Published by Kartik Subramaniam
Those considering a career in the real estate field are frequently drawn to the amount of money they can make on each property they sell. Each commission check can be upwards of $10,000, $20,000 or even more. This is great for today because it means when you do work hard you will be rewarded handsomely. But what about tomorrow? What about when you get a little older or lose a little bit of that drive?
When you become a Realtor, it’s important to remember that you are in business for yourself and should have a solid financial plan in place that provides for your post-retirement needs. It's exciting to finish real estate school and obtain your real estate license. The early phase of your career is a time to build relationships, learn the trade, and earn money while you establish yourself as a professional. But it's always wise to remember that time waits for no man woman or Realtor. At that point, all your financial planning and regular saving will pay off in the form of a stable, secure retirement income.
What about retirement?
To be clear, there are a lot of great real estate salespeople and brokers that have absolutely no intention of ever retiring. But there’s a difference between wanting to work and having to work.
I think we can all agree that not having to actually show up at some place at some time and have money coming in and available to you would be a great thing.
With that said, many Realtors often wonder how secure their retirement will be. After all, if you become a Realtor and work for yourself then you'll need a financial plan in place to take care of your retirement years. Earning a real estate license is simply an early milestone in your career.
But what about life after real estate school and your sales career? You'll need to create the right kind of retirement plan for yourself. You can do this alone with some help from a CPA and Google or hire a financial planner to lay out the plan for you and keep you disciplined.
Here are some things to bear in mind when thinking about long-term financial security:
Consider investing in real estate.
Early in my career I heard brokers tell me “Kartik you have to become your best client.” Since then a stated goal of mine has been to buy one piece of real estate each and every year. Imagine over a 20 year career in our business owning 20 properties, each with a positive cash flow of just $200 per month. That amounts to $200 per month x 20 properties = $4,000 per month. Over time the values on these properties are quite likely to rise and the loans will eventually be paid off - adding to your wealth in retirement.
Of course in order to buy one property per year, you have to ensure that your income is sufficient to obtain financing - a solid real estate sales career will make this easier. Properly managed, a "nest egg" of real estate can be a smart way to diversify your retirement income resources.
There are other ways to set money aside in retirement funds:
You can opt to put money into a traditional IRA, a Roth IRA, a solo 401(k) or a SEP IRA. All have their pros and cons that should be discussed with an appropriate professional. For example, traditional IRAs have no income limit but there is an annual contribution limit. If you pull finds out before retirement, there is a stiff penalty in most cases. Traditional IRAs are funded with your pre-tax earnings, so you'll get a nice deduction and lower your tax bill in most cases.
Roth IRAs are funded with your after-tax earnings, so you get no deduction right now. The upside to a Roth is that you can take out the contributed funds any time for any reason without paying a penalty. It's also possible to set up a solo 401(k) for yourself, even if you have no employees and work as a sole proprietor. Contributions come from your pre-tax earnings but there's currently a pretty high annual limit on what you can put in.
SEP IRAs are a little more complex but are a good option for real estate professionals who have a few employees. You can contribute up to 25 percent of your earnings but keep in mind that you have to do the same for each employee you have. If you withhold 10 percent, for example, from your earnings for the SEP IRA, you'll need to withhold 10 percent of each employees' earnings as well.
A one-hour consultation with a reputable financial planner can resolve most questions you have about which is the best kind of retirement savings plan for your particular situation.
It’s also important to remember that I’m not a financial planner and laws and rules can and do change. Make sure you’re planning properly and not relying on my blog alone to plan for your retirement. =)
Please call my office at 888 768 5285 or send me a message if I can be of service.
For information on real estate classes visit www.adhischools.com
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