Real estate is ripe with opportunities for those willing to work at it. Whether you're looking to replace your current career, build wealth, supplement your income, or help support your retirement, starting a real estate business can be a wonderful way to accomplish your goals.
Starting and operating a real estate business isn't easy, but if you're focused, dedicated, and willing to put in the work, it can pay off. Whether you're getting prepared and educating yourself on the process or ready to dive in now, this guide will help you understand how to start a real estate business, including the costs and steps, as well as ideas for the different types of real estate businesses you can pursue.
1. Choose the right profession for you
There are a number of different real estate careers you can pursue in the real estate industry. You can own a real estate company that focuses on real estate investing or property management, or you can become a real estate broker or real estate agent. The type of business you choose to pursue will determine whether you need a real estate license to operate or you can simply create a real estate limited liability company (LLC) and start working.
Think about who you are as an individual, what your strengths and weaknesses are, and what business suits those traits best. If you're a great salesperson and enjoy talking with people, being a real estate agent or broker might be a good fit.
If you have strong managerial skills, are highly organized, or are detail-oriented, being a property manager might be a nice match. If you enjoy crunching numbers or negotiating or have a good eye for improvements, becoming a real estate investor may be the way to go. Learn what's involved in each real estate career before developing a plan of action.
2. Establish a plan
Once you've decided the best path for you, develop a plan. Think about what's needed to get started in that career or business. Becoming a real estate agent or real estate broker may require you to attend a school or pass a test to get a license. Others may allow you to get started right away with as little as a real estate business plan. Determine what's needed to get your foot in the door and plan what you want to accomplish or do with your business.
If you want to focus on buying an investment property, decide whether you're focusing on commercial real estate, residential rental property, fix and flips, wholesaling, or mortgage notes. Identify where you'll source potential clients or investment property leads and what the conditions are like in your target market.
Establishing your business by creating an LLC is rather easy and inexpensive, costing on average $132 to create. But after you start your business, there are other expenses that will be incurred that can add up quickly. Consider where funding for your business is coming from and how much money you will need to get started to reach your business goals.
Determine your business costs, which may include:
- Office space.
- Phone service.
- Website design or hosting.
- Licenses to legally operate your business in your city or county.
- Software or online programs.
- Business equipment.
Writing out a formal business plan helps ensure you've thought through all the details, and as a bonus, it can be used to present to potential lenders or partners if you are seeking financing.
3. Create your company
The next step in establishing a real estate business is creating your company. If you're choosing the path of becoming a Realtor or broker, this means you'll find a brokerage to work with after getting your license. You can choose a smaller local real estate brokerage or a larger national brokerage.
Ultimately, choose a broker that offers support and guidance for new agents, one that can provide mentorship throughout your first year -- which can be tough, especially if you have a limited background in real estate.
If you're choosing the path to becoming a real estate investor or property manager, you'll want to establish your company. There are several different entity structures you can choose from, each of which offers certain preferential tax treatment based on the type of business you'll be conducting in the entity.
It's suggested you speak with an experienced licensed professional, such as a real estate and contract law attorney or accountant, about which structure is best for you, especially if you're using the entity as a real estate holding company.
You can register the company yourself in your state's Division of Corporations or hire the same professional to do it for you for a fee. You'll need to know:
- The business address, which can be a P.O. Box, home address, or office space.
- The name of your company.
- The managing members or managing managers (titles will vary based on your entity structure).
Choose a business name that clearly tells clients what your company does while presenting your company in a professional manner. You'll also need to check with your state's registry to ensure the name isn't registered to someone else. Once established, request an employer identification number (EIN) from the IRS so that you can file taxes for the company each year and conduct transactions solely from your business account.
4. Put your plan into action
This is where the majority of the hard work comes into play. It's where you put your plan into action, including:
- Opening a bank account.
- Creating a professional website.
- Getting a business phone number and email address.
- Marketing your services or business.
- Organizing and nurturing leads.
- Conducting business.
Open a bank account
If you'll be earning income as a company, not as an individual, you'll need to open a business checking account. You can do this at your local branch where you personally bank or choose a separate bank that specializes in business banking.
Shop around, as each bank charges different fees and offers different services. The bank will require your business name, your business EIN, and all registered managers or members of the company to be either present or able to go into a branch closest to them to sign the paperwork.
