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Market Strategies for Starting a Real Estate Business

Info: 2833 words (11 pages) Essay
Published: 10th May 2021 in Business

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Abstract

This study functions as a thorough and comprehensive analysis of the market strategies involved with beginning and running a business as a licensed real estate broker. It involved determining the feasibility of supporting a business as a broker and explored both the internal factors involving this field along with the external factors. As this study begins, I explain the importance of following every law and ensuring the approval of state required documentation and licensure prior to the inception of this business model. I thoroughly vet the process of procuring such licensure and review the roles of those involved in this form of business. I continue to detail the capital and liquidity required for this venture, along with the amount of time one may expect to spend when being involved as a broker of record, owner of the venture or even an employee who is simply licensed to practice real estate at the most basic level. I delve into the requirements surrounding the amount of financial resources necessary to have readily available in savings for those involved in order to support themselves in their personal lives. I continue to explain different types of financial loans a brokerage may consider applying for, such as SBA loans and other traditional loans. I ensure to explain the market attractiveness relating to this venture and determine the main demographic of those who may be interested in such a business model.

Market Attractiveness for Real Estate Brokerages

When addressing the feasibility of creating and maintaining a real estate brokerage, it is paramount to understand that there may be quite a few requirements that precede the beginning of this type of business. One of the beginning steps in creating a real estate brokerage is determining eligibility for obtaining a broker’s license. As this process typically does vary from state to state, I will be outlining the requirements of obtaining this license in the State of Florida as this is where I reside. In Florida, (Florida Real Estate Education, 2020) the applicant is required to complete a course, complete an application including a fee and background check of the applicant, complete an examination, and complete a Broker Transaction form. The applicant shall also ensure the completion of a 60-hour post-licensing course designed for brokers and predate these requirements by being a licensed real estate sales associate for two consecutive years. The applicant shall then complete the above steps no longer than 5 years after the discontinuation of their sales associate license expiring. If you are unable or unwilling to complete these requirements, you may hire a Broker of Record to satisfy these requirements for you (L’Eplattenier, 2020).

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Upon ensuring the satisfaction of the above requirements, it is important to identify the wants and needs of the surrounding area in order to succeed in the market. If you begin a brokerage in a scarce market with a low desire for property development, then the likelihood of the brokerage failing is increased exponentially. When attempting to identify a good location for this type of startup, one may first identify how many brokerages currently exist in the surrounding region, as this may not only gauge the popularity and demand for property, but it also affords the prospective brokerage an idea of the potential competition that may be expected in that area. It is typically a good idea to research in areas with a thriving housing and property market, as this is where most brokerages may expect success. For example, selling to potential buyers in Denver, Colorado may prove to be more lucrative than selling property in a desert with a population of under 3,000 people. Of course, this is a very extreme example and every prospective region should be individually analyzed based on demographic of buyers, local economy and the unique mission of the brokerage itself.

For my business idea, I will be assuming that the brokerage would be created in the Jacksonville, Florida region. The reasoning behind my brokerage being in this area involves many factors, though the primary reasoning is that the property value in this region is inexpensive for this city. Jacksonville is the largest city in the world in the geographical sense (Fast Facts, n.d.) within the United States. Although many large cities involve both good and bad parts, Jacksonville is home to heavily sought-after amenities such as a clean and accessible beach on Florida’s coast, along with the University of North Florida. If my brokerage were to be created in this area, it would primarily appeal to a few different demographics. One demographic would be young, college aged graduate students or recent college graduates looking to reside nearby a post-secondary educational institution. The appeal for this demographic is immense because even if the student graduates and no longer requires the business of a university, they reside in a popular and bustling city within one of the most visited states in the country (Chelangat, S., 2018, August 15). A separate demographic may include young families who enjoy the beach and want to reside near a university for their soon to be adult children to potentially attend someday.

