How to Start a Real Estate Business: A Step-by-Step Guide

Real estate is one of the most lucrative and rewarding industries to be in.

According to the IRS, 71% of Americans who declared more than one million dollars on their income tax returns were involved in real estate.

However, starting a real estate business is not a walk in the park. It requires a lot of planning, research, hard work, and perseverance to succeed in this competitive field.

If you are interested in becoming your own boss and building a profitable real estate business, here are the steps you need to follow:

READ MORE: What Is Probate Real Estate? Everything You Need To Know

1. Develop and refine your idea

Before you dive into the details of starting a real estate business, you need to have a clear vision of what you want to do and why.

What kind of real estate business do you want to start?

Do you want to focus on residential or commercial properties?

Do you want to buy, sell, manage, or invest in real estate?

What are your goals, values, and mission statement?

How will you differentiate yourself from the competition?

These are some of the questions you need to answer to develop and refine your business idea.

2. Write a business plan

A business plan is a document that outlines the objectives, strategies, and financial projections of your real estate business.

It helps you to organize your thoughts, identify potential challenges, and set realistic goals.

A business plan also serves as a roadmap for your business growth and a tool to attract investors and lenders.

Your business plan should include the following sections:

Executive summary

A brief overview of your business idea, goals, and value proposition.

Market analysis

A detailed research of your target market, industry trends, customer needs, and competitive landscape.

Business mode

A description of how you will generate revenue, what services you will offer, and what your pricing strategy will be

Marketing plan

A summary of how you will promote your business, what channels you will use, and what your unique selling proposition will be.

Operational plan

A breakdown of the day-to-day operations of your business, such as the location, equipment, staff, suppliers, and legal requirements.

Financial plan

A projection of your income statement, balance sheet, cash flow statement, and break-even analysis for the next three to five years.

SWOT analysis

A list of the strengths, weaknesses, opportunities, and threats of your business.

3. Hire an experienced business attorney

Starting a real estate business involves a lot of legal aspects, such as choosing a business structure, registering your business name, obtaining licenses and permits, complying with tax laws, and drafting contracts and agreements.

To avoid any legal issues or disputes, it is advisable to hire an experienced business attorney who can guide you through the process and protect your interests.

A business attorney can also help you with trademarking your business name and logo, forming a partnership or LLC, creating a buy-sell agreement, and negotiating with clients and vendors.

4. Decide your legal business structure

One of the most important decisions you need to make when starting a real estate business is choosing a legal business structure.

This will affect how you pay taxes, how you raise capital, how you manage liability, and how you run your business. The most common business structures for real estate businesses are:

Sole proprietorship

This is the simplest and most common form of business structure, where you are the sole owner and operator of your business.

You have full control over your business decisions, but you also assume all the risks and liabilities.

Your income and expenses are reported on your personal tax return, and you pay self-employment taxes.

Partnership

This is a business structure where two or more people share the ownership and operation of a business.

You can form a general partnership, where all partners have equal rights and responsibilities, or a limited partnership, where one or more partners have limited liability and limited involvement.

Partnerships are easy to form, but they also involve more complexity and potential conflicts.

You need to have a written partnership agreement that outlines the roles, responsibilities, and profit-sharing of each partner.

Partnerships are taxed as pass-through entities, meaning that the income and losses are passed through to the partners’ personal tax returns.

Limited liability company (LLC)

This is a hybrid business structure that combines the flexibility and tax benefits of a partnership with the limited liability protection of a corporation.

An LLC is a separate legal entity that can have one or more owners, called members.

Members can be individuals, corporations, or other LLCs.

LLCs are governed by an operating agreement that specifies the rules and regulations of the business. LLCs are taxed as pass-through entities, unless they elect to be taxed as a corporation.

Corporation

This is a complex and formal business structure that creates a separate legal entity from its owners, called shareholders.

A corporation can have one or more shareholders, who elect a board of directors to oversee the business.

A corporation can raise capital by issuing shares of stock, and it has limited liability protection for its shareholders.

However, a corporation also faces more regulations, paperwork, and costs than other business structures.

A corporation can be taxed as a C corporation or an S corporation.

A C corporation pays corporate income tax on its profits, and its shareholders pay personal income tax on the dividends they receive.

This results in double taxation. An S corporation avoids double taxation by electing to be taxed as a pass-through entity, but it also has more restrictions on the number and type of shareholders it can have.

5. Set up accounting and bookkeeping

Accounting and bookkeeping are essential for any business, especially for a real estate business that deals with large transactions and complex financial records.

You need to have a system to track your income and expenses, manage your cash flow, prepare your tax returns, and monitor your financial performance.

Use accounting software, such as QuickBooks, Xero, or FreshBooks, to automate and simplify your accounting and bookkeeping tasks.

You can also hire a professional accountant or bookkeeper to handle your finances and ensure compliance with tax laws.

6. Assess your finances

Starting a real estate business requires a significant amount of capital, as you will need to pay for various expenses, such as marketing, licensing, insurance, office space, equipment, staff, and more.

You will also need to have enough cash reserves to cover your operating costs and unexpected emergencies.

To assess your finances, you need to:

Create a budget

A budget is a plan that outlines your expected income and expenses for a given period of time.

It helps you to allocate your resources, control your spending, and achieve your financial goals.

You should create a monthly and annual budget for your real estate business, and update it regularly to reflect your actual performance and projections.

Determine your startup costs

Startup costs are the one-time expenses you incur when launching your real estate business.

You should estimate your startup costs as accurately as possible, and add a contingency fund for unforeseen expenses.

Calculate your ongoing costs

Ongoing costs are the recurring expenses you incur to run your real estate business, such as rent, utilities, salaries, commissions, insurance, taxes, advertising, and maintenance.

You should calculate your ongoing costs on a monthly and annual basis, and factor in seasonal fluctuations and growth projections.

Estimate your revenue

Revenue is the income you generate from your real estate business, such as sales commissions, property management fees, rental income, or investment returns.

Estimate your revenue based on your market research, pricing strategy, sales goals, and expected conversion rates.

You should also consider the timing and frequency of your revenue streams, and how they match with your expenses and cash flow.

Evaluate your funding options

Funding is the money you raise to start and grow your real estate business.

7. Get a license

To operate a real estate business, you need to obtain a real estate license from the state where you plan to work.

A real estate license allows you to legally represent buyers and sellers in real estate transactions, and earn commissions for your services.

The requirements for getting a real estate license vary by state, but they generally include:

Completing a pre-licensing education course

Complete a certain number of hours of approved real estate education, covering topics such as real estate law, ethics, contracts, appraisal, finance, and marketing.

You can take the course online or in person, depending on your preference and availability.

Passing a state exam

You need to pass a written exam that tests your knowledge and skills in real estate.

The exam consists of multiple-choice questions, and you need to score at least 70% to pass.

You can take the exam at a designated testing center, and you may have to pay a fee to register for the exam.

Applying for a license

You need to submit an application for a real estate license to the state real estate commission, along with the required documents and fees.

The documents may include your proof of education, exam results, background check, fingerprints, and photos.

The fees may vary by state, but they typically range from $100 to $300.

Finding a sponsoring broker

You need to find a licensed real estate broker who will sponsor you and supervise your activities.

Leave a Comment