What you need to set up a real estate business

If you’re an agent working for a principal, you may have already considered setting up business for yourself.

You won’t be the first person to walk down this path, and with the new year on its way, maybe it’s time to reconsider your goals. You don’t have to do it alone: there are plenty of options out there to help you get started.

A smart businessperson is someone who gathers as much information as possible and then makes an informed decision. There are potentially lots of experienced people out there to learn from, people just like me, so make use of them and ask a lot of questions. I have been involved in the set-up of more than 150 agents in their own businesses so far. Business ownership is really not as complicated nor as difficult as you might expect. These days, learning how to operate a business is like having to drive from Sydney to Melbourne at night. You don’t need headlights that can illuminate 800 kilometres: you only need them to guide you for the next 100 metres, as that’s all you need to see at any one time.

If you can list and sell, you can have your very own business – I’ll go on to explain why I firmly believe this. The truth is that in practically all cases, a vendor will list with a person, not an organisation or brand. The agent is the brand. Joining a brand gives individuals agents a great ‘real estate vehicle’ to drive and promote themselves and their services. But it’s always up to the individual agent as to how successful they will be. No organisation or brand can do it for you, which is really exciting if you consider that you can be a great success if you apply effort and skill, because at the end of the day it’s within your power and control.

To be a successful business owner there are two main requirements. Firstly, the practical concerns, getting everything organised properly; and secondly, adopting a business owner mentality. If you have owned a business before – any business – then you’ll probably understand what I mean. With my first business I didn’t develop a business owner mentality properly. It wasn’t until my second business that I really got it. What I mean is that if you’re a salesperson moving to business owner then your mindset is still that of a salesperson, which is ‘where do I get my next deal?’. A person who has developed a mature and balanced business owner’s mentality includes ‘where do I get my next deal?’, but everything comes back to the bottom line, which is ‘what is my profit after expenses this month?’. Now that doesn’t sound too complicated and it isn’t, but this is where so many business owners get it wrong. They take their eye off the expenses and the next thing they know is that they’re running out of money. Remember, cash flow is king and essential to survivability of the business!

So the first and most important help you need is to develop a correct business ownership mentality. The less it costs to operate your business, the greater the potential for profit, which is the only thing that counts.

Here is a simple plan to help get you started:

  • Work out what you think your costs will be. I would normally suggest you add 20 per cent to this figure as a safety margin.
  • Enlist the help of others who are experts and who are trained in this area, including your accountant or financial adviser.
  • Then estimate your income, and do this very conservatively. As a starting point halve what you would normally write in gross fees just to be conservative, bearing in mind you’ll be keeping 100 per cent of your fees now.

You can access a cash flow spreadsheet here to help you work out your figures. If, on this basis, your sums stack up with a profit factor, then you’re on the right track to have a successful business. If you want to find out more about profiting in real estate business, then it’s worth reading my book over the holiday period, which walks you through the steps required.

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Paul Davies

Paul Davies

Paul Davies is the founder and CEO of One Agency and author of How to Profit in Real Estate Business Ownership. This article is a short excerpt from his book. He’s helped hundreds of real estate agents to overcome the fear of business ownership, and has set up multiple successful and profitable businesses. Visit his website or read the book.

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