Another factor involving market attractiveness is determining market growth. Before even determining the logistics of how to achieve market growth, those involved in running a real estate brokerage should identify the goals surrounding growth. Does the brokerage want to make a large amount of money by selling high value properties in expensive cities? Does the brokerage want to employ a large amount of real estate sales associates and project an image of a large work force being involved in this region? Perhaps the brokerage simply wants to operate in a smaller region with few employees with a business model that promotes self-sustainability in the personal lives of those employed. When identifying the mission behind the venture, one must ensure that all involved business partners agree on the direction that this venture should head toward.

My brokerage would include a larger number of employees due to the increasing demand surrounding property in the Jacksonville area. I would ensure to hire a Broker of Record, along with an extensive team of licensed real estate sales associates to project the name and image of our brokerage. I would ensure they are personable and likeable people, and I would primarily work in the area between the University of North Florida and the coast where the beach is located. It would be best to designate half of the employees to focus on selling homes to one demographic, which would be either college students or young professionals, and the other half would work with the other demographic, which is young families looking for a city feel with the convenience of a nearby beach.

It is important that I consider the reality that there is in fact immense competition in this region. In fact, there are approximately 1,500 real estate agents alone operating in Jacksonville (Real Estate, U.S. News 2020), which does not include the total number of brokerages in the city. For all the reasons that I’ve mentioned earlier, other brokerages find this location appealing and therefor are more likely to remain successful than I am likely to succeed myself. This is always a concern when analyzing markets, however I do believe that Jacksonville does in fact have much room to grow, and because of this the incentive to buy property will grow as well. In conclusion, I do believe that success in my venture is likely so long as a substantial amount of time and effort is placed in operating in this location. As time progresses and my prospective brokerage theoretically establishes a continued presence, it is possible and likely that it will remain fiscally successful and be able to support all employees.

Financial Analysis for Real Estate Brokerages

The financial side of operating this form of real estate venture has proven to be expensive and financially draining. It is very much a difficult and unlikely venture to explore independently, and thus financial help from other sources is a much-needed factor to consider. Thankfully, this is well known by those in this industry and there are many different avenues to take in order to make this business venture more likely to succeed. One of the ways I would consider raising revenue would be to obtain a small business loan from the SBA, or the Small Business Association. This type of loan is made available to small business who simply need capital in order to assist them in starting up their business, purchasing assets such as an office or furniture, or even more in depth concepts such as affording the recipient a revolving credit line and additional financing throughout the year. These loans may range from anywhere between $500 through $5.5 million (SBA, 2020).

I would personally place any and all personal capital into starting this business on paper, including but not limited to employing and paying a Broker of Record so the business is in compliance with Florida State Law, employing and paying licensed real estate sales associates, and renting out an office to operate out of. These expenses alone are difficult to forecast due to the fluctuating value of real estate as a market, but based on current conditions of our economy and the real estate market itself, I believe the startup cost would be anywhere between $500,000 and $1 million within the first year. Once I can establish and prove a consistent income, I may qualify for the small business loan as I mentioned above. A requirement for this loan is unfortunately to establish income prior to applying, so I would likely have to apply for other forms of loans such as bank loans, personal credit loans, student loans or even loans from family and friends. It would take a substantial amount of borrowed funds simply to afford myself the opportunity to place a foothold in this business sector.

One of the most important portions of any business venture is the profit and loss projection. It is the primary focus for many entrepreneurs to develop a consistent and solid revenue stream for their business, and the same applies for real estate brokerages. This is one of the most difficult businesses to function in, as the value of property is almost completely reflective of the economic status of the area’s inhabitants themselves. If the residents in an area are predominately low income, then the housing market would realistically reflect the income of those living there by having cheaper property value. The opposite is true in areas with more wealthy people. A good example is comparing the economic status of those residing in certain regions in Marion County, Florida, with the economic status of those living in the Hamptons in New York. More likely than not, the average property buyer or prospective buyer in the Hamptons, New York would be exponentially wealthier than the majority of those in Marion County, Florida. Because of this, it is important to refer to the resources a broker has available to tackle on a certain economic location.

