Costs To Start A Real Estate Brokerage – Don’t Be Fooled!
I believe the fixed costs is one of the most underrated formulas that new real estate brokers take into consideration prior to starting up a real estate brokerage.
Don’t be that guy or gal!! You will be surprised how costs can add up very quickly when going into business for yourself. So I have prepared an outline for you to follow to ensure you have eyes wide open on not just the initial costs of starting a real estate brokerage but also what you can expect your ongoing costs to be.
But first let me ask you, why?
Why Are You Starting A Real Estate Brokerage?
If you are planning on staying small and just selling real estate yourself and not recruiting real estate agents, then it may not make sense to proceed.
Think about it… Why take on the liability and overhead if you are just going to sell real estate? There are many options out there like 100% commission offices where you pay a small monthly fee and a transaction fee on every sale.
So as long as you have that brokerage name on your marketing, you can still brand yourself how you want. In Florida, you must have the brokerage name on everything but it can be very small. You can then have your own logo created like we have for our Niche Market for real estate sales on the beach (pictured here). We are the “Beach Brokers” under the Maxim umbrella.
I Want To Start My Own Real Estate Brokerage
Ok… Let’s press forward! My sister and I started our company back in 2006. Probably not the best time as it was the peak of the real estate market, headed to crash shortly after.
The reason I am bringing this up is before we go into detail on the costs to start a real estate brokerage, keep in mind that the real estate market is cyclical. You can survive very well in this type of real estate market as I talk about in our article How To Survive During A Recession.
The point is, just be prepared as you may hit dips in revenue when a recession comes. And it will come!! If you are recruiting real estate agents and this will be the sole revenue for your company, understand, some real estate agents will leave the industry when the market drops.
The Raw Costs Of Starting A Real Estate Brokerage
Below you will find an estimate of costs that I have personally experienced within our real estate brokerage. I will give you present-day expenses as well so you can understand the real scope of the monthly costs associated with our offices.
Also, understand this takes into consideration having around 60 real estate agents within our company and 2 brick and mortar offices.
Know Your Numbers!
I cannot stress this enough. Knowing your numbers personally and in business is crucial to your financial growth and freedom. Consider buying the Cash Flow Game. This has been fundamental to keeping up inline with our financial goals. Below you can get updated pricing on Amazon.
Present Day Monthly Expenses with 2 Offices
|Office Rent #1||$1,300|
|Office Rent #2||$750|
|(2) Culligan Drinking Water||$40|
|(2) Commercial Printer / Ink||$45|
|(2) Internet / Phone||$250|
|Part Time Secretary||$2000|
|Errors and Omissions Insurance||$150|
|General Liability Insurance||$75|
|Lead Gen Marketing||$1000|
|Agent Meetings / Gatherings||$250|
**This doesn’t take into consideration any salary for owner operators for the accounting, recruiting, training, etc. Also, your office secretary may have a much higher salary depending on what kind of services you offer to agents assuming you will be recruiting agents.
Initial Real Estate Brokerage Startup Costs
|Office #1 (First, Last Sec)||$3,900|
|Office #2 (First, Last Sec)||$2,250|
|Build Out Both Offices||$15,000|
|2 Commercial Printers||$5,000|
|Furniture Both Offices||$5,500|
|Phones, Supplies, Misc||$2,500|
|Initial Board / State Fees||$2,100|
|Initial Marketing / Branding||$6,000|
The first real estate brokerage I was with had NO insurance. I had no idea at the time. I was young and didn’t really understand the business. One day I asked my broker about it and he said We don’t carry insurance.
What an eye-opener! It is a cheap expense to have a good buffer of liability. So if you are going to open a real estate company, be sure to have this in your expense column!
We carry both E&O (Errors and Omissions) and GL (General Liability). E&O is for any contractual errors. General Liability covers a lot more including if an agent (or their client) were to break an expensive vase while showing a property.
Who Will Be Recruiting / Training?
If you are going to continue selling real estate, then you may want to hire someone for this position or partner up. If you hire someone, I suggest providing a base salary (comparable to the industry average in your area) plus a percentage of commissions / fees produced by the agents.
As an example, you may want to do a base salary of $50,000 a year with 20% of agent revenue. So if on average, you produce $15,000 a year per agent, then that persona would get $3,000 per year.
At 50 agents, they would be at $200,000 ($150k = $50 base) a year and the “house” would produce gross revenue of $600,000. Not too bad huh?
One Man Shop
Now if you are opening a real estate brokerage and it is just you and maybe one other person then you can reduce the initial expenses and on going monthly expenses tremendously.
You can always get a cheap all inclusive office suite which is a fantastic option especially in the beginning of starting a real estate company. Keep the overhead low and stack chips. In my area of southwest Florida, you can get these for around $500 a month.
Many of these will include all utilities, internet, etc. They also include access to multiple conference rooms usually with a variety of sizes. This is always good so you can meet clients and hold seminars.
When we first started our real estate brokerage and expanded into a second office further south, we had an executive suite of only about 250 sq ft. However, it provided access to a 80 person conference room along with other sizes. We held first time home buyer programs, investor seminars and short sale seminars there. All at no additional cost to us. I think we were paying around $450 a month.
When starting a real estate company, you can always start inside your home. However, in my experience, I have found clients are more receptive to you having an actual office.
Also, keep in mind all the distractions you will have working out of your home. So, it maybe a good option initially to keep costs low, however, a cheap executive suite will be a really great option for you. Think about it. One transaction a year could pay for the entire annual overhead of an executive suite.
Brick & Mortar
If you are going to go the route of opening a real estate company with a traditional office, then I highly suggest you go with a high walk in traffic location.
Our one office is in a traditional office building. If I had to do it over, I would have opened that location similar to our second location.
Our second location is located across the street from Bonita Beach. It is located in the commercial section of a residential condo community. It is a fantastic location and accounts for at least $10MM more in annual sales each year.
So, if you are going to accumulate the office overhead, you should at least get the added benefit of walk in traffic. Also, this space doesn’t have to be large! Our beach location is only about 520 sq ft. But we can seat 12… Get creative.
Real Estate Office Suggestions
- Inside of a hotel / motel
- Inside of a local restaurant
- Inside of a residential community. (Many time large communities have unused common areas).
- Kiosk at a mall
- Inside of a bus – Can mark the outside “If We Are Parked, Knock on the door for real estate service.”
- In a strip center / retail area
- Inside of a grocery store
- Inside of a coffee shop
- Outdoor mall
- Inside a high traffic insurance company.
- Inside of any high traffic business that had additional space.
Risk vs. Reward
As you can see opening your own real estate brokerage can very lucrative. Getting prime office space to attract real estate agents to your brokerage can be costly.
So be sure to measure your risk tolerance. Also, I suggest ensuring you have a certain buffer of cash in the bank to cover 6-12 months of overhead. I have seen so many real estate brokerages over the years drop off.
Many think recruiting agents will be easy and the money will come flowing in fast. So be sure to run and rerun all numbers. Consider bringing a partner to handle the recruiting while you go out and sell.
Thank you for taking the time to review this information. If you have found this article of value, feel free to search around this site and subscribe to our real estate channel SteveInvests.
**Interested in Listing & Selling Short Sales? Check this OUT.