How To Start a Real Estate Business
One of the many reasons to become a real estate agent is independence. You control your schedule, take on the customers you want, and be your own boss. Coupled with high-income potential and a low barrier to entry, real estate agents can enjoy helping people find the home of their dreams.
Successful real estate agents are hardworking, disciplined, and knowledgeable about their industry and the law. Follow this guide to learn how to profit in the booming real estate market.
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How To Become a Real Estate Agent
Know Your Real Estate Market
Find out what makes your market unique or challenging. Know what might appeal to prospective clients. Any new companies moving into town? A new hospital breaking ground?
Research area schools, businesses, medical facilities, and community services to provide your customers with facts about your location.
Learn about the real estate industry in your area. For example, are there too many buyer agents or seller agents? Are homes selling above or below the asking rate? Are there any problems with properties in your area, such as homes failing inspection due to termites, radon, or other issues?
The better you know your real estate market, the better prepared you will be. In addition, clients appreciate knowledgeable and experienced agents.
Get Your Real Estate License
To get your real estate license, you must complete a pre-license course, take a written exam, and apply to your state board of real estate licenses.
Each state has specific procedures to get your real estate license. For example, in California, you must complete three college-level courses in real estate 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 real estate law, negotiations, closings, and ethics. Each state has its own exam.
Find Your Broker/Mentor
Most states require agents to work under a licensed broker. The broker supervises your transactions and is responsible for your actions.
In exchange for their supervision, you will pay the broker fees or a percentage of your commissions on sales. Therefore, you should partner with a broker who can act as your mentor and teach you about the industry.
Join the National Association of Realtors
The National Association of Realtors (NAR) is a professional organization to help realtors.
As a member, you will get business tools such as market research, data, and statistics. In addition, they provide you with a national database of properties, foreclosures, and educational programs.
Make a Business Plan
Mapping out a business plan will help you define your goals. In addition, spending time on planning will help organize your business and identify any challenges.
Decide if you want to work with residential home buyers and sellers. Perhaps you would prefer to help corporate clients looking for commercial properties. On the other hand, you may specialize in a particular area, for example, military relocation.
There are other elements when drafting your plan:
- Define your target market
- Identify your customer
- Craft a marketing strategy
- Estimate your costs for marketing and business setup
- Determine what you need to earn in commissions to turn a profit
Form a Corporation or Limited Liability Corporation (LLC)
A corporation or limited liability corporation (LLC) is a legal structure to protect your personal assets and give you tax advantages. Both corporate entities keep your personal finances separate from your business activity.
Furthermore, a corporate structure protects you from any personal liability if a buyer or seller were to sue you for negligence. For example, if a home buyer discovers mold in their home and wants to sue you for failing to disclose a material defect about the property.
As a self-employed business owner, you can avoid double taxation by electing Subchapter S status. Therefore, income is not taxed at the corporate level and then 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.
Apply for a Business License
You must apply for a state or local business license to operate your real estate business. Check with your local business agencies for any requirements or permits. For example, you may need a 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. Create direct mail or e-mail campaigns to get the word out about your services and how you can benefit your potential customer.
Set up an online presence with a website about your services. Post on social media about homes you are listing or provide information about your community.
Know a Real Estate Lawyer
Many issues can arise between a buyer and a seller before closing the deal. A real estate attorney resolves conflicts, reviews contracts, checks titles, records deeds, and ensures your transaction goes smoothly.
Furthermore, some states require using a real estate lawyer for buying a property. So, you might want to have a few names to recommend to your clients.
How To Become a Real Estate Broker
A real estate broker is a classification above a real estate agent. A broker is someone who has more experience and a state 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 as a broker.
Real Estate Investing
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). However, generally commercial properties are more expensive.
The advantages of real estate investing are a steady stream of income and appreciation of properties. Disadvantages include non-payment of rent, troublesome tenants, vacancies, and repairs and maintenance.
Another investment opportunity involves "flipping houses," where you buy a low-cost property, fix it up, and sell it for a higher price. To be successful, you must have experience in hiring contractors or know how to do it yourself.
As a real estate investor, know about the investment location and understand any potential legal issues. And you may want to align yourself with a real estate attorney. Not only do they negotiate sales contracts, leases, and subleases, but they 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.
How an Attorney Can Help
As an agent, broker, or investor, you can make a profit in real estate. But it's important to know about the real estate business and real estate law. You can manage most of the real estate business by yourself. However, it is helpful to know a real estate attorney for legal issues.
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