A Simple Step by Step Guide on How to Start a Real Estate Business

As you already know, real estate is widely known as the property, land, buildings, air rights above the land, and underground rights below the land. Real estate is actually one of the most popular industries that keep on continuing to grow but the competition is, of course, even tougher compared to others. Hence, starting a real estate business is not suitable for those who are not prepared to stand their ground and fight into the fray.

This doesn’t mean that a lot of startups will cower over the challenge though since it is undeniable that the real estate industry brings a lot of opportunities to turn a profit. After all, with great risk comes great reward. In this article, we will be discussing how to start a real estate business as well as providing tools available for download.

Why Start a Real Estate Business?

As mentioned, the real estate industry is a very popular industry with huge competition. Though it’s very easy to get in to, it is not always the case that everything will turn out well. So, this raises a question, why start a real estate business in the first place?

Real estate business is said to be a good career option that any individual can jump in. Even if you’re simply a small real estate agent or an investor, you will still have high earning potential. Despite the tough competition in the real estate industry, with a proper business plan, handling of finances, as well as using tools to ensure feasibility and profitability, you can pretty much build your very own real estate business.

Nowadays, real estate became even more popular with the rise of population, change in trends, increase in demands, and many other development projects by either the government or private sectors. However, just because it is simple to jump in the real estate business, you must ensure you have good know-how if you want to raise your earning potential.

Fields in Real Estate Industry

Before you start a real estate business, the first thing that you must ensure to be clear about is the field that you want to cover in the real estate industry. This will further clarify your business model as well as your objectives in your business plan. The following are the different fields in the real estate industry:

  • Real Estate Brokers (for Buying and Selling Real Estate) – also called real estate brokering which focuses on convening buyers and sellers of properties as well as assisting in negotiations for pricing, and facilitating the tasks involved in closing deals towards interested parties. Most often they offer services such as property appraising and inspecting to determine the right pricing. They usually earn their keep through commissions based on the agreed percentage of the sale price, split between the buyer’s broker and the seller’s broker. This is why brokers earn more money when closing a higher-priced deal since they get a higher cut. Also, to be a broker, one must get a license in the area they work.
  • Lease Brokers – another type of brokers that usually work for either the buyer or seller of properties. Mostly called leasing agents that work directly with property owners. They often deal with all the complexities involved with canvassing, investigating, and signing prospective tenants of the owner’s properties. Meaning, all the paperwork needed to be done will be handled by them.
  • Real Estate Management – usually comes in the form of companies that operate with bigger properties such as buildings. Their main tasks are ensuring that the buildings are running properly, check if the utility expenses are paid, the hiring of staffs, and also performing the maintenance. Sometimes, these companies can also act as leasing agents depending on the agreement between parties. Management companies’ profitability depends on their ability to maintain low vacancy rates since most property expenses are fixed anyway.
  • Developers – a mixture of infrastructure and construction in the real estate industry which earns profit by adding value to the land such as creating a building, rezoning, building improvements, etc. while also shouldering the cost for the said projects. Some developers purchase a raw land then decides to either rezone, construct new buildings, or renovate the existing buildings so that they can sell or lease the final product to the market. Basically, real estate developers are people and companies that coordinated such activities to covert a raw land into something more of a marketable and more appealing property.
  • Sales and Marketing – the field where most real estate sales agents work. They work hand in hand with developers to market their finished products, such as for selling condos, townhouses, apartments, etc., and often do tasks such as marketing and selling, in exchange for some commission.
  • Investors – entities such as entrepreneurs, executives, companies/business enthusiasts, banks, etc., who are interested in venturing in the real estate industry. Most often they look for potentially profitable ventures and provide funding. There are different types of real estate investors such as:
    • Institutional – an organization that invests on behalf of its members e.g. banks, insurance companies, pensions, REITs, endowments, mutual funds, etc.
    • Funds – an open-ended investment company or entity that pools investors’ money into a fund operated by an assigned manager which uses the pooled money to invest in various ventures.
    • Private – an entity that invests their money with the goal of providing help and getting a return on their investment e.g. family and friends, angel investors, venture capitalists, private equity firms, etc.
    • Corporate – is basically a company that invests in other companies with the hopes of taking control or taking over the company itself.
    • Etc.
  • Professional Services – real estate professionals who work for many different cases in the real estate industry such as valuing properties, appraising assets/properties, agents, inspectors, lawyers, accountants, contractors, construction workers, tradespeople, etc. Basically, if you need assistance when it comes to real estate, they are the ones you need.

Of course, the above is just the tip of the iceberg when it comes to the fields you can take a step in the real estate industry. But basically, the above are just the most common fields that real estate businesses cover or a combination of some fields.

Different Types of Real Estate

After figuring out in what field you want in the real estate industry, the next step would be to determine which type of real estate you want to work on. You might be thinking that isn’t it okay to handle all of them? The answer is, well, if you can afford it, the workforce, skills, and most especially the financing, then why not? But let’s get real here, that is not always the case. So, it’s better to handle one type of property especially for those who are just starting a business in the real estate.

There are two types of real estate:

  • Residential Real Estate – this includes the new construction and reselling of residential houses (Buy & Develop) and the purchase of a new home or property (Buy & Hold). This type of real estate is popular with people looking for single-family homes. There are also other residential properties included such as condominiums, duplexes, co-ops, triple-deckers, high-value homes, vacation homes, etc.
  • Commercial Real Estate – this includes properties such as shopping centers, malls, hospitals, schools, hotels, offices, manufacturing companies, and other industrial real estates. It also covers both cases for either buy and hold an existing property or buy and develop an empty lot. Though apartment buildings are used for residential purposes, it is still considered to be a part of the commercial real estate, since it is built and owned for the sole purpose of producing income.

