There are a lot of things to consider if you want to start a real estate brokerage. You can’t control the market, but you can learn how to start a real estate business that will let you make ten times your gross commission income.
Here’s tips for how to get started.
1. Before You Even Think About Starting a Brokerage, Find Your Why
You should only start a real estate brokerage if you’re prepared to work 80-hour weeks, as this will become your new normal. The chances of failing are also quite high, but it’s okay if you do fail since this equals growth. If you do fail, you might find yourself back where you started with an extra $50,000 (or more) in debt.
Why Do You Even Want Your Own Real Estate Business?
To be your best every day, you’ll need motivation that goes beyond money. Even if you’re doing well financially, it’s not enough to keep you going day after day.
Money Is Not Enough to Fuel Your Daily Grind
You will need to find a motivating factor that is deeper than money if you really want to succeed. You should ask yourself why you want money in the first place. It may be obvious, but it becomes less clear the more you think about it. Why do you want to be wealthy?
The reason you want to be an entrepreneur should be clear to you before you start down that path. If you’re not sure what your reasons are, you may end up nine months down the line realizing that you don’t really care about making money, and that you’d rather do something else that is less painful.
It All Starts With Your MVV (Mission, Vision & Values)
You will be more motivated to keep going if you have a heartfelt Mission, Vision, and Values statement. This statement will be the basis for every decision you make, every agent you recruit, and how people see your brokerage in the market.
- A clear and concise Mission statement can help to guide your business decisions and keep you focused on your goals. It is important to involve all members of your team in the development of your Mission, Vision, and Values statement, as this will help to ensure that everyone is committed to achieving the same goals.
- Your Vision should be realistic and achievable, and should be reviewed and updated regularly to ensure that it remains relevant to your business.
- Your Values should be those that you and your team members feel passionate about, and which guide your day-to-day decisions and interactions with clients. A clear and concise mission statement can help to guide your business decisions and keep you focused on your goals.
2. Figure Out If You & Your Partners Are Qualified to Start a Brokerage
Before you begin, take the time to figure out if you and your potential partners are qualified to run a real estate business. Use this quick checklist to make sure everyone on your team is prepared.
Do You Have a Broker’s License or Can You Hire a Broker of Record?
You would need at least one person on your team to have a broker’s license to be legally responsible for any transactions completed by agents in your brokerage.
In some states, like New York, you can hire a broker of record to take on the responsibility of finding insurance for your business. While this might seem like an ideal solution in theory, in practice it can be a bit of a nightmare. Many brokers for hire only want to sign their name for a fee and then never show up at the office.
Do You Have Enough Savings to Live for at Least a Year With No Income?
It is important to have a plan and the financial resources to make it work, however success in the first year can never be guaranteed. There are too many external factors that could impact the success of the venture such as changes in the market, economic conditions or partners backing out. It is therefore important to have enough savings to cover living expenses for at least one year in order to avoid going bankrupt. As Warren Buffet said, don’t risk what you have and need for something that you don’t have and don’t need.
Do You Trust Your Partners?
If you’re thinking about going into business with someone, it’s important to ask yourself if you really trust them. Are they professional? Do they have enough money in the bank to not make rash decisions because they need quick cash? There’s no shortcut to vetting your partners, so make sure you get to know them well before you even think about planning your brokerage.
If you’re not careful, disagreements with your business partners can lead to both business and personal problems. Try to avoid constantly arguing with each other, or you could ruin your relationship and your company.
In a successful business operating agreement, there is usually one person who is ultimately in charge of making the final decisions. It is important to identify who that person is and how others will handle it when decisions don’t go their way.
Can You or Your Partners Get Financing?
Millionaires will sometimes use loans to finance new businesses because it is generally more effective than using their own money. This idea was popularized by Robert Kiyosaki and has proven to be successful.
Depending on the type of brokerage you want to start and where you want to start it, you could be looking at $10,000 to $250,000 in capital to get started. For example, to start a virtual brokerage, you just need to:
- Incorporate your business
- Get errors and omissions (E&O) insurance
- Acquire voice-over-internet-protocol (VoIP) software and phones
- Purchase some basic lead generation and transaction management software
- Choose a good customer relationship management (CRM) tool (or even better, an all-in-one platform that can scale with your growth), and start recruiting agents.
3. Start Building Your Dream Brokerage (on Paper)
Once you have a clear understanding of your motives, it’s time to start working out the logistics of achieving your goal. This next stage in starting a real estate brokerage involves creating a blueprint of your business. This is also a good opportunity to anticipate and plan for any obstacles that could come up down the road.
What Kind of Brokerage Would Make You Happy?
You should spend a few hours figuring out what kind of brokerage you would want to work for 5 years from now. Consider if you would prefer a large or small brokerage, one that focuses on luxury properties or one that works with investors and property management. Also, consider what kind of office culture would make you excited to come to work every morning.
