For anyone with an interest in real estate or experience working in the real estate business, the idea that a rental property has the potential to generate passive income is not exactly new. The thing that many real estate agents do not realize, however, is that starting a personal real estate business can be a more effective means of earning passive income. This is due to the fact that, once you’ve learned how to open a real estate brokerage and hired a number of successful agents, you can earn an administrative fee and a cut of their commission every time they close a transaction. Of course, if the steps involved with starting a real estate business were easy, everyone would be doing it. A Step-By-Step Guide to Starting a Real Estate Brokerage The dream of sitting on the beach and earning income from the fruits of others’ labor is a part of the cultural lexicon. Those with an interest in learning how to start a real estate brokerage should know, however, that there are a number of important steps and items that need to be considered before taking the leap: 1. Evaluate the Costs Similar to any other business, the startup costs can be significant. A few of the fees involved with starting a real estate brokerage include office rent, power, insurance and payroll for necessary staff, such as a transaction coordinator, office manager, or administrative assistant. Licensing fees represent another cost, both in terms of financing and time and effort. The article linked here shows how to estimate real estate brokerage expenses. 2. Obtain a Brokerage License In most states, the individual leading a real estate brokerage is required to have attained a higher level of education than sales professionals. This individual is often referred to as the broker in charge, and it’s usually the same person who owns the brokerage, but not always. Generally, to obtain a brokerage license, it’s required to already have a broker/salesperson’s license and two years of full-time sales experience or four years of part-time experience, within a five-year timeframe. There is also an additional educational requirement. 3. Personal Brand or Franchise This decision can have a significant impact on the costs that are required to start a real estate business. Opening a franchise can be a way to gain credibility by leveraging the brand reputation of an established company, but these fees can easily reach $200,000. Launching a personal real estate brokerage is much cheaper, at around $10,000 for a bare minimum investment. It’s worth noting that, if you’re opting to do things yourself, you will need a logo, a brand, a slogan, and a website. Hiring the work out can get expensive and the amount of time and effort involved can also quickly spiral. 4. Research Financing Options Similar to many first-time buyers, some agents get excited about launching a real estate brokerage without considering the financial implications. This can be a time-consuming step and dealing with application processes that are extremely slow can add to the headache factor significantly. It can also be difficult to qualify for funding from traditional sources. Working with an online lending marketplace such as Lendio can simplify the process. We do the shopping for you and you will have access to a national network of lenders after a quick business loan application for real estate agents. 5. Understand Your Market Before making the leap and starting a real estate brokerage, it is critical to have a thorough knowledge of the market in which you plan to do business. What factors are most impactful to the local economy? Is the economy supported by tourism, major corporations, manufacturing, technology, or the military? All of these factors, of course, will have an influence on the real estate market. Doing the research will help you understand which segment to focus on, whether it’s corporate relocations, resort-like properties, single family homes, vacation homes, or military change of station. Knowing the market is also critical for developing marketing campaigns that reach your target demographic. 6. Setting Up a Location The decision on whether to set up a physical, brick-and-mortar location or a virtual office can have a significant impact on your financing needs. If the market is supported by tourism, having a physical location that increases the potential for foot traffic could be a good idea, as this will also attract high-caliber agents. If tech-savvy individuals are the target demographic, whether buyers, sellers or potential new agents, then a virtual office environment may be all that is necessary. Each strategy has a set of advantages and disadvantages. A virtual office may allow for a lower fee structure and be effective at attracting new agents, but may not be attractive for the established, traditional agents who are already leading your market. 7. Develop a Business Plan The steps involved with writing a business plan can be significant, requiring dozens of pages and a substantial amount of time and effort. However, many agree that writing a business plan is essential for success and there are numerous online resources to aid in the process, such as this guide to creating a real estate business plan. It’s also worth noting that many traditional lenders require a business plan before they will approve your application. 8. Find Online Resources In the modern era, it can seem risky and ludicrous to embark on any endeavor without doing any research. There is a wealth of resources available for any conceivable topic. One of the best resources to learn how to establish your business as a real estate brokerage has been provided by the National Association of Realtors. It provides links to a variety of resources—such as the U.S. Small Business Administration, the Senior Coalition of Retired Executives (SCORE), and more—designed to help small business owners. 9. Recruit Agents The dream of earning passive income does not become reality unless you are able to successfully attract new agents and seasoned professionals to join your brokerage. Recruiting agents can be difficult, as many of the most successful are constantly inundated with text messages, phone calls and emails asking them to leave their current brokerage. A few strategies for attracting agents include attending popular networking events or researching the local MLS to find agents with the most production. Many of the most successful recruiters use incentives such as lower fee structures and a more expansive marketing presence to attract new agents. 10. Create a Marketing Plan Attracting top-level talent to your brokerage is going to require time, effort, and funding. Similarly, raising awareness about you and the brokerage you are launching will require a blend of print and online advertising. If you have experience marketing listings, you already know the amount and type of marketing you perform will significantly impact your costs. Naturally, then, you need to ensure you have the right amount of capital on hand to cover your marketing costs. At Lendio, you can evaluate your financing options with absolutely no cost or obligation, so you can build your marketing plan around the numbers and get the capital boost you need—all on your timeline and terms. 11. Technology Offerings One of the most effective ways to attract agents to your company is to offer exclusive access to the best available technology and tools. No wonder, then, that many of the leading real estate brokerages have relationships in place to provide agents with access to leading technology offerings at a lower price. To keep your brokerage competitive, developing a relationship with a technology provider should be included in your recruitment strategy. Specifically, providing tools in the areas of transaction management, email marketing, print and online flier creation, communication, relationship building, and website creation can provide a key differentiator and meet or exceed the expectations of prospective agents. 12. Identify the Right Business Structure As you start your real estate brokerage, there are a variety of possible business structures to choose from. Each comes with its own set of advantages and disadvantages. The challenge is finding the business structure that is the best possible fit for your individual skill set and goals. A few potential business structures to consider include: Sole proprietorship - This is the business structure people commonly associate with owner-operators. It’s perfect if you want something simple and do not plan on hiring agents or administrative staff. Partnership - For agents who are interested in partnering with one of their colleagues to start a real estate brokerage, this structure may be a good fit. Under this structure, both partners become personally liable for business expenses. Limited liability company (LLC) - As the name implies, establishing your real estate brokerage as a limited liability company limits the personal liability of the founders. In addition, this structure can offer more flexibility than other structures. Corporation - If you want to separate all of the financials of the brokerage from your personal assets, a corporation is the way to go. This structure also allows you to pay yourself a small salary and reinvest the earnings back into the company, while simultaneously decreasing your personal income tax liabilities. Also, in some cases, it makes it possible to own property, pay taxes, and obtain a loan under the corporate name (instead of your own), thus limiting your personal liability. 13. Build a Brand/Develop Elevator Pitch These are two very similar ideas that have equal importance. The notion of an elevator pitch is basic for many real estate professionals. It boils down to your personal value proposition, spoken in the average amount of time it would take to ride an elevator. Of course, a good elevator pitch is nothing without the power of an effective brand and ready-made marketing collateral to back it up. Similarly, a powerful brand and compelling marketing content are nothing without the vision and charisma of a founder who can speak about the value they offer in a short amount of time. 14. Register Your Business After many of the most important decisions associated with starting a real estate brokerage have been made, another step that must be performed involves registering your business. This step includes visiting the IRS website to apply for an Employee Identification Number. If you are establishing your real estate brokerage as a sole proprietorship, it may be permissible to use your Social Security number, instead of creating an Employee Identification Number. 15. Apply for Permits Figuring out the necessary permits for which you need to apply is another critical step in making your brokerage official. These can vary depending on the state in which you plan to do business, as well as the type of business you plan to operate. To find more information on the subject, visit the business guide on the Small Business Administration website. 16. File Articles of Incorporation For those who have opted for the LLC structure, filing articles of incorporation with the Secretary of State is another required step. Information about the processes and fees involved can typically be found on the website maintained by the state. 17. Prepare Yourself Mentally Regardless of the methods or strategies you select for starting a real estate brokerage, it’s critical to understand that success will require a significant amount of time and effort. Although the idea of relaxing on the beach and earning passive income is always going to sound appealing, you should avoid entering into the process solely for economic rewards. Whether you enjoy connecting with people, learning more about their needs or just want a higher degree of flexibility and freedom in your professional life, there needs to be some other motivator other than the chance to generate financial returns. This will help you stay buoyant in the face of troubled waters and transactions that can be difficult to manage. Lendio is passionate about helping small business owners like you succeed. Since we’re an online marketplace, it’s easy to apply for and compare loan options from multiple lenders. Learn more and explore funding options for real estate agents.