How to Start a Real Estate Business

How to Start a Real Estate Business

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How to Start a Real Estate Business

If you’re looking to start a real estate business, you’ve come to the right place. Since we’re going to show you exactly how to do it.

We’ll start with key real estate industry fundamentals like how big the market is, what the key segments are, and how revenues and profits are generated.

Then we’ll discuss keys to not only starting a real estate business, but succeeding in it!

Before we continue, here’s where you can access your real estate business plan template since having a plan will be key to your success.

How Big is the Real Estate Industry?

According to IbisWorld, there are 784,479 real estate businesses in the U.S., generating $122.5 billion in revenue last year. This represents an annual growth rate of 3.3% over the past 5 years.

What are the Key Segments of the Real Estate Industry?

The residential segment of the industry represents, by far, the largest portion of the industry’s revenue. The next largest segment is commercial sales.

What External Factors Affect the Real Estate Industry?

A number of factors affect the performance of the real estate industry. These drivers include:

  • Existing home sales: Brokering single-family home sales is a primary industry service. Over the past five years, improving economic conditions have led to an increase in home sales.
  • House price index: Housing prices reflect the health of the residential real estate market. The house price index is expected to rise further in the coming years, representing a potential opportunity for the industry.
  • Corporate profit: An increase in corporate profit generally leads to higher business confidence, which bolsters demand for the purchase and leasing of property. As business investments grow, demand for brokers that service the commercial sector also increases.
  • Per capita disposable income: Rising per capita disposable income heightens consumers’ ability to purchase goods and services, thereby affecting businesses’ need and capacity to expand.

 

Who are the Key Competitors in the Real Estate Industry?

As specified above, there are 784,479 real estate businesses in the US.

Some of the market leaders (in terms of market share) include: Realogy Holding Corp.(3.4%), CBRE Group Inc.(2%), Cushman & Wakefield Inc.(1%)

What are the Key Customer Segments in the Real Estate Industry?

The largest customer segment in the Real Estate Industry are Married or partnered residential homeowners and renters. The remaining consumer segments include:

  • Single residential homeowners and renters
  • Office and professional space
  • Retail space
  • Warehousing and other commercial space
  • Manufacturing space

 

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What are the Key Costs in the Real Estate Industry?

Wages: Overall labor costs include agent commissions. A majority of real estate agents are paid on a 100% commission basis rather than as salaried employees; in fact, many agents technically operate as contractors within a brokerage and pay a certain fraction of commissions in royalty fees to the office (which, in turn, pays royalties to its parent franchisor, if it uses a franchised trade name). Agent commissions typically range from 5.0% to 6.0% of the transaction value (though negotiating this rate lower has become more common since the real estate market’s downturn). Other agents may operate wholly independent of an office, relying on established customers and local name recognition for business.

Purchases, depreciation and marketing: Purchases of real estate analytic software licenses, office and business related products and services account for an estimated 8.2% of industry revenue in 2016. Depreciation in this industry is relatively low, which includes investment in office equipment and building locations. Marketing expenses are an essential component of an agency’s operating costs. Agents and brokers advertise heavily on billboards, television, radio and in newspapers and other publications to differentiate themselves from rivals in the same geographic region.

Rent and utilities: IBISWorld estimated that rent and utilities costs amount to 3.9% of industry revenue.

Other costs: Other expenses include insurance costs, outside business service fees, association dues and legal fees.

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What are the Keys to launching a new Real Estate Business?

  1. Determine the type and location of your business – Determine which type of brokerage you want to open: commercial, residential, investment, etc. Be sure the demand in your area is high enough for you to be profitable.
  2. Write a Business Plan – A business plan will outline how feasible and profitable your Real Estate business can be. This is significant especially if you’re planning to have investors or lenders fund the brokerage.
  3. Obtain Necessary Licensing – First, become a Licensed Realtor yourself.Then find out what licenses your state requires for opening a brokerage, and meet these requirements.
  4. Establish a Website – Create a website where you can exhibit all the properties in your MLS (Multiple Listing Service). Most of the buyers in today’s market expect to be able to preview properties online before visiting in person.
  5. Marketing – Be sure your logo conveys your professionalism.Then go out and market yourself. Real estate agencies rely heavily on referrals, which requires a solid customer base.Until you have built your brand and reputation, you have to network, knock on doors, make phone calls, and otherwise keep yourself in the public eye.

 

What are the Typical Startup Costs for a new Real Estate Business?

The cost of starting a real estate business is dependent upon size and a host of other factors. However, for a start you would need $2500-$5000.

How much do Real Estate Operators make?

 

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Helpful Videos

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Additional resources in the real estate market

For additional information on the real estate industry, consider these industry resources:

 

How to Finish Your Real Estate Business Plan in 1 Day!

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OR, Let Us Develop Your Plan For You

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