Real estate is ripe with opportunities for those with an incredible work ethic and wanting to unchain themselves from the desk of your nine-to-five job. However, it certainly isn’t for the faint of heart.
Starting a real estate business can be a ton of work. You have to secure a license, build a viable business plan, sort out your budget…and that’s just the tip of the iceberg. But with the right guidance, you’re sure to find yourself on the fast track to success.
Why Starting a Real Estate Business Is Worth It
Earning a living selling real estate is hard work.
You’ll find yourself making dozens of cold calls daily, only to close a handful of deals in your first year. Then you have to keep track of various legal documents, attend endless meetings, and do all the tasks that go into multiple listings.
So is starting a real estate business actually worth it? Absolutely.
The IRS reported that over the last 50 years, 71% of all the Americans who declared more than $1 million on their income tax returns were involved in real estate. Yes, 71%!
You can earn substantial commissions while spending your workdays selling and meeting people. The fact that you can choose your own hours and be your own boss is also quite tempting.
Other than the financial opportunities, getting started in the real estate business is also convenient.
You simply have to complete the required training, get a license, and you can start a new career in a few weeks or months. Plus, you’ll always find clients wanting to buy and sell property, regardless of the economy.
Focus on establishing yourself as a reliable and authoritative figure in the real estate business, and you’re bound to see results.
The Investment Needed to Start a Real Estate Business
Figuring out how to secure the capital you need to start out in the real estate business is a critical concern, just like any other business. But before raising funds, you must know exactly how much you need.
Depending on the type of real estate business you want to start and where you want to start it (different states have different fee structures), you could be looking at about $10,000 in capital, assuming you’re ready to bootstrap and jump in with the absolute minimum.
This amount is enough to cover your business incorporation charges, E&O (errors and omissions) insurance, and other software and tools you would need to streamline your daily operations. However, if you’re looking to start a brick-and-mortar business instead of a virtual one, be prepared to shell out a significantly larger amount.
The rent itself can be anywhere between $2500-$7000, plus other expenses like long-term lease, furniture, computers, Wi-Fi, and other utilities. Instead of a $10,000 bootstrap budget, you might have to spend $10,000 every month.
The other option is to open up a firm under a franchise, which is also very expensive. This can easily cost over $200,000, exclusive of the ongoing fees you’ll be liable for (eg: license renewals).
In addition to this, you’ll have to pay between $150 and $200 to apply for your broker license. Not a huge cost compared to some of the ones we just named, but still one to be aware of.
8 Steps to Start a Real Estate Business
Let’s get down to business! Below, we’ve outlined a step-by-step action plan to help you start your real estate business.
Step #1 — Define Your Real Estate Goals
Taking out the time to define your career goals is particularly valuable in real estate.
As there are so many pathways to take, you have to think critically about what you want and need to accomplish in business. Once you have a clear idea about your “why,” you can focus on brainstorming effective strategies to realize your real estate dreams.
A good place to start is by asking yourself the following questions:
- Which real estate business niche seems most attractive to you?
- What personal investment are you willing to make into your business?
- What are your short-term income or profit goals?
- Do you have everything you need to start a successful real estate business?
Answer these questions as specifically and honestly as you can. This will then allow you to adjust your goals based on your objectives, as well as come up with other discovery questions you should consider.
Step #2 — Do Your Research
Thorough market research is the only way to understand the real estate market you’re about to enter.
It helps you obtain important data to make informed decisions that will ultimately contribute to your success. You’ll also know your direct competitors, top real estate agents in your chosen niche, and what makes them stand out from the rest of the competition.
We recommend breaking down your research into specific components for better results. This can include:
- Real estate opportunity type and niche, such as commercial, residential, and so on
- Overall local real estate market health
- Buying and selling trends
- Median home and land values compared to the actual sales price
- Total capital investment needed to start
- Actions of established investors and agents in the area
Even better if you can figure out how many competing real estate businesses are there in a given area, and if you’ll be facing high or low competition. This will help you determine the business trajectory in the early days and in the years to follow.
Step #3 — Get the Necessary Qualifications and Licenses
College degrees usually aren’t necessary to start a real estate business, with most people jumping into the industry after working in other industries first.
That said, having the right education can put you on the fast track to find more positive experiences. In fact, certain states have made coursework mandatory for new agents, which is why it makes sense to pursue real estate education.
This involves taking in-class or online instruction and coursework, exam preparation for licensing tests, post-licensing courses based on the state of residence, and continuing education requirements as needed.
Recently, real estate education providers have made coursework more flexible, offering online options round-the-clock. This ensures your educational journey doesn’t become a roadblock in your daily life.
After education comes license requirements.
States have specific requirements for starting a real estate venture. Being at least 18 years old and having a high school diploma or GED (graduate equivalency degree) are the typical minimums. You’ll also find yourself sitting for an official license test.
