until 2008 and now he oversees over 100 agents. He tells each of them to set aside 15 to 20 percent of each commission for taxes, another 10 percent to invest in their business and another 10 percent to pay down any debt — all in different accounts to keep things straight.

Furthermore, financially sound agents or brokers know their monthly expenses, and they save three to six months of that sum. “Don’t buy nonessentials, like a new car, vacations and extra clothes, until you have three months of that monthly nut put aside,” De Martino advises. “With three months, you can usually stay ahead of the game without having to borrow money.”

Saving a minimum of three months’ expenses can take two to three years, MacGilvary says. Once his agents reach that point, he advises them to go one step further: “Then you can get into the habit of paying yourself a monthly salary, as opposed to paying yourself by commission check,” he says. “Then you are always getting paid whether you have a good month or a bad month.”

MacGilvary says doing this changes an agent’s mindset from needing closings to needing leads. “If you generate enough leads, you’ll have the closings, but you’ll never have the closings if you don’t have the leads. If you get to a point where you are paying yourself a salary, your focus tends to be more on leads than closings because it’s no longer a life-or-death situation from month to month.”

Invest in Your Business

Mary Lou Erk, CRS, associate broker with Coldwell Banker Hearthside, REALTORS^® in Doylestown, Pennsylvania, has about 25–30 transactions a year in an area with a strong job market, good schools and beautiful, old farm houses. Her expenses include a marketing specialist and a steady stream of marketing mailers. She knows that these expenses are worth it, however. “I end up doing more when the market’s down,” she says about her marketing.

“I don’t think a lot of REALTORS^® look at it that way. They say, ‘I don’t have the money to do that.’ But then they aren’t treating it as a business.”

Erk also knows that when things slow down, she needs to focus on the “bread and butter” houses. For her, that’s the lower to middle segment of the market that’s not as volatile. “I love to sell the Previews luxury homes, but what’s selling now is everything between $300,000 and $500,000,” she says of her area. “The luxury homes require more time and marketing, so you have to be prepared by having more consistent sales in the lower segment of the market. And that’s what’s kept me going.”

And this advice may sound simple, but a lot of agents don’t do it: Make sure expenses are really worth it. In truly tough times, that might mean closing down an office, like De Martino did in 2009. But more generally, MacGilvary recommends not spending too much on a car, for instance. “We all get hung up on image,” he says. “The [client] who sells the $700,000 house — you know what they need? Someone they can trust, not someone with a flashy image.”

CRSs who’ve socked away a good nest egg to cover taxes and expenses with a bit of savings on top, will not only be OK if there’s a downturn, they might even be able to take advantage of it. “I think it’s important to invest back into this business, to buy and own real estate,” Furman says. “When you are in a slow period, that could perhaps be a downturn in a market somewhere. So that’s an opportune time to go out and acquire properties.”

Gayle Bennett is a writer and editor based in Washington, D.C.

 

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