Create a professional website
If you choose the path toward becoming an agent, it's unlikely you'll need your own website. Your brokerage should provide a professional email address, extension, and featured page on their website. For all other businesses, it's crucial that you create a professional website.
You can hire a website designer to create the page for you for a few thousand dollars, or if you're tech-savvy or feel like you're a quick learner, you can tackle creating your own website. There are several free drag-and-drop website tools available to help people without website design backgrounds create their own site for free or at a low cost.
Regardless of which direction you go, make sure your website looks professional, explains what you do, who you help, and reasons to work with you over competitors. The site should be visually appealing and, in several locations, provide your contact information or a method of contacting you.
For each target client, many real estate investment businesses have multiple websites or landing pages, which are used as lead capture forms. While it may not be necessary for your specific business, look into different software and website programs that cater to your business needs.
Get a business phone number and email address
Once you have your website created, you'll want to get a business phone number and professional email address. Google offers free Google Voice numbers that allow you to have an established business number that forwards calls directly to your cell phone.
They also offer email services if you own a domain name, enabling you to create a personalized email address like email@example.com or firstname.lastname@example.org. You can also purchase email services directly from the company you purchased your domain name from.
Having a dedicated business number and email address adds to your credibility and will make potential clients feel like they're working with a professional company. If you need multiple lines, there are other phone services you can use for your phone number that will add to your monthly operating costs.
It's also a good idea to register your business on Google, especially if you offer professional real estate services for a specific market -- although this isn't required if you plan to invest nationwide or if being found on Google Maps won't help you bring in new clients.
The next step is to market your services. Having an established marketing plan in place from the start is key. This can include attending networking or trade events, sharing your services on social media, creating a paid mail marketing campaign, running online ads, or a combination of these methods. But it's crucial you market your services.
It's a good idea to have multiple marketing ideas and campaigns prepared so that you can find innovative ways to reach new customers or clients. After all, you'll never get a potential sale if you don't market your services to potential clients.
Organize and nurture leads
Once you set your real estate marketing plan into play, you should get client leads: people who are potentially interested in selling their property or possibly hiring you to list or manage their property for them. Have a system in place for organizing their contact information and other pertinent information relating to them as a potential deal.
You can use a formal customer relationship management (CRM) program or keep this information in a spreadsheet on your computer. However, the more organized you are with potential clients and leads, the better your systems will be as your business grows.
It's also important to note that it's unlikely you'll convert your client on the first touch or interaction. Most sales take multiple interactions to become a sale. Don't give up on a lead if it doesn't convert right away. Continue to follow up, send more marketing emails or mail, and make more calls over time.
From there, your next task is to continue to make deals happen. Whether you're listing a property or helping them buy their first home or investment property, managing a single-family rental or an apartment complex, or buying or building an investment property of your own, your business only earns income when you convert potential clients into actual deals.
This is where the bulk of the work takes place, especially after your company has been established. It's a rinse-and-repeat cycle of marketing, capturing and nurturing leads, and doing deals.
How much does it cost to start a real estate business?
There is no perfect number for how much it costs to start a real estate business. The type of business you pursue and the state your company will operate out of will determine the upfront cost. It's a good idea to have from $5,000 to $10,000 set aside to help with establishing the company, getting the necessary training, speaking with the right professionals, filing or creating the proper paperwork, and getting your marketing plan going.
While it could cost significantly more -- or slightly less -- it's a safe number to have set aside to help you get off the ground.
A real estate business can be great but isn't for everyone
Being a business owner is not for everyone. It takes a lot of work to not only establish but also operate and maintain a successful real estate business. Beyond the work described above, you'll have to retain files and records of the business you conduct, keep up with bookkeeping records, file taxes, and maintain your entity paperwork, such as LLC annual minutes.
While most of this work can be outsourced as your business grows, it's fairly common for new entrepreneurs or business owners to do the bulk of the work themselves to help save costs as they get established.
Economic cycles, new competition or technology, and other factors can negatively or positively impact your business. While you may start your company in a booming time, make sure you're following best practices to ensure your business will continue to thrive and operate successfully if conditions were to turn.
Always keep a long-term vision of your business and make sure you're comfortable not only doing the work but also risking the money you put into it. While no one goes into business hoping to lose money and fail, there is always the chance it won't work out.