January 8th - 2016

Living beyond your means in real estate

Avoid the temptation to spend too much or abuse your credit cards when you start to succeed in the business, advises a Toronto REALTOR®.

Couple on a cruise

Avoid the temptation to spend too much or abuse your credit cards when you start to succeed in the business, advises a Toronto REALTOR®.

Couple on a cruiseby Mike Jahshan

Never knowing when you are going to get paid is the biggest challenge in real estate. Unlike jobs where you work for a fixed salary or at an hourly rate, real estate is a career where our income is a question mark that we hope will become an exclamation mark.

If the biggest challenge in real estate is waiting to get paid, the second biggest challenge is after you get paid! After you have worked hard to sell a property, you are sometimes paid a large amount in commission, all at once. Although this may sound like a great problem to have, receiving a big amount of money in one lump sum can cause problems.

After my second year in the field, I started to enjoy some success. I was working hard and was reaping the rewards of my effort. Therefore, I often went out to celebrate after -- or in anticipation of -- a commission cheque. I tended to spend a bit more extravagantly due to the good news. I paid for those fancy dinners and outings with my credit card, along with all of my other expenses. When the commission cheque arrived, that money had to be used to pay down my credit card balance. Each successful real estate transaction meant another celebration, and more expenses on my credit card. This vicious cycle was repeated on a regular basis, with expenses turning to debt that was racking up quickly on my credit card.

As I started to get more successful in the field, I thought I had “made it”. I was buying nicer clothes and a fancier car, dining in nicer restaurants, going on more vacations, and being more generous with gifts to friends and family.

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Then, the well went dry. That was scary. I had no transactions in the works and no prospects for the foreseeable future. That’s when my wife and I realized that we had to take a long, hard look at our spending. We printed all of our bills and credit card statements and spread everything out on the dining room table. We had been spending thousands of dollars going out for meals and coffee, along with taking shopping trips for furniture, clothing, alcohol, and food. Much of it was unnecessary. This was a major eye opener and a humbling moment, since we started to realize how these little things were adding up to big debt.

It was time to hit the pause button. We hadn’t realized how quickly and easily we could spend money. It didn’t seem like much when I shelled out a hundred bucks here or two hundred bucks there - especially when I was about to help my clients close on an $800,000 house later that same day. But when the money ran out, nothing could be done. I knew I had to cut back.

"We had been spending thousands of dollars going out for meals and coffee, and taking shopping trips."

We started cooking and eating at home more often. No more trips to the coffee shop – we brew our coffee ourselves. No more fine dining at restaurants, unless it’s a truly special occasion. We stopped using credit cards and paid with cash or debit whenever possible. Our rule of thumb now is that if we don’t have the money in the bank, we don’t buy it. When I get a commission cheque, it goes straight into the bank -- not towards paying down credit card debt.

This frugal approach has enabled me to build up my savings account into a nest egg for emergencies. It can support me for three months if the well runs dry again. Although I am now doing quite well in business, I have maintained this practice with the nest egg, and it helps me to sleep at night. Now that my wife and I have a child, we are really glad we changed our strategy. This financial security will serve us and our daughter well over time.

I advise people who are starting out in real estate to avoid the trap I fell into of spending too much, too soon. When you’re starting out, have a cushion with three months’ worth of savings. Bank as much as you can afterwards, delay taking vacations, and try to convince yourself that you don’t have the money. This is really hard to do when you start becoming more successful, but it’s vital to be patient and to put those funds aside. There will be times when your well goes dry, and that will really hurt you unless you have a nest egg. 

It takes a long time to build up a successful business, and new people should avoid the temptation to spend too much, too soon. Typically, there will be more “downs” than “ups” in the first few years of your real estate career. That’s why it’s crucial to put your cheques in the bank and live within your means.

Mike Jahshan

Sales training often suggests “fake it until you make it”, and advises us to buy cars and clothes that demonstrate to clients how successful we are. This is an appealing message when you’ve been working hard. On the other hand, patience and discipline are not glamorous, but they will help you to stay afloat financially. The money you save in the good times will help you to manage in the lean times, and that’s a great lesson for the long haul. 

Mike Jahshan (pictured at right) is a Toronto real estate salesperson who is studying to become a broker®. 

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