Navigating Uncertainty: How Real Estate Agents Can Build Resilient Financial Futures
The real estate profession presents both challenges and opportunities.
One of those challenges is navigating uncertainty.
Real estate agents face uncertainty in the form of unpredictable income, market fluctuations, strong competition, lead generation, and long variable working hours to name a few.
By having a strong financial plan tailored towards building financial resilience and developing a resilient mindset, real estate agents can confidently navigate uncertainty and build wealth.
In this edition we’ll discuss how to build a resilient financial plan, develop a resilient mindset, and build wealth amidst uncertainty.
Build a Resilient Mindset
Embrace Uncertainty
As a real estate agent, your income is variable and unpredictable.
In addition to finding leads and closing deals, your income can be affected by housing market cycles, natural disasters, and even the seasons.
All this combines to create a lot of uncertainty.
But, acknowledging, and preparing for, this reality is the first step toward resilience.
Give yourself peace of mind by embracing and having a plan for overcoming uncertainty.
Stress Test Your Plan
Stress testing your financial plan can also help give you peace of mind for dealing with uncertain times.
Analyze how your plan plays out across various possible scenarios.
Possible scenarios could include:
Lost or low-income periods
Unexpected expenses
Higher than expected inflation
Lower than expected portfolio performance
Illness, injury, disability, or death
By testing your plan against possible scenarios, you will either gain confidence that your plan will hold up despite these scenarios or identify areas you need to improve.
Knowing how your plan will carry you through a spectrum of possible scenarios will help you navigate uncertainty confidently.
We’ll discuss how to build a resilient financial plan in another section.
Take a Long-Term Mindset
The ebbs and flows of the real estate industry can create a lot of highs and lows, but both are temporary.
You may have multiple deals in a month, or multiple months without a deal.
But rather than comparing how you did month to month, focus on your growth and performance over longer periods.
Even in the months without any deals, the work you’re doing may lay the groundwork for your future success.
Remember, your goal is to have a long successful journey, not crush your numbers every month.
Focus on long-term success.
Develop a Financial Plan with the Pillars of Financial Resilience
These key elements help you build a resilient financial plan and secure your future.
1) Earn More Than You Spend
The greater the margin between your income and planned spending, the better you’re able to absorb times of unexpectedly high expenses or low income.
Also, the more you’ll be able to contribute to other pillars of resilience, which we’ll talk about next.
2) Have Liquid Reserves
Liquid reserves refers to cash, cash equivalents (like short-term Treasury bonds or CDs), and other assets that can be quickly exchanged for cash (like stocks).
Having liquid reserves in the form of emergency savings or investments in a taxable brokerage account provides a source for covering time periods where your expenses exceed your income.
Because, as a real estate agent, you couple unpredictable income flows with fluctuations in the real estate market, it makes it even more important to have extra cash, or investments than can quickly be turned into cash, to get you through any periods where your income can’t cover your needs.
Bonus – Some of the best investment opportunities present themselves during market crashes. Having liquid reserves gives you the ability to capitalize on those opportunities. More on this in a later section.
3) Build Multiple Streams of Income
Having multiple streams of income can increase your income-to-spending ratio, as well as soften the blow of loss or reduction in your primary source of income.
Some potential sources of income are:
Investment real estate
Your portfolio
Other real estate related businesses (coaching, property management, staging, etc.)
Other businesses/business investments
An online personal brand (influencer)
4) Diversify Your Investments
Like the housing market, other financial markets also experience volatility and fluctuations.
Having a well-diversified portfolio reduces risks such as volatility and concentration risk, while targeting steady long-term returns.
Diversify your portfolio across multiple asset classes, regions, sectors, styles, and factors.
5) Manage Debt Wisely
Not all debt is bad debt, but having too much debt can increase your risk during uncertain times because you’re still going to have to make your debt payments regardless of any market crashes or loss of income.
Manage your use of debt to reduce your risk of defaulting or damaging your credit when uncertainty arises.
6) Be Properly Insured
Life is full of unforeseen and unexpected events, good and bad.
Being properly insured protects you from exacerbating an unfortunate situation with financial ruin.
Policies you should consider will depend on your specific situation, but may include:
Liability (homeowners, auto, renters, boat, etc.)
Business insurance
Life
Disability
Umbrella
In my opinion, Long-Term Disability policies with Own Occupation riders are the most overlooked risk mitigation tools for high-earning self-employed professionals, especially those in single income households.
7) Have a Plan
Contingency planning helps you prepare for how to deal with an emergency, giving you peace-of-mind during uncertainty.
Whether it is in the case of emergency expenses, loss of income, market crash, recession, injury or death, have a plan.
Build Wealth Amidst Uncertainty
Hit Your Numbers When Your Can
Consistent savings and investment contributions are key to building long-term wealth.
But how can you make consistent contributions with inconsistent income?
I suggest allocating a percentage of each commission towards your investment and savings goals.
For example, once you receive a commission payment, your next step would be to contribute 10%-20% of that payment towards retirement.
Then once you set aside some for taxes and business expenses, set aside 5%-10% of that remaining “take home” income for savings.
By using this percentage-based system you’re able to hit your annual investment and savings goals regardless of when you get paid.
Capitalize on Opportunities
Navigating uncertainty is a challenge, but uncertainty also presents opportunities.
Whether it’s the housing market, the stock market, or any other asset, all markets experience ups and downs.
But crashes and bear markets present investors with opportunities to capitalize on undervalued assets.
By maintaining a cash reserve, you’re not only able to comfortably navigate uncertainty, but seize opportunities to jet boost your wealth building.
Navigate Uncertainty with Confidence
Throughout this edition we’ve covered the uncertainty real estate agents face, but you can navigate uncertainty with confidence using the techniques we discussed.
1) Build a resilient mindset
Embrace uncertainty. Acknowledging, and preparing for, uncertainty is the first step towards resilience.
Stress test your plan by analyzing how it will play out across various possible scenarios.
2) Create a financial plan with the pillars of financial resilience:
Earn more than you spend
Have liquid reserves
Build multiple streams of income
Diversify your investments
Mange debt wisely
Be properly insured, and
Have a plan
3) Build wealth amidst uncertainty
Consistently save and invest despite the unpredictable nature of being a real estate agent by allocating a percentage of each commission when they’re earned.
Capitalize on opportunities to boost your wealth building by maintaining liquid assets ready to deploy when opportunities present themselves.
By implementing these techniques to your financial journey you’ll not only survive, but thrive in, uncertainty.
This material is provided for informational purposes only and is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are subject to change at any time without notice. The information and opinions contained in this material are derived from proprietary and nonproprietary sources we deemed to be reliable and are not necessarily all-inclusive. All investing involves risk, including the possible loss of principal.