I’ve openly pondered where agents go.  They start off in the business, sell a few houses, then disappear.  The numbers are striking.  In a post by Tom Ferry, a well-known real estate coach, he cites a NAR statistic that 87% of real estate agents fail within the first five years.    There are a ton of reasons for this, and you can find them easily around the internet.  One thing I haven’t seen talked about is something that I ran into; The absolute necessity for an emergency fund.

Things were going well

When I started in the real estate business, I was aware of the failure rate.  For the first few years, I figured it would be a struggle and that things would either work themselves out or they wouldn’t.  Regardless, I was committed.  For the first three years, I was actually surprised how well things were going for me.  I always had buyers or sellers to work with, and the vast majority were coming from referrals, so I believed that this was proof of my good work.  Then something completely unexpected happened.

The Slump

It’s kind of strange but I really don’t know how it started.  In St. Louis, the real estate market is seasonally slow from about December to February.  Something was different this time though.  In prior years, I would get calls from potential new clients in the slow months in preparation of listing or buying in the spring.  That didn’t happen.  I started checking with other real estate agents I know and work with, and they reported that things were going about as well as they normally were; no one reported any loss in calls.  I asked my lenders how they were doing and none of them had issues as their mortgage applications were still solid.  Around February of that year, I started looking at my phone on a daily business and talking to it.  “Why aren’t you ringing?”  I looked to the almighty, “What did I do wrong?”  I spent a bit more on advertising.  There was no response.  I started to take a much closer look at my bank account.  Money was going out and nothing was coming in.  It was truly an awful experience.  The fact was that I was heading into the busy season with no clients and that pretty much meant that the year was going to be a bad one for my pocketbook.  I didn’t want to tell anyone that I was in a slump because I thought I would putting myself into a self-fulfilling prophecy.  It was rough.

Saved by Frugality

I managed to make it through the slump.  There was no dramatic end to it…a few clients called and actually went through with buying a house .  Looking back, I know what saved me and I’d like to pass it along to you.  Build an emergency fund the minute you start in the business.  Keep as much of your commission as you can and don’t buy shiny things.  The only thing that saved me is that I had cash that I’d saved to get through the tough times.

Back of Napkin Calculation

How much should you save?  Just think about your expenses.  How much does it cost to hold your active license?  How much do you spend on marketing?  What is the minimum amount you can live on in your personal life?  Take that number and multiply it by the amount of time you’d like to be able to stay in real estate without making one sale.  It’s a personal thing.   I never want to leave the business, so there isn’t ever going to be an amount to save that I will feel comfortable with.  Others might bet that they can make it for 3 or 4 months.  Based on my slump, I would think that should be extended to 6 months at a minimum.

We have a pretty good idea why people end up leaving real estate sales.  It’s rare that they leave because their wallets are so fat that it’s causing mobility issues.  The sad fact is that most of the time, it’s because they can’t afford to stay in the business any longer.  Should you find some success early, make sure to keep an emergency fund.  I know you’ll thank me later.