I've calculated my start-up costs and all expenses for my first year several times, and with an ultra-conservative estimate of only 6 transactions I just break even. I'm seriously concerned about profits and income from starting my own brokerage. With our savings and my wife's income we can make it for at least 6-12 months, but we'd be living the mac & cheese lifestyle. After that, I'd need to have a steady income. My associate and I have planned on using our own money for initial capital and a C-Corp in order to reinvest the profits into the business. We would prefer not to hire any agents the first year, simply because we're both very new and have little to offer in the way of training. That being said...

1. How likely is it to make a profit the first year?

2. Without offering "legal advice," does anyone know how/if I can pay myself a salary through a C-Corp? Like a base + commission model?

3. Based on experience, does hiring additional agents increase the likelihood of a profit?

I've never worked on a straight commission basis before, nor have I ever been my own boss, so I could really use some advice. I can't understand how people manage to live with no income for months. I've searched this forum for a week and can't find the answers. Thanks so much! You guys are awesome!

So they let you become a broker right out of the gate in CALI?

If they do that's pretty scary. Here you have to have at least 3 years as an agent to become a broker.

The real question is WHY do you want to open your own brokerage?

I wouldn't risk your LIFE savings based on something you don't even know you like yet. Saying I have never worked for myself or lived off coomissions shows me you have never been an agent.

Why don't you TRY it first work somewhere with a OK salary and see if it's for you.

This is like people taking 100k to open a restaurant who have never been in the business. The people fail because it takes more than money to be successful.

Did you know about 80 percent of agents fail there first year and an even HIGHER amount of new brokerages fail each year?

This is why my mls's have about 2,000 in deposit money from me because this isn't there first rodeo.

I would say now is NOT the optimal time to start a brokerage. Now is some of the best times to INVEST in real estate possibly in my lifetime. You see there is regulatory reform coming down the pike and the write downs on loans in Wall Street won't be the same in the coming years.

I would grow your investments to build monthly cash flow.If you are going to start a brokerage PLEASE do not enter into a lease and be STUCK making payments for years after failing!

Instead buy an old,junky house on the side of the road where development is coming or buy a brick building and rent out the other office spaces to cover mortgage and create cashflow. This way if the business fails you have an assett to do something with.

Just my 2 cents from owning multiple businesses and years of experience. Always have exit strategies don't just think of the front end and then you fail and go CRAP how do I get out of this!

Do you have prior experience as a real estate agent? Do you know what's involved in representing buyers and sellers? Do you know how to coordinate all the steps of a transaction?

I could not tell from your post if you have any prior agent experience. Maybe you have some and just never were totally reliant on commission only income in the past.

If you want my honest prediction, no I don't think you will be profitable your first year. Call up someone at CAR and talk to them. I believe the average new agent makes two sales in their first 12 months. Not that you are average. But everyone hopes to be a sales wizard and reality is often different, at least while you are learning the business.

If you haven't been an agent before, I highly recommend you work for another broker first.

Hello SR: Much to my surprise, there is a way for people in California to become Real Estate Brokers "right out of the gate" with no Real Estate experience whatsoever.

CanDo just sent me a link yesterday that outlines how the California DRE allows Law School Graduates who have passed the California Bar Exam and the Real Estate Brokers Exam to immediately become Licensed Real Estate Brokers with absolutely no other experience.

Other Law School Graduates who HAVE NOT passed the Bar Exam must have a couple additional College Level R.E. Courses; but they too can skip having to acquire the normal experience of working under the wing of another California Broker.

I thought it was a little bizarre when I heard it; but it is true. No apprenticeship or tutelage in Real Estate under a Broker.

That link is:

http://www.dre.ca.gov/exm_broker_exper.html

Read the Section entitled Education in Lieu of Experience

Thanks for the opinions so far. I tried to keep my initial question as brief as possible, so I don't think I was real clear. I have never been an agent, but I have spent the last three years (since I got my B.A.) working as a listing coordinator for a firm that does real estate and property management. My associate is a very successful agent who believes we have the ability to succeed.

I have personally started two other businesses before, but they were product-based and not dependent on commissions. They were both successful initially and we saw enough profit to pay ourselves and cover costs. Since I have little experience with commission businesses, I wanted some opinions on profit margins and realistic expectations. I will handle the business end of our brokerage while my associate handles the real estate. In California, I must have a broker's license to do this. Since I have the educational equivalent I am allowed to sit for the broker's exam. My ultimate goal is to get into the sales side of the industry through this brokerage. I know I may seem naive, but I am very level-headed and know what type of work and sacrifice goes into this type of venture. I hope this clears things up.

So for the first year or 2 this other agent will be supporting you with his sales. If he tires of carrying you he could just move on to another company and leave you hanging. Your job as company manager won't carry much weight with just one agent to manage.

Successful agents will be hesitant to join your company until they see your company as a success. New agents will join but they will be a drain on resources. Plus, you will be one of those new agents draining the companies resources.