In my case, Jacksonville is an up and coming area with may amenities for many different groups of people in different stages of life. The area I have identified earlier in my feasibility study is a relatively high-income portion of Jacksonville, however it is important to mention that Jacksonville is the largest city in the United States, and there for the less desirable portions of the city may skew economic data and not support my assertions of this being a high-income area. Although the median household income in Jacksonville is $52,576 in 2018 (U.S. Census Bureau QuickFacts), there are many high-income families in the Jacksonville area between University of North Florida and the beach area. I was able to locate many sub $400,000 homes with no HOA obligations that are in desirable, low crime areas and even included up to 5 bedrooms and two stories. Based on this information, I was able to determine this portion of Jacksonville is not economically depressed enough to warrant avoiding the area as either a home buyer or a real estate broker. I can estimate that the annual income of selling property in this region could very easily surpass $2 million, which after taxes, payroll, debt consolidation and other business expenses, would leave me with enough funds to sustain my own personal life outside of the scope of the business venture itself, while also satisfying all financial responsibilities of the venture. I should reiterate that this price point of property is within reach of much of my demographic in 2020 for this area, as I am assuming many of those attempting to purchase these residences are young professionals or young families with extensive tangible resources, such as an undergraduate or graduate degree, good credit and consistent income. I also do assume that many of my demographic would not be buying outright and would instead qualify for a mortgage or other housing loan.

Conclusion

In conclusion, I have determined my business plan to be feasible based on a deep analysis of the market conditions in the more developed and populated Jacksonville area, the economic status of those occupying this region, and the demographic I’ve identified is most likely to pick the Jacksonville area to move to over many other college towns in Florida due to the decreased density of the population in contrast to south Florida beach and college towns. I have been able to also determine that this business idea is extremely expensive to start and would take a substantial amount of investing capital, business loans, and other borrowed funds in order to implement the most basic structure of a real estate brokerage. However, I have also determined that based on the projection of success in this region that this business venture is likely to be very lucrative within a short time period. As unfortunate and risky as it may be that the main business owner would be heavily responsible for taking out most of the financial risk associated with starting up and maintaining this business, I also would be able to make a solid return on my profits while also paying the salaries of my sales associates and my real estate Broker of Record, as I am personally ineligible to be certified fully as an independent Broker of Record due my status as a convicted felon in the State of Florida. Due to my felony convictions, it makes me likely to receive much less of an income than I would be able to make if I didn’t need to rely on employing and paying a Broker of Record, as they would be the actual holder of a real estate broker license and they would therefore be a very active partner in my business. However, I still would be able to make a substantial profit and be the boss of many employees who otherwise wouldn’t have a job. As I conclude this feasibility study, I have concluded this business plan to be very feasible and worthwhile.

References

U.S. News (2020). Retrieved July 20, 2020, from https://realestate.usnews.com/agents/florida/jacksonville/

SBA. Gov. (2020) Retrieved July 20, 2020, from https://www.sba.gov/funding-programs/loans

Chelangat, S. (2018, August 15). The Most Visited States in the U.S. Retrieved July 20, 2020, from https://www.worldatlas.com/articles/the-most-visited-states-in-the-us.html

Fast Facts. (n.d.). Retrieved July 20, 2020, from https://www.visitjacksonville.com/media/fast-facts/

Florida Real Estate Education. (n.d.). Retrieved July 20, 2020, from https://www.stateofflorida.com/real-estate-education/

L'Eplattenier, E. (2020, July 01). How to Start a Real Estate Brokerage in 2020 (Without Going Broke). Retrieved July 20, 2020, from https://theclose.com/how-to-start-a-real-estate-brokerage/

U.S. Census Bureau QuickFacts: Jacksonville city, Florida. (n.d.). Retrieved July 20, 2020, from https://www.census.gov/quickfacts/jacksonvillecityflorida

 

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