As mentioned, if you have the time and resources, it is possible to venture with a combination of real estate properties to cover. This will actually give you a wider range of prospects in the real estate industry as well as opportunities for earning more.

Real Estate Brokerage Firm Business Plan

Once you determined your business model as well as the type of property you want to work on, the next step would be formulating an official business plan. Business planning has always been an important process when it comes to starting a business. What’s more is that if the business will require a lot of funding, without a business plan, the possibility of the business not growing or failing is very high. Therefore, if you want your business to be feasible and profitable, ensure that you can build a working business plan for your real estate business.

However, it is always not the case for real estate businesses to require a complicated business plan as well as raising funding such as in cases for residential properties which only requires the owner to either buy and sell or buy and develop. In fact, as long as one has a real estate property, one can simply start a real estate business. But of course, if you want to expand and proceed with real estate investing, you will need a valuation tool to ensure that you are investing at worthy properties.

As for the case of individuals such as real estate brokers, the only things they need are the following:

  • Broker License – like real estate agents, one must get a license by their state to start being a broker. One can only qualify to acquire a broker’s license with years of experience as a real estate agent holding a license. Of course, the broker’s license also requires one to complete a training course approved by their own state before they can take the broker licensing examination.
  • Strong communication skills – a must-have skill if you want to succeed as a broker. In this field, communication is key throughout the process of a sale, contact with other brokers and sales agents, closing a deal, negotiation on behalf of a client, etc. Without strong communication skills, you may want to try real estate investment instead.
  • Experience as a real estate agent – without going through as a real estate agent, it won’t be possible for you to qualify the broker’s license. Plus, the experience you will get from handling real estate transactions will greatly benefit you as well as building a larger network for future dealings.

If you plan to start your own real estate brokerage firm, then you might want to think on a bigger scale and create a proper business plan since you will need to employ real estate agents and other associate brokers to conduct several real estate transactions. As you already know, most real estate transactions often need the assistance of a brokerage firm since they can help facilitate the process of buying and selling real estate properties.

To help you get started on how to start a real estate business such as a brokerage firm, here are the following steps.

  1. Create a business plan. It is important to be transparent regarding your objectives and goals to ensure success. You will need to consider the following topics such as:
    • Initial costs
    • Target market
    • Break-even point
    • Brand
  2. Secure and form a legal entity. This is a very important matter as you establish a legal business entity which will greatly help you prevent being personally liable if one of your staff is being sued. As such, it is better to protect your privacy and stay compliant.
  3. Register for Taxes. According to your state laws or federal taxes, it is, of course, important to register your business for taxing before you can start your operations.
  4. Open a separate bank account for business to keep track of business accounting. Though not completely mandatory, it is best to open a different business bank account to properly obtain a record of all various expenses and sources of income which will become critical to better understand the financial performance of your business. Helping you to track accurately with detailed accounts which will simplify the process of the annual tax filing.
  5. Obtain permits and licenses. Failure to comply can result in hefty fines and worse case is your business being shut down. Your reputation will also be questioned if you don’t have the necessary license, hence, the feasibility of your business will become null.
  6. Set up an office. An office location isn’t really that important especially for startups since the beginning stage is focused more on building a reputation in the field of real estate as a broker. Though, most often, if you have a larger team working under your firm, an office will be beneficial.

The following steps are optional but will greatly benefit your real estate brokerage firm:

  1. Establish a web presence. Nowadays, though not really mandatory, if you are not connected on the web, your business will lose the opportunity of getting a wider range of market as well as potential larger projects.
  2. Secure Business Insurance. Though optional, it is highly recommended, not only for brokerage firms but also for all kinds of business, to get insurance especially if you hire staff.
  3. Conduct market research. This is to further target your goals as well as be clear of things such as if your idea will work, how wide your target audience is, and how will you be able to survive the competition.
  4. Marketing your business. This will take hard work and a lot of time due to the tough competition in the real estate industry. Most often, you will even have to invest more financing, especially, at the starting stage of your business. The connections or networking you have as well as your real estate brokers or agents will be beneficial for your business too.

Though the list doesn’t look that daunting and challenging, doing the tasks above actually requires a lot of work. There is no such thing as easy money after all so, you will have to pour your sweat and blood into it if you want to make it in the real estate industry. In conclusion, though the process may be troublesome, it is all worth it in the end.

Real Estate Business Plans and Valuation Model Templates

There are many cases that a real estate business requires one to conduct valuations, as such, not all of those who want to start a real estate business has the right skills to perform such task. Therefore, most often they either hire an expert in financial modeling to create a valuation model for them. Nowadays though, there are more and more real estate business entrepreneurs that prefer to conduct the task on their own.

Of course, they are not doing it blindly as well as just simply formulating random reports. It is, after all, an essential part to ensure more profit. The most common and useful tool they use is ready-made financial model templates that can be used as a base to start with. As such, they won’t need to hire professionals to create a custom model for them as well as pay the high fees in exchange for their services. However, depending on the complexity of your business case, it is still advisable to get a second opinion from a financial modeling expert to ensure that your model is working and makes sense.

If you want to download financial model templates for real estate businesses created by experts in financial modeling with substantial experience in their field and a wide range of know-how which covers different industries as well as use cases, please feel free to browse our selection below:

We also have a selection of real estate valuation templates for those who are already in the real estate business and are in need of valuation tools.