Are you seeing home prices rise and wondering how you could get involved by starting your own real estate business? While many entities shuttered during the COVID-19 pandemic, the real estate industry has not only survived, but thrived. This $380 billion industry has averaged yearly growth of around 2.6% in the U.S. and 8.7% growth in 2020 alone. In a world where millions now spend most of their time at home, the real estate market is more important now than ever.
There are two ways to form a real estate business. One requires an investment of time (a broker), and the other requires money (an investor), but both hold incredible profit potential.
One of the key benefits of starting a real estate business is the different paths to potential profit.
With a big time investment, you can get a real estate license. Depending on where you live, that route takes 2–4 years and/or a set number of transactions, plus a broker license test. But the overall startup costs to become a licensed real estate agent are low.
Agents and brokers make money from commissions on sales. That means when purchase prices rise, commissions do too. The S&P CoreLogic Case-Shiller National Home Price Index rose 4.8% in 2020.
A faster but more expensive route is to start a real estate investment business. In this scenario, an outside broker does the buying and selling of residential, commercial, industrial, and even undeveloped land.
Whether you decide to be a licensed real estate agent or an investor, an added benefit of starting a real estate business is that you set your own hours. You decide when, where, and how the meetings and sales take place.
Checklist for How to Start your Real Estate Business
- Create a Business Plan
- Choose Your Real Estate Business Structure
- Determine Your Business Costs
- Create a Business Name
- Create a Name for Your Real Estate Business
- Register Your Real Estate Business and Open Financial Accounts
- Purchase Real Estate Equipment
A business plan is a must-have. By creating one, you’ll identify the requirements to start your business, how it will operate, and the likelihood of its success. You’ll refer back to it when you face challenges or opportunities. It’s the founding document — the road map — for your business journey.
To craft a solid business plan for a real estate business:
- Clarify the business idea and the problem it solves
- Determine if you’ll operate as a seller of real estate (with a license) or as an unlicensed investor
- Set SMART goals (Specific, Measurable, Attainable, Realistic, and Timely)
- Brainstorm potential problems
- Understand what types of clients will most benefit from your real estate business
- Determine your real estate company’s physical location (or decide if you’ll be 100% online)
- Check for tax breaks and local grants
Also, identify core business offerings, such as:
- Resort and vacation homes
- Income properties (these generate income through rental or leasing)
- Rental property
- Commercially zoned real estate properties
- Property management
All U.S. businesses must be registered with the IRS, which offers several company structures. Choose a business structure with the best legal and tax setup for your situation. Real estate professionals generally run their businesses as small companies, so they’re registered as either:
- LLCs (limited-liability companies), which offer liability protection and tax flexibility
- Sole proprietorships, which are easier and cheaper to set up but don’t offer the same protection
Since you’ll target high-dollar transactions in a market where emotions can run deep, the liability protection of an LLC bears strong consideration. This structure shields your personal assets in the event of a lawsuit. It also avoids the double taxation of a corporation structure.
Real estate investing can be expensive, since inventory costs are high. By contrast, becoming a licensed agent costs less. As you calculate small business costs, consider the following:
- Fixed costs (insurance, rent, utilities, hosting fees, licensing/test fees)
- Ongoing expenses (payroll, taxes, legal fees, accounting fees, office supplies)
- One-time costs (printer, copier, computer, furniture, vehicle)
Be sure to check for tax breaks and local grants to offset costs associated with starting your real estate business.
How to fund startup costs?
Concerned about having enough capital? Good news: there are a few ways to raise money for your real estate start-up. Consider:
- Government assistance: Several government resources are available to small business owners, especially during the pandemic.
- Business credit cards: Be cautious with this option. Too much use of cards could set you up with long-term debt and hurt your credit score.
- Loans: The Small Business Administration (SBA) works with lenders to create loan offerings specifically for entrepreneurs looking to start a real estate business. Depending on your credit score, collateral, and other factors, you may also approach your bank for a loan.
- Friends and family: No one knows you and your abilities better than friends or family, right? Share your business idea with them to see if they may provide a loan or invest in your new business. Often, you can negotiate better terms with people you know.
Time to name your baby! Pick something easily understandable, memorable and unique. Research names via local business registration services and online searches so you don’t use one that’s taken. Skip this step, and you could drum up marketplace confusion and a potential lawsuit.
When generating company names, also check to see if the URL (website address) and social media handles are available. You don’t want to confuse clients when they search for you online. Once you find a name with a web address and social media handles available, register all three.
Legal and licensing requirements for starting a real estate business include:
- Registering the business structure selected above (i.e., LLC)
- Obtaining an employer identification number (provided by the IRS).
- Getting your real estate license (if you intend to list and sell the properties yourself)
- Obtaining a general business license through your local municipality (if required)
- Securing general liability insurance
- Opening a business bank account (Don’t mix business finances with personal assets in case of an audit or lawsuit.)
Good news: The equipment needs for a real estate business start-up are fairly basic. You’ll need a workspace (desk, chair, lighting), a printer, pens, pencils, calculator, computer, and cell phone.
Collateral includes business cards, stationery, custom folders (if desired for property sales sheets), and for sale signs. You may also plan to get a drone camera, so you can capture overhead shots and videos of properties.
To market your business, first design a logo or have one professionally designed. Your logo image should appear in all your marketing materials, both online and in print.
Next, consider how to reach the target market you identified in the business plan. Which social media platforms do they prefer? Twitter, Facebook (groups, too!), Instagram, Pinterest, Snapchat, LinkedIn, and YouTube all offer inexpensive ways to flesh out your marketing strategy.
Go where your clients are. Create a website to provide a central place to refer all your followers and advertising. Be sure it’s search engine optimized so potential clients find it easily. Don’t have time to make a site? Prepackaged options like Wix and Weebly make creating your own real estate business site a snap.
If you have a brick-and-mortar location, sign up for Google My Business and local business directories. Search for other local businesses that may be good partners to share offerings, exchanges, or competitions.
There are four main types of real estate. Which is best for your business?
- Residential real estate: This is the most common type of real estate business, covering resale homes and new construction. It includes traditional single-family dwellings, townhouses, condos, duplexes, vacation homes, and co-ops.
- Industrial real estate: This is mostly buildings and property used in manufacturing. Examples are warehouses, research buildings, and distribution centers.
- Commercial real estate: Strip malls and shopping centers are examples of commercial property, as are educational offices, medical buildings, general office space, and hotels. Apartment complexes are also listed as commercial space.
- Land: Farms, ranches, and even vacant land is bought and sold by real estate companies, including land used for development or site assembly.
The real estate industry is massive and growing despite the challenges in today’s economic climate. Starting your real estate career carries low risk with potentially high reward, and it offers two paths of entry.
1 All prices and services presented above were reviewed and verified as of 11/2/19.
2 The Starter plan is $49/year the first year and increases to $119/year after that
3 This chart does not include state fees because those will vary in each state.