How to Start a Real Estate Business

Written by Dave Lavinsky

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.

15 Steps To Start a Real Estate Business:

Starting a real estate business can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful real estate business.

1. Choose the Name for Your Real Estate Business

The first step to starting a real estate business is to choose your business’ name.

This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your real estate business:

  1. Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also, check to see if a suitable domain name is available.
  2. Keep it simple. The best names are usually ones that are easy to remember, pronounce, and spell.
  3. Think about marketing. Come up with a name that reflects the desired brand and/or focus of your real estate business.

 

2. Determine the Type of Real Estate Business You Will Launch

When determining the type of real estate business to launch, you should consider your interests, skills, market demand, and the local real estate landscape.

Here are several types of real estate businesses you can consider:

  1. Residential Real Estate Agency: Focus on buying, selling, or renting residential properties, such as houses, condos, and apartments. You can serve homebuyers, sellers, and renters.
  2. Commercial Real Estate Brokerage: Specialize in commercial properties, including office spaces, retail units, industrial warehouses, and land for development. This often involves working with businesses and investors.
  3. Real Estate Investment and Development: Invest in real estate properties or develop properties for sale or rental income. This can include residential, commercial, or mixed-use projects.
  4. Real Estate Appraisal: Become a licensed appraiser who determines the value of properties for various purposes, including sale, financing, taxation, or estate planning.

 

3. Develop Your Real Estate Business Plan

One of the most important steps in starting a real estate business is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.

Your business plan should include the following sections:

  1. Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your real estate business.
  2. Company Overview – this section tells the reader about the history of your real estate business and what type of real estate business you operate. For example, are you a residential real estate, commercial real estate or real estate investment & development business.
  3. Industry Analysis – here you will document key information about the real estate industry. Conduct market research and document how big the industry is and what trends are affecting it.
  4. Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing services like the ones you will offer?
  5. Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
  6. Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
    • Product: Determine and document what products/services you will offer
    • Prices: Document the prices of your products/services
    • Place: Where will your business be located and how will that location help you increase sales?
    • Promotions: What promotional methods will you use to attract customers to your real estate business? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
  7. Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
  8. Management Team – this section details the background of your company’s management team.
  9. Financial Plan – finally, the financial plan answers questions including the following:
    • What startup costs will you incur?
    • How will your real estate business make money?
    • What are your projected sales and expenses for the next five years?
    • Do you need to raise funding to launch your business?

You can download our real estate business plan PDF template here. This is a business plan template you can use in PDF format.

 

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4. Choose the Legal Structure for Your Real Estate Business

Next you need to choose a legal structure for your real estate business and register it and your business name with the Secretary of State in each state where you operate your business.

Below are the five most common legal structures:

1) Sole proprietorship

A sole proprietorship is a business entity in which the owner of the real estate business and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.

2) Partnerships

A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a real estate business together. The partners share in the profits and losses of the business.

The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.

3) Limited Liability Company (LLC)

A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business.

The advantages of an LLC for a real estate business include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.

4) C Corporation

A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders.

The main advantage of a C Corporation for a real estate business is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.

5) S Corporation

An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.

Once you register your real estate business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.

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5. Secure Startup Funding for Your Real Estate Business (If Needed)

In developing your real estate business plan, you might have determined that you need to raise funding to launch your business.

If so, the main sources of funding for a real estate business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a real estate business that they believe has high potential for growth.
 

6. Secure a Location for Your Business

When searching for the right space for your real estate business, consider the following factors to ensure it aligns with your business needs and goals:

  • Location: The location of your office is critical. It should be accessible to clients, in proximity to the areas you serve, and convenient for commuting. Consider the convenience of parking or public transportation options.
  • Foot Traffic: If you expect walk-in clients, choose a location with decent foot traffic. This can increase your visibility and the potential for new clients.
  • Competitive Landscape: Research the competition in the area. Evaluate the presence of other real estate agencies and their market share. Consider whether there’s room for your business to thrive.
  • Zoning Regulations: Ensure that the chosen location is zoned for the type of business you plan to operate. Some areas have specific zoning regulations for real estate offices.
  • Cost: Evaluate the costs associated with the location, including rent or mortgage payments, utilities, property taxes, and insurance. Ensure it fits within your budget.
  • Space Size and Layout: Assess the size and layout of the space. It should accommodate your staff comfortably, provide space for meeting rooms or private consultations, and allow for future growth.

 

7. Register Your Real Estate Business with the IRS

Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).

Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.

Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
 

8. Open a Business Bank Account

It is important to establish a bank account in your real estate business’ name. This process is fairly simple and involves the following steps:

  1. Identify and contact the bank you want to use.
  2. Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address).
  3. Complete the bank’s application form and provide all relevant information.
  4. Meet with a banker to discuss your business needs and establish a relationship with them.

 

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9. Get a Business Credit Card

You should get a business credit card for your real estate business to help you separate personal and business expenses.

You can either apply for a business credit card through your bank or apply for one through a credit card company.

When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.

Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
 

10. Get the Required Business Licenses and Permits

Starting a real estate business typically involves several licenses and permits to operate legally and ethically. The specific requirements can vary by location and may include:

  • Real Estate License: The most crucial requirement for a real estate business is obtaining a real estate license for yourself and any agents or brokers you employ. This license is granted by your state’s real estate commission or licensing authority. Requirements may include pre-licensing education, passing a state exam, and ongoing continuing education.
  • Business License: You’ll likely need a general business license from your city or county government to operate your real estate business legally.
  • Broker’s License (if applicable): If you plan to operate as a real estate broker rather than an agent, you’ll need a broker’s license. The requirements for a broker’s license are often more stringent than those for an agent’s license.
  • Compliance with Fair Housing Laws: Ensure you comply with federal and state fair housing laws, which prohibit discrimination based on race, color, religion, sex, disability, familial status, or national origin. Familiarize yourself with these laws and regulations to operate ethically and legally.
  • Independent Contractor Agreements: If you hire agents or brokers as independent contractors, consider having formal agreements in place that outline their roles, responsibilities, and compensation structures.

Depending on the type of real estate business you launch, you will have to obtain the necessary state, county and/or city licenses.
 

11. Get Business Insurance for Your Real Estate Business

Operating a real estate business involves various risks, and having the right insurance coverage is crucial to protect your business, assets, and reputation.

Here are the key types of insurance you may need for your real estate business:

  • Errors and Omissions (E&O) Insurance: E&O insurance, also known as professional liability insurance, is essential for real estate professionals. It covers legal expenses if a client alleges that you made errors or omissions in your professional services, leading to financial losses.
  • General Liability Insurance: General liability insurance provides coverage for bodily injury, property damage, or personal injury claims related to your business operations. It protects against accidents that may occur at your office or while showing properties.
  • Property Insurance: If you own or lease an office space for your real estate business, property insurance covers damage or loss to the physical structure and its contents. Consider additional coverage for business interruption if your office is temporarily unusable.
  • Cyber Liability Insurance: In today’s digital age, cyber liability insurance is vital. It helps protect your business from data breaches, cyberattacks, and the associated costs, including notification, legal, and public relations expenses.
  • Workers’ Compensation Insurance: If you have employees, workers’ compensation insurance is usually required by law. It provides coverage for medical expenses and lost wages if an employee is injured on the job.
  • Business Owner’s Policy (BOP): A BOP combines general liability and property insurance into a single package, often at a lower cost than purchasing them separately. It’s designed for small to medium-sized businesses.

Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
 

12. Buy or Lease the Right Real Estate Business Equipment

Running a successful real estate business doesn’t require extensive equipment, but you do need certain tools and technology to operate efficiently and provide excellent service to your clients.

Here’s a list of essential equipment and tools for your real estate business:

  • Computer: A reliable computer or laptop is essential for managing emails, documents, listings, and communication with clients.
  • Photography Equipment: Tripods, wide-angle lenses, and external flashes can help you take better property photos.
  • Document Scanner: A scanner or scanner app on your smartphone allows you to digitize important documents, contracts, and paperwork.
  • Printer and Copier: A multifunction printer with scanning and copying capabilities is useful for printing contracts, brochures, and marketing materials.
  • Electronic Signature Software: Use electronic signature software like DocuSign or Adobe Sign to facilitate online document signing.
  • Mapping and GPS Tools: GPS devices or mapping software can help you navigate to properties and locate specific addresses efficiently.
  • Lockbox System: If you represent property sellers, a lockbox system provides secure access for potential buyers and agents to view listed properties.
  • Office Furniture: Basic office furniture such as a desk, chair, and filing cabinet helps you stay organized and comfortable while working.

 

13. Develop Your Real Estate Business Marketing Materials

Marketing materials will be required to attract and retain customers to your real estate business.

The key marketing materials you will need are as follows:

  1. Logo: Spend some time developing a good logo for your real estate business. Your logo will be printed on company stationery, business cards, marketing materials, and so forth. The right logo can increase customer trust and awareness of your brand.
  2. Website: Likewise, a professional real estate business website provides potential customers with information about the services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
  3. Social Media Accounts: Establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn, and/or other social media networks will help customers and others find and interact with your real estate business.

 

14. Purchase and Setup the Software Needed to Run Your Real Estate Business

Running a real estate business efficiently and effectively often requires the use of various software tools and platforms to manage listings, client relationships, marketing efforts, and more.

Here’s a list of essential software for a real estate business:

  • Customer Relationship Management (CRM) Software: CRM software helps you manage client information, track leads, and maintain communication history. Popular options include Salesforce, Zoho CRM, and HubSpot CRM.
  • Property Listing and MLS Software: MLS (Multiple Listing Service) software allows you to access and list properties on local and national real estate databases. Examples include Flexmls, MLS PIN, and CoreLogic Matrix.
  • Virtual Tour and Video Editing Software: To create virtual tours and property videos, consider software like Matterport, TourFactory, or Adobe Premiere Pro.
  • Document Management and e-Signature Tools: Use document management software like DocuSign, Adobe Sign, or PandaDoc for electronic signatures, contract management, and document storage.
  • Real Estate Marketing Software: Tools like Placester, Zillow Premier Agent, and Zoho MarketingHub can help you manage online advertising, email campaigns, and social media marketing.

 

15. Open for Business

You are now ready to open your real estate business. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.

 

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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.
 

How Much Does it Cost to Start a 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.
 

Real Estate Video Marketing

Real Estate Video Marketing infographic

Additional resources in the real estate market

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

 

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