By Natalie Moritz | Legally reviewed by Amber Sheppard, Esq. | Last reviewed April 05, 2024
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A real estate business can have high-income potential and a low barrier to entry. As a real estate entrepreneur, you also enjoy independence in how you operate your business and flexibility with your schedule.
However, real estate businesses also require various legal considerations. Real estate laws, licensing requirements, and disclosures all come into play when running a small business in real estate. You must also be comfortable with the foundation of the business — contracts and agreements.
This article will guide you through how to start your own real estate small business as an agent, broker, or investor.
See FindLaw's Small Business Center for additional articles and resources on starting and running your own business.
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A real estate agent is a licensed professional who represents buyers or sellers in real estate sales. They facilitate negotiations between buyers and sellers, draft contracts, and guide clients through the real estate process. They earn money through commissions based on a property's sale price.
Find out what makes your market unique or challenging. Know what might appeal to prospective clients. For example, are any new companies moving into town, like a new hospital?
Research area schools, businesses, medical facilities, and community services. Potential clients will want to know specific information about the community.
In addition, learn about the real estate industry in your area. For example:
The better you know your real estate market, the better prepared you will be. Clients also appreciate knowledgeable and experienced agents.
To get your real estate license, you must:
Each state has specific procedures for issuing real estate licenses. For example, California requires you to complete three college-level real estate courses and pass a written exam. In Florida, you must take 63 hours of a pre-license course and pass a written exam. However, Florida waives the course requirement if you hold a four-year degree or higher in real estate.
Real estate license exams generally cover the basics of:
Each state has its own exam.
If you want to sell property in multiple states, you must obtain a real estate license in each state where you plan to do business.
Most states require agents to work under a licensed broker. Brokers typically work in a real estate agency or brokerage firm and manage a team of real estate agents.
Your broker supervises your transactions and is responsible for your actions. In exchange for their supervision, you pay the broker fees or a percentage of your commissions on sales. Working under the right broker for your business can significantly impact your chance at success. Choose wisely — consider commission structures, professional support, marketing resources, and reviews.
Your broker should also serve as your industry mentor and be your go-to for coaching and support.
All Realtors are real estate agents, but not all real estate agents are Realtors.
Realtors are members of the professional organization National Association of Realtors (NAR). NAR has additional professional responsibilities beyond what state licensing laws require. NAR members also must meet a strict code of ethics and professional standards.
NAR members have access to business tools such as:
As a licensed real estate agent, you are not required to join NAR to practice real estate in your state. However, NAR membership can enhance your credibility and professional reputation.
Mapping out your business plan will help you define your goals and identify potential challenges.
An important part of your business planning is establishing your niche. Do you want to work with residential homebuyers and sellers? Or do you prefer to help corporate clients looking for commercial properties? Some agents specialize in particular areas, like military relocation. Others focus on land deals, rural property, or farmland.
Your business plan should address the following areas:
Most real estate agents structure their business as a corporation or limited liability corporation (LLC). Both legal structures protect your personal assets from your business's debts and liabilities if a buyer or seller sues your business.
For example, if a homebuyer discovers mold in their home and sues you for failing to disclose a material defect about the property, your personal assets are not at risk in the lawsuit.
Corporations and LLCs also give you tax advantages. Both business entities keep your personal finances separate from your business activity.
As a self-employed business owner, you can avoid double taxation by electing Subchapter S status. This means your income is not taxed at the corporate level and again as personal income. As an S corporation or LLC, you file a Schedule K-1 with your income and expenses in your personal tax return.
Some independent real estate agents choose to structure as a sole proprietorship. Sole proprietorships are the simplest entity to set up but do not provide personal liability protection. A sole proprietorship is a pass-through entity for tax purposes. This means your business profits are not separate and pass through to your individual income tax.
A sole proprietorship is the default legal entity for your business if you do not choose another type of business structure.
If you structure your business as a corporation or LLC, you must get an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). The IRS uses your EIN for identification and tax purposes. You will need an EIN before you can open a business bank account. You can get your EIN instantly and at no cost by applying on the official IRS website.