Although educational coursework serves as the first step to receive a passing score on a licensing test, you can’t avoid the initial prep work. You must also be on top of follow-up steps legally required in each state—even after you get a license, such as:
- Filing an official real estate application
- Passing background checks
- Finding sponsorship brokerage for a minimum of 2-3 years
- Updating license with renewals and additional testing
- Pursuing continuing education
Step #4 — Choose a Legal Business Entity
Next, you have to finalize the various legal aspects of starting a business.
Any income from commissions and sales is considered self-employment income. And your choice of business structure determines how you‘ll file and pay taxes on this income. Although most real estate businessmen prefer filing as self-employed individuals, there are other legal entities to consider too:
- Sole Proprietorship: Under this business structure, all business profits belong to the owner as an individual. While sole proprietorship gives you plenty of flexibility in business matters, you have to accept all business debts and losses.
- Partnership: If you plan on launching a real estate business along with a partner, you can consider registering it as a partnership. This will also make both of you personally liable for the business’s debts and obligations.
- Limited Liability Company (LLC): Registering your business as an LLC won’t make you and your partners (if you plan on having any) personally liable for your business is that an obligation, meaning you’ll have personal liability protection against your business’s creditors. You can also enjoy certain tax and flexibility benefits extended to LLCs only.
- Corporation: Registering a real estate business as a corporation will make your firm a legal individual in the eyes of the law. This means you can own property, pay taxes and enter contracts under the corporation’s name.
Each business structure has its own advantages and disadvantages. You should select one after considering your personal preferences and requirements. Once you do that, register your business with the IRS to get an Employee Identification Number (EIN).
Step #5 — Create a Viable Business Plan
According to a Quickbooks study, businesses with a business plan grow 30% faster than those without. If you want to put yourself on the fast track to growth and success, making a business plan should be the first task on your to-do list.
How you write a business plan varies based on your vision, but the crux of the process is to:
- Define your business and market strategy
- Create a financial plan
- Implement action plans and strategy
- Evaluate and revise your business plan periodically
For a real estate business, in particular, you have to consider your business goals (these should be measurable and actionable), strategies to achieve the business goals, stakeholders and beneficiaries, your mission statement or purpose, and how you plan on conducting business every day.
Outlining how you plan to sell or invest is another crucial part of your business plan. Many states require new real estate agents to work under the umbrella of an established brokerage for a set time period. If your state requires you to do this too, ensure your business plan mentions it.
Step #6 — Prepare Your Budget and Financial Plan
Similar to other businesses, opening a real estate business involves specific expenses. You should be careful about your expenses and maintain your accounts accurately if you want to survive in the long run.
- Chalk out a list of expenses you anticipate when you start operating. This can include real estate training and licensing fees, brokerage fees, association fees, marketing expenses, business expenses, and post-licensure coursework. Some of these expenses are tax-deductible. Record and keep them on file to save money during tax season.
- Separate your business and personal bank accounts to track your spending. Depending on your legal structure, having separate accounts may be mandatory for actual reporting and payment processing.
- Evaluate all your available options if you plan on raising funds for your business. SBA loans are a good option to get your business off the ground. Otherwise, you can reach out to angel investors or your friends and family.
Step #7 — Master Real Estate Networking
Networking is extremely important in the real estate industry.
Considering the amount of investment involved, the only way people will buy from you is when they trust and share a good relationship with you. If you aren’t comfortable getting out there and knowing people, you may want to consider another career.
Joining real estate organizations, creating social media accounts, and putting up offline and online adverts can work well to establish your presence. But it’s building a website and an effective web presence that can make the world of a difference. What’s more, in addition to advertising, websites are also the perfect avenue to get more prospects and leads.
Step #8 — Find an Office and Hire a Team
When choosing an office location, you can either have a physical office or set up a virtual setting.
A physical office comes with various expenses, but they can validate a higher commission split between a broker and an agent. On the other hand, a virtual setting would mean everybody works from home, reducing your expenses…but commissions between the broker and agent would be lower.
Regardless of your office location, make sure you and your team have the right software and tools to get your business up and running and ensure everything runs smoothly.
Next, you need a strong team comprising real estate agents, transaction agents, real estate specialists, and admin assistants to ensure good outcomes. This doesn’t mean you have to hire a team immediately, but you will need help as your company grows.
LinkedIn, Glassdoor, ZipRecruiter, and Indeed can be great platforms to find top talent.
After launching your real estate business, your next priority should be expanding your business.
Focus on lead generation to get more targeted leads and increase your revenue. You should also have a well-drafted sales plan in place and effective marketing strategies—all designed to take your business to the next level.
Wondering how to go about this? Check out the following Crazy Egg articles for detailed guidance: