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Planning to establish your own real-estate venture? Well, it’s indeed a rewarding career with high-income potential.
However, most realtors quit within the first 2 years of starting. And the most important reason behind this is their unpreparedness when it comes to financial matters.
It’s important that you understand the costs associated with starting a real estate business before you jump in for a long time commitment. And this, start-up cost blog will help you get just about the right estimate.
Ready to get started? Dive right in.
What is the cost of starting up a real estate business?
The cost of starting a real-estate venture in the US varies between $7,000-$32,000. However, it is quite possible to start your real estate business with as little as $2,000 by accounting for license, insurance, exam fees, brokerage fees, and some basic marketing.
Considering the profit margin, a real estate agent generally enjoys a 20% operating profit margin making it a lucrative business venture.
Average costs for starting a real estate business
Before we dive into details, check out this real estate startup cost checklist. It will help you plan your startup budget and know how much financing you need to get started.
| Item | Average Cost (Mid-Sized Firm) |
|---|---|
| One-time Expenses | |
| Lease Deposits | $3,000-$8,000 |
| Pre-preparation course material | $50-$150 |
| Real Estate School Fees | $500-$3,000 |
| Exam Fees (application, fees, and biometrics) | $100-$250 |
| Real Estate license | $100-$250 |
| Continuing education | $150-$450 |
| NAR annual fees | $135-$185 |
| MLS annual fees | $350-$400 |
| Website | $300-$2,000 |
| Flyers, brochures, and signage boards | $150-$10,000 |
| Errors and omissions | $1,000-$1,500 |
| Business registration | $150-$300 |
| Business plan | $80-$150 |
| Computer and other hardware | $300-$1,000 |
| Total One-Time Expenses | $6,000 to $28,000 |
| Recurring Expenses (Per Month) | |
| Lease | $300-$500 |
| Brokerage Desk Fees | $50-$100 |
| Monthly marketing | $150-$1,000 |
| Freelancer Fees | $500-$2,500 |
| Software subscription | $50-$250 |
| Total Recurring Expenses | $1,000-$4,000 |
| Total | $7,000-$32,000 |
Using this real estate startup cost checklist, you can plan your startup budget and get an idea of how much financing you will need.
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How to calculate the cost of starting a real estate business
You now have a list of potential expenses and a rough estimate of your startup costs. Let’s estimate your actual startup costs using these two proven methods.
The first, traditional method involves using a startup costs calculator to estimate the startup costs. However, the second, the Upmetrics method, is an innovative method that uses the Upmetrics financial forecasting tool.
Let’s understand both methods so that you can choose one that suits your requirements the best.
The traditional method—startup costs calculator
The calculator includes categories such as pre-trading, website setup, marketing, operations, and people. You can enter the estimated costs in each field and let the calculator estimate the costs for you.
Remember that many startup costs fall under recurring expenses, so cover those costs monthly, quarterly, or annually.
Calculate your startup costs using this calculator.
The Upmetrics method—financial forecasting tool
It is an intuitive and efficient method of calculating startup costs. Using Upmetrics will not just help you estimate startup costs but also help with financial forecasting.
All you need to do is enter your sales, costs, and other financial assumptions and let the tool calculate monthly/quarterly/ and yearly projections for you.
Check out the financial forecasting tool for accurate financial forecasting.
Pro-tip
Check out the financial forecasting tool for accurate financial forecasting. Once you have an accurate estimate of startup costs, you can easily identify funding requirements for your gas station.
Raising funds for a new startup is certainly a nerve-wracking and time-consuming process, but having a solid real estate business plan can make things a lot easier.
Once you accurately estimate startup costs, you can easily identify funding requirements for your real estate.
Raising funds for a new startup is nerve-wracking and time-consuming, but having a solid real estate business plan can make things a lot easier.
Let’s move ahead and discuss the factors that affect your real estate startup costs.
Factors that affect real estate startup costs
The cost of starting a real estate venture depends on multiple factors, some of which are discussed in detail below:
1. Location and Office Space
Location is indeed the most crucial factor determining your cost of starting a real-estate business. Certain states are intensely competitive and even the cost of acquiring a real estate license is expensive there.
Now, most real estate agents won’t get a space right from the first month. After all, office space is not much of a necessity when you are going to spend much of your time at the sites.
However, if you still require an office, you can rent a small office space or a cubicle in common co-working spaces. The lease rental for a 10*10 place can range anywhere from a couple of hundred dollars up to a thousand dollars.
Budget spending $300-$500 every month on a small space lease. On the other hand, if you are planning to make a big start with multiple projects at a time, you will need a team and a space to accommodate them.
Leasing a 1,000-3,000 sq. ft. place for such situations will cost you anywhere from $1,500-$4,500 and sometimes even more for highly-prominent locations. However, in case, you decide to buy a commercial space the downpayment could vary between $40,000-$100,000 and a lot more depending on the location.
Starting with an office space will increase your overall real estate business startup costs and business expenses, significantly. So make a choice accordingly.
2. Exam and Application fees
An aspiring real estate agent needs to take a real estate exam before applying for a real estate license. This is quite important if you want to make a stable real estate career.
Now, the real estate licensing exam is extensively divided into national and state portions. The cost of real-estate educational materials could vary between $50-$150. However, you can also join a real estate school or online classes for a one-time fee varying between $100-$1,500.
Now, to appear for an exam, you will have to pay $25-$50 as application fees, followed by $50-$100 as exam fees, and $20-$50 for background checks and fingerprinting depending on your state.
You must dedicate some serious hours to real estate education. If not, you would be required to retake the exams for a few hundred dollars, i.e. $60-$100.
You can apply for the real estate exams by checking the designated state portal, like this for California.
As far as costs for a real estate license are concerned, you must budget anywhere from $100-$250 depending on the state you live in.
Lastly, many states demand post-licensing. This is also known as first renewal where you have to complete certain course hours to become eligible. The prices for continuing education and renewal would vary between $50-$450 annually.
Although these costs may seem negligent, these are some compulsory expenses for aspiring real estate agents.
3. Brokerage and Desk fees
Brokerage firms charge a flat desk fee or commissions for hanging your broker license. And it’s kind of mandatory for real estate professionals to go with a broker firm if they want to keep their status active in the market.
So the question is how much are the brokerage fees?
Well, depending on the brokerage firm and the services you choose, you will be required to pay a flat fee or a commission on each sale you make.
Many brokerage services would cover expenses for photocopies, office internet, insurance, office supplies, and a Wifi. A clear contract or terms of service would help you evaluate the best choices for you.
However, the average brokerage fees for real estate agents vary between $50-$100 every month.
Apart from this, you need to consider paying fees to the National Association of REALTORS (NAR) to get exclusive discounts, tools, technology, resources, and a distinct status of REALTOR. Although this is not compulsory, it is highly recommended. Besides, it’s quite cost-effective with pricing around $185.
Additionally, getting registered with the local real estate board will cost you annually between $450-$800. This would include pricing for a Multiple Listing Service (MLS) which on its own would cost you around $400.
4. Website and Marketing costs
As a licensed real estate agent you will have to incur marketing expenses to advertise yourself, your services, and the properties.
To begin with, you will need an attractive website offering clear information about your business, credentials, and projects. The cost of building a standard basic website would vary between $300-$2,000.
However, you will also have to undertake SEO and content marketing activities to rank your websites higher amongst your target audience. Depending on the scale of your marketing ventures, you can budget spending $150-$500+ for the initial content build-up.
Further, you are required to spend on print ads, hoardings, billboards, business cards, brochures, flyers, and digital marketing ventures. The costs for these would vary significantly between $150-$10,000 and more.
Ideally, you should dedicate a certain percentage, i.e. 3-5% of your monthly revenue to marketing ventures. This will help you create a sustainable image of a real estate agent in the market.
5. Payroll and Freelancer fees
Generally, you won’t be required to hire any full-time professionals for your business initially. A brokerage firm would look after the buying, selling, and leasing of your properties and can also offer legal help.
However, if you require certain help with say accounting, marketing, IT support, customer support, or sales; you can always hire freelancers on a project basis.
To give you a rough overview, here’s what freelancers charge for different services:
- Customer service representative: $10-$19/ hour
- IT support: $12-$30/ hour
- Financial planner: $35-$50/ hour
- Social media manager: $14-$35/ hour
Depending on what type of freelancers you choose and how frequently you avail their services, you can budget to spend anywhere from $500-$2,500 for their freelancing services every month.
6. Insurance and Compliance costs
If your brokerage firms are not including errors and omissions insurance in the package, you need to get separate insurance to get protection against claims of negligence and mistakes.
The annual costs for errors and omissions would vary anywhere from $1,000-$1,500 for a small-scale brokerage firm. Additionally, you require a standard business license and general liability insurance costing you approximately $600 annually.
Further, consider the business registration costs to be around $150-$300. Apart from this, we already discussed the costs of acquiring a real estate license which is mandatory to get into this profession.
Consider the national and state requirements for real estate agents and ensure that you have all the essential licenses and permits to operate legally.
7. Hardware and Software Expenses
Lastly, you will require a laptop/PC, a scanner, and a printer which would cost you anywhere from $300 to $1,500.
In terms of software, you will have to invest in CRM the cost for which would vary between $1,000-$2,000 annually.
Additionally, you can consider investing in virtual tour software and get MLS access if you haven’t signed up with a local real estate board. A robust project management solution, email marketing tool, and accounting software could be other worthy solutions.
The pricing for these would vary between $100-$500 every month.
Those are pretty much all the expenses you would incur to start your real estate business. Let’s now learn some practical ways to bring down those costs.
Tips for reducing real estate startup costs
Wondering if it’s possible to start your real estate venture with limited money? Here are a few tips that can help regulate your initial costs.
1. Choose a less prominent location
Certain states like Idaho and Nevada are quite inexpensive when it comes to starting a real-estate venture. However, if you go with Idaho, California, or New York be prepared for higher expenses in everything.
Think strategically before finalizing a location and pick something rewarding yet moderately competitive.
2. Choose low-cost educational resources
Instead of opting for private real-estate schools for pre-education, choose local resources or online real-estate schools. They are quite cost-effective and can help you save a couple of thousand bucks.
3. Negotiate brokerage fees
Don’t go with the first brokerage option you see. Get quotations from multiple firms and negotiate the best deals before finalizing the contract. You want to get all-inclusive services for the minimum possible commission without compromising on quality.
4. DIY Marketing
Instead of hiring professionals for basic marketing activities, acquire some skills and do it yourself. Social media, graphics, video creation, and emails can be easily managed on your own by spending a few bucks on online resources. Choose to invest in professionals only for impending tasks that require their expertise.
5. Choose bundled services
Choose to be a member of NAR and local real estate boards to get the benefit of bundled services. Even brokerage firms offer bundled services, which would otherwise take a couple of more hundred dollars to get individually.
Conclusion
And that’s pretty much it. Now that you have a rough understanding of the costs associated with starting a real estate venture, let’s take a step further and calculate actual costs for your business.
Use the Upmetrics Startup cost calculator to get an exact approximation of costs and budget accordingly.
Use Upmetrics for Accurate Startup Cost Projections!
Looking to estimate your startup costs? Dive into Upmetrics! Our business plan software makes financial forecasting a breeze
