Photo by Arka38 via Shutterstock

At first glance, you may wonder what the point is of paying a real estate agent for work you may just as easily do yourself. The curse of the Internet is that many consumers have just enough knowledge to be dangerous. That means that while you could sell your home directly, you may lose out on some of the income you expect to save by making poor decisions during the process, or simply by not knowing ahead of time what costs you will incur.

The Hard Cost Breakdown

Imagine you are selling a $300,000 home. A standard agent commission in most areas is 6%, which translates to $18,000. That means in a best-case scenario, where you sell the home for the same price as the professional, you make an extra 18 grand. The question becomes, what extra expenses do you incur when going your own way?

First, think about staging the home. This is no longer optional in today’s market. Potential buyers have become used to homes that are furnished like magazines and home decorating shows, and you will have to compete with homes listed by agents with professional staging services. The average nationwide cost of home staging is about $1,800. This includes moving some of your personal items to storage, professional cleaning (or your time and supplies) and landscaping with an eye towards curb appeal. Before you start thinking that can’t possibly cost $1,800, remember that you have to keep it up throughout the entire time your home is on the market. That means you must discount $1,800 off the $18,000 right away, leaving you with $16,200.

Next, consider the cost of professional photos. Unless you are also a photographer (as well as a salesman while continuing your regular day job), you will need to hire a professional to take pictures of your home. When you shop for homes, do you scroll right past the ones that look like cell phone pictures? Studies show that potential buyers buy with their eyes first, which means your pictures need to tell your whole story in the best way possible. Professional photos often run $200-$300, which brings your net extra income down to $15,900.

You will also incur some variable fees for listing the property online and advertising costs, but since those will vary greatly from location to location, just keep some money aside for these and do your local research.

The Soft Costs

Soft costs are those that do not really cost against your net savings but will reduce your overall income regardless. First of these situations is setting the price of the home. On average, homes represented by professional real estate agents sell for 8-12% more than direct sales. A little bit of math with percentages will show you that even the best-case scenario, you still take home over 7% more when using an agent than without, even forgetting about all those hard costs. That number only increases as your home sale price goes up, and your agent is just as invested as you are since they make a percentage of the sale.

Before you try to sell your home without help, talk to a real estate agent and find out just how much you would be getting for that 6%. Some agents have even more perks such as timeline guarantees or price guarantees that improve your odds of getting the price you want in the timeline that you need with the least amount of work required from you. Visit real estate professionals in your area to find the one who offers the best benefits for you.

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Photo by Mohamed Hassan via Pixabay

Buying property is a long-term investment. If you’re looking to make quick income from property, the only way is to buy low and sell high with minimal input for remodeling, upgrades, or even paint. However, if you intend to keep your property as a rental here are a few of the basics to make it profitable sooner.

Show Me the Numbers

Say you buy a house for $300,000. To get a loan for an investment property you’ll need a minimum of 20% down; so in our scenario, that’s $60,000. Closing costs depend on so many things that even an estimate is difficult, but rule of thumb is three to four percent of the purchase prices. Go with an even $10,000 to keep the numbers easy. You’re out-of-pocket $70,000 by this point.

The mortgage is for the remaining $240,000, so a 30-year fixed rate at 4.5 percent makes your principal and interest payments about $1,200 per month. Add to that property taxes of about $6,000 per year, or $500 per month, and homeowner’s insurance for about $150 gives you a monthly payment of $1,850. If you have an HOA, that might be an additional $50 per month. That’s $1900 for the basics, every month.

These numbers do not factor in upgrades, changes, paint, flooring, appliances or anything else, so remember that those items eat away at your profit too.Say that you rent it for $2,500 per month. That gives you a $600 difference. From that amount comes management fees if you pay someone to manage it for you. It also pays for lawn care unless you turn that over to the renter. Plus, for every month it goes unrented between renters, you carry the entire amount. 

Positive Cash Flow

You decide to manage it yourself and have the tenant take care of the lawn. Presuming no major systems require repair during the first year and you rent it within a month, you receive $27,500 ($2,500 x 11) in rent. You pay out $22,800 ($1,900 x 12) leaving you with $4,700 positive cash flow.

Assuming you never have to spend anything on repairs, maintenance, increases in taxes or refurbishing between tenants, it will take you 12 years and nine months to make back your down payment. Of course, if you raise the rent every year or so, you’ll shorten the time to repay the down payment, but you may lose more tenants.

Is It Worth It?

Yes! After year 12, your profits increase. But only if you follow these guidelines:

• Do buy in a nice, livable area where people want to rent.
• Don’t overspend for the property.
• Avoid frivolous upgrades with low R.O.I.
• Vet your tenants.
• Remove tenants that damage property or don’t pay rent.Use a property management and marketing service to reduce unrented months.
• Know the property owner and tenant laws in your municipality. 

Some properties are more profitable than others or are profitable sooner. Your investment real estate professional knows the difference and can help you choose the right property for your investment situation. If you want to invest in real estate, let your professional agent guide you.

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