If you structure your business as a sole proprietorship, you will use your Social Security number instead of an EIN.
In addition to the real estate license issued by your state, you may need other state or local business licenses and permits to operate your real estate business. Check with your jurisdiction's department of commerce or business agencies for specific requirements.
For example, you may need a zoning permit if you have a storefront for your real estate agency.
As a real estate professional, you sell yourself to potential buyers and sellers of properties. An effective marketing plan is critical for meeting your objectives and growing your business.
Your target audience should inform your marketing strategy. Knowing who your target market is and what their preferences are will help you position your messaging and choose the best channels to reach them.
Start with a website about your services. You will also want to develop a strong social media presence. Post consistently on Facebook and Instagram and optimize your LinkedIn profile. You can even leverage keywords on your LinkedIn profile to help drive traffic to your page. This is a great way to build your brand, attract new clients, and generate referrals.
Other effective digital strategies include online advertising, search engine optimization (SEO), and email marketing.
Traditional methods like direct mail, word-of-mouth, and print advertisements can also be effective. Encourage new homeowners and sellers to leave you a business review after working with you. In addition, take an active part in your community. Think of sponsorships, community events, and other grassroots methods that help you build relationships with potential clients.
You'll also need to promote the properties you are listing. Use social media and online platforms to highlight homes on the market and provide information about your community. Host both in-person open houses and virtual tours.
Hopefully, your marketing strategy is effective in building your business and client list. Consider investing in customer relationship management (CRM) software to help you manage client information, emails, and follow-ups.
Many issues can arise between a buyer and a seller before closing the deal. Besides ensuring your transaction goes smoothly, a real estate attorney:
Some states require using a real estate lawyer to buy a property. Regardless, have working relationships with a few local attorneys to recommend to your clients.
A real estate broker is a classification above a real estate agent. A broker has more experience, advanced training, and a state broker's license. To become a broker, you must work two to five years as a real estate agent and then pass a state license exam. Check for the specific requirements in your state.
As a broker, you can set up your own real estate company and supervise other real estate agents in their transactions. Because you receive a fee on their commissions, there is more potential for income in real estate brokerage.
Real estate agents with a valid broker's license do not have to find a separate broker to supervise their transactions. You can represent yourself in transactions, but most states require you to disclose this.
Another way to profit in the real estate market is through real estate investing. If you have access to loans or capital, you can invest in income-producing properties such as rental properties.
For example, you can purchase a property and lease it to an individual (residential real estate) or business (commercial real estate). Generally, commercial properties are more expensive.
The advantages of real estate investing are a steady stream of income and property appreciation. Disadvantages include:
Another investment opportunity involves flipping houses. This refers to buying a low-cost property, making renovations, and selling it for a higher price. To be successful, you must have experience hiring contractors or know how to do several aspects of construction yourself.
As a real estate investor, you must know the investment location and understand any potential legal issues. For example, the Federal Housing Administration (FHA) places some restrictions on house flipping. Also, it is vital to understand landlord-tenant laws if you own rental properties.
You must also be comfortable acting quickly and decisively in competitive markets.
Consider aligning yourself with a real estate attorney to negotiate sales contracts, leases, and subleases. A real estate attorney can also handle zoning and land use issues. Additionally, they can check titles and handle disputes and lawsuits.
It is wise to form a corporation, limited liability company, or limited partnership for your real estate investment activities. You will want to protect your personal assets from the liabilities of your business.
Successful real estate entrepreneurs are experts on the local housing market and property laws. They also have strong selling skills and interpersonal abilities. Also, consider the following business tips for new agents and budding real estate professionals:
You can make a profit in real estate as an agent, broker, or investor. However, it's important to know about the various laws and regulations that govern real estate and property transactions. While you can likely manage most of your business by yourself, it can help to have a real estate attorney on your side for legal issues.
First-time business owners may need even more support. An experienced attorney in your area can help you navigate licensing, landlord-tenant laws, contract negotiations, and more.
Another option is FindLaw's trusted, simple-to-use online business formation tool. This DIY tool takes the guesswork out of creating your new business. Its support and services will also help you meet all the legal requirements for your real estate business.
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