If you’re a real estate agent, you probably know better than anyone else that monetary liquidity is massively important. Unlike other industries, real estate agents subsist almost entirely off of commissions, thus, if you are just starting out it can be stressful to the point of trauma waiting for your first deal to close. There’s a widely propagated myth that real estate agents just show up, flash a nice smile, rattle of a few stats and collect money for nothing. This couldn’t be further from the truth: passing the real estate exam, getting a job with a reputable brokerage and navigating the legal minutiae of the world of real estate requires focus, intelligence and heaps of charisma.
When you’re starting out it is important to get the word out to gain some traction in your target market. There are often costs for open houses if you want to provide refreshments or spruce up the property a bit, and beyond that you may want to invest in public advertising, which is by no means inexpensive. Many young agents may feel paralyzed by a lack of cash flow: it’s tough to pull yourself up by your bootstraps if you don’t have cash flow.
Fortunately, there are a few clever ways to get around this widespread problem; no one wants to have to ask their parents – or even worse their partner’s parents – for a handout just as they’re setting out on a new career. Some people don’t understand that when you set out on a challenging new career path, you require a certain amount of capital to get up to speed and off the ground. In Canada and the U.S., it is increasingly easy to find companies that will buy your commission from you at a slight discount before the deal closes. In this scenario, you won’t be left twiddling your thumbs waiting for a deal to close. This solves the difficult issue of cash flow and allows you to continue building your career as you wait for your first few sales to pay off.
The margins that these types of institutions take for themselves is very reasonable – much less than their disreputable cousin: The Money Mart loan style business. The amount that they take is dependent on the time that elapses between the cash advance and the date that the sale goes through. Because cash flow is so important in real estate, this practice is extremely common – most brokerages have the infrastructure in place to facilitate these loans.
If this all sounds a little fishy, and you’re worried about any unforeseen small print, then make sure you learn about commission advance rates and familiarize yourself with the terms of agreement. In most cases these types of companies have carefully thought through policies that minimize the likelihood of putting clients in a difficult situation, but at the end of the day, it ‘s up to you to perform due diligence. In the cut throat world of real estate, it is crucial to be able to think for yourself, so don’t let anyone else tell you what’s right or wrong. Staying liquid is paramount, just make sure you don’t get burned.