Well, that certainly would be the goal. You want a business model in which the expenses of bringing in a sales agent (e&o, workers comp, any services you provide to the agent, the value of your time to manage the agents) is outweighed by income generated by the agent. For example, some brokers charge monthly fees so their basic costs are covered regardless of sales production. Whereas other brokers might take a higher split in order to make up for the monthly fees they have not charged.

Have you considered getting your salesperson license before you study for the remainder of the broker license? Then you could try to do some listing presentations or maybe work with an occasional buyer lead while you continue to work on getting your broker's license. The more experience you have before you open your own shop, the better.

Driving the streets around here you see Real Estate Companies folding like crazy. Even companies that tried to survive by hiring tons of new or inexperienced agents are gone. I don't think the model you and the other guy are proposing will work unless you back up with bread and butter type business like BPO's and Property Management.

For your first few years I would forgo the quarters and go for the nickels.

Sign up with BPO companies and start doing BPO's for $40 a pop. You will learn the market and value which is key to any aspect of real estate. I would also hustle for property management contracts for single families & condo's. Small money but good experience.

90% of the listings are short sales. Working with buyers is a tough nut because of the changing loan scenarios and the dumb Listing agents you have trust in who are trying to do short sales. You can put 20 buyers in escrow right now and you will not know when if ever you are going to close & get paid.

No one really has much control of anything that is happening right now. You need a ton of experience to negotiate the junk going on. Good looks and winning popularity contests isn't going to work like it did the last 8 years.

We are planning on doing property management as well. The whole reason we are venturing out in the first place is because the owner/broker of the firm we work for is leaving the state and no one else has a broker's license. Now he's considering keeping his business going and he can just transfer it over to us. It's going to take a lot of paperwork and a lot of legalese that I won't even try to go into. But, it's something we're considering. It would be nice to already have a clientele and a reputation...

I actually planned on getting my basic agent's license first, but the people I spoke with at CAR and the California DRE felt a broker's license would allow me to do the same thing as a sales license, but with much more flexibility. The prospect of being my own boss and finally having control of my work really appeals to me.

[quote=Vermont007]Hello SR: Much to my surprise, there is a way for people in California to become Real Estate Brokers [b]"right out of the gate"[/b] with no Real Estate experience whatsoever.

CanDo just sent me a link yesterday that outlines how the California DRE allows Law School Graduates who have passed the California Bar Exam and the Real Estate Brokers Exam to immediately become Licensed Real Estate Brokers with absolutely no other experience.

Other Law School Graduates who HAVE NOT passed the Bar Exam must have a couple additional College Level R.E. Courses; but they too can skip having to acquire the normal experience of working under the wing of another California Broker.

I thought it was a little bizarre when I heard it; but it is true. No apprenticeship or tutelage in Real Estate under a Broker.

That link is:

http://www.dre.ca.gov/exm_broker_exper.html

Read the Section entitled [b]Education in Lieu of Experience [/b][/quote]

I know of a few CA attorneys who have their broker's license. One them actually sells commercial properties in addition to their law practice. For the most part, I believe, it is more of a marketing tool than anything; I don't believe many attorneys are working realtors in addition to practicing law.

jhanson --

I think you are biting off too much right now.

Especially, being in California.

Brokering is not easy. There is plenty of liability. It is hard to acquire business and agents. And, profit is elusive for most brokerages.

I'm concerned about your size and experience.

A one-office brokerage generally needs to have 15-20 agents to break even on a consistent basis.

Because of your lack of experience in the business, you will struggle to attract those agents in the first place.

Layering on top of that the fact that most of the California markets are really struggling seems to me to be a recipe for disaster.

If I were you and you truly wanted to move this direction, get into sales for 3-4 years and then make this move. By then, your local market should be stronger. And, the experience will be invaluable in figuring out how to attract and hold product agents.

go to a 100% company and start a team. if you like it and succeed, then get your brokers and open your own shop with your current team in place. that way you wont have the overhead while starting out. the only down side is that you might have trouble getting a team full of closers if you as the lead agent are not the strongest lion in the den. as a lead agent in a team you should be doing everything that you would be doing for your agents if you were the broker. there is a chain of command yet you dont have ultimate liabiliy. you have a broker over you in the event that you get in over your head while starting out. your risk is minimized and you get total control.

In MA, an attorney can also be a broker with no experience and I don't even think they have to take the test. (I could look that up but I'm too tired) Crazy, huh?

Actually, it is even easier than that. In your example, you have to get through law school.

However, if you are a college graduate with ANY degree in California, you can waive the experience requirement and sit for the brokers exam. So in theory, you could not have a single day of selling real estate under your belt and get your real estate brokers license in CA.

I think you might be surprised to find how many states allow for a college degree to waive the experience requirement.

R

A more general question: How long did it take you all until you got your first earnings as brokers? I guess this questions could help jhanson.

Greetings