Focus on what you want and write it down in as much detail as possible. Do not worry about money. Next, we will see how your dream brokerage does in comparison to the local market.
Would It Make More Sense to Just Buy a Franchise?
Before you sink your life savings into a new brokerage, you might want to consider investing in a franchise. Franchises have a few compelling advantages:
– Franchises Come With an Established Brand
This is something that should not be ignored. Many franchises, such as Keller Williams, have spent a lot of money and invested many years into creating brands that the public, and the agents you’re going to try to recruit, already trust.
– Franchises Come With Processes, Software and Support
Instead of creating a real estate business from scratch, you can purchase an existing business that comes with processes, software, and support to reduce the risk of failure.
– Franchises Can Be Easier to Sell
When you decide to retire, it will be much easier to sell your franchise than your boutique brokerage.
However, franchises also have some serious disadvantages:
– Franchises Come With Rules That Limit Your Creativity
If you want to be in charge of your brand and business, owning a franchise may not be for you.
– Most Good Territories Are Already Taken
You can buy a turnkey real estate business, but most of the good territories might already be taken.
Is There Room for Your Dream Brokerage in Your City?
Now that you know what will motivate you, and you have some idea of what kind of brokerage you want, you need to find out if your dream brokerage exists in your local market.
The amount of time this stage takes can vary greatly depending on the size of the city and how familiar you are with it. To get an idea of whether your desired brokerage would work in your area, look at other successful brokerages and see what they’re doing that you could replicate or improve upon.
Here are some things you should look for:
Are there many different brokerages in your local area, or is one brokerage dominant? If one brokerage is dominant, you may have an opportunity to give consumers another choice by differentiating yourself from the competition.
You should try to find examples of your competitors’ branding across multiple platforms such as print, social media, online, and events. Try to determine what they are doing right and what your new brokerage can do better or differently.
It may be helpful to look at successful brokerages in similar cities to see what kind of brand is doing well there, and try to create something new that is missing in your city.
4. Brokerage Models
Do high-split brokerages or virtual brokerages exist in your area? Are there any iBuyers or companies that offer new agent training? Are there any flat fee options? What else is missing in your market?
What is the culture like at successful brokerages? Are they formal and stuffy or too laid back? What type of agent do you want to attract?
Is your brokerage using old, outdated CRMs and transaction management software? Do your agent profiles and listing pages look like they came from 2003? Many agents would prefer to have access to newer, more modern technology. This could be something you offer them.
7. Training and Mentoring
What kind of training and mentorship does your competition provide for new agents? How can you improve on this as a small boutique broker-owner?
Putting It All Together
First, find out how well your dream brokerage would do in your local market. Would it be successful with potential clients? And what about appealing to agents? If you want your brokerage to be successful, you need to make it attractive to both groups.
We’re going to take your dream brokerage and make some changes so that it can function in your local area. Then, we’ll determine what you need to do to make it profitable.
4. Start Building Your Brand
When you have an idea for a brokerage, it is important to start developing the brand. Your brokerage’s brand will evolve over time, but if you have a solid plan for the brand from the beginning, it will help your business succeed. Lenders want to give money to businesses that are likely to succeed, and a strong brand is an important part of that.
We can’t cover everything there is to know about branding in this article, since there are entire college degrees devoted to the topic. But we can give you a brief overview, then provide some links to articles that will give you more specific information.
Here are the core components of any strong brand, roughly in order of importance:
- Your brokerage’s name: The keystone of every great brand: What you name your business is one of the most important decisions you’ll make. That said, it doesn’t have to be rocket science.
- Your brokerage’s logo: After your name, your brokerage’s logo is the second-most important element of your brand. After all, your logo is a visual representation of everything your brand stands for. You owe it to yourself to create a professional logo.
- Your brokerage’s slogan: A memorable slogan, also known as a tagline (“Think Different”), can also help get more leads and close more deals.
Start Claiming Your Online Real Estate
After you have found a good brand, the next step is to see if you can use it online. Go and try to find a domain name and social media accounts that have your name. If your brand has your last name in it, this part will be easy. If your brand uses common words, it might be expensive and challenging to find available domain names and social media accounts, so be careful when choosing your brand.
5. Draft a Business Plan for Your Brokerage
After you have established a brand for your business, the next step is to create a business plan. The following is a quick summary of what should be included in your business plan.
An Executive Summary
An executive summary contains a brief outline of your path to success in business. You will need to include how you plan to fund your brokerage, how you will recruit agents, what you will pay them, and why your local area needs a new brokerage.
A Financial Plan
Next, you’re going to need to break out the calculator and make sure your numbers really do add up. Here are a few ideas to think about including in your financial plan so that anyone can see a clear path to profitability for your business.
We hope these tips will help get you off and running! Wishing you success on your venture to starting a real estate brokerage.