The real estate business seems very lucrative for investors who are new in this sphere. However, there are pitfalls and risks that are not visible at the beginning. Like any other business, real estate investing requires some amount of initial costs, special skills, and knowledge.
Let us start from the basics and review the most common types of real property businesses, the major types of properties, areas of specialization, the useful tips for launching the business and marketing activities for clients. In this article, we will provide you with food for thought. Then you will be able to decide on further actions after weighing the pros and cons and making up the plan according to our recommendations.
Types of Real Estate Businesses
In the first place, let us describe the three major types of real estate businesses. Depending on the field of business, a real estate agent or realtor can act as a buyer’s agent, a seller’s agent, or a leasing agent. Also, he can combine two or three of these functions at once.
- Seller’s agent. The seller’s agent, or listing agent, represents the side of the person who wants to sell the property. This agent is responsible for selling the property according to the conditions set by the owner or dealer. These conditions typically are the quickest time needed to sell the property, a suitable price, the best terms, and legal transactions. Seller’s agent is also authorized to close the deal – he needs to monitor if all the deadlines and conditions are met.
- Buyer’s agent. This is an agent who represents the interests of the person who is going to purchase a property. Seller’s agent and buyer’s agent work together to negotiate the best conditions of the agreement. The buyer’s agent focuses on finding the property that suits your needs – near the school or in a safe neighborhood with low crime rates. One of the main responsibilities of a buyer’s agent is to define the price for the property and negotiate the terms on behalf of the owner. The agent can give you recommendations about the attorney, mortgage lender or home inspector. The buyer’s agent can solve difficult situations like low home estimation or the unseen problems with the house, found during the home inspection.
- Leasing agent. The leasing agent has the following responsibilities. Firstly, he describes the advantages of the property for rent to potential tenants. Also, the leasing agent acts as the landlord and helps the owner of the property to figure out the prices and property market in general. The leasing agent identifies the needs and requirements of the customers, provides them with the information on the conditions of the rental properties, negotiates the term of the lease and closes the deals.
Real estate agents deal with the various types of properties that include vacant land, commercial properties, residential properties, and others. We will describe some of these types further. Also, we will consider the advantages and disadvantages of each property type in brief. Based on these facts, it would be easier for you to make a final decision on the most suitable property for investing.
- Vacant land. This term means the land without the buildings on it. However, sometimes real estate agents use this term for the territory with the constructions. It happens when the buildings will have to be replaced or intended for demolition. In some cases, the building on the vacant lot is targeted for renovation but currently, it adds no value to the property. That is why the land is considered to be vacant or empty. Vacant land can be used for commercial or residential construction, farming or ranches. The key factor here is the zoning. Vacant lots are generally large and it affects the higher commissions.
- Residential properties. This is the most common type of real estate. This type of property serves for personal use. Its purpose is to provide housing for the families. Residential properties are townhouses, condominiums, duplexes, and rental properties. This term refers to either existing properties or new construction homes.
- Commercial properties. This type of real estate includes offices, retail buildings, warehouses, gas stations, shopping malls, and other buildings for business purposes. Commercial properties also include large multi-family buildings like apartment complexes and home parks. These buildings can be located in malls or stand separately. Commercial real estate should be not confused with the industrial type of property that is used mainly for the manufacturing of the goods.
Areas of Specialization
Specialization is a very important aspect of any business. Before launching the real property business, it is essential to find a specific niche or specialization. This approach will help to interest the clients who are looking for certain services.
- Buyer or Seller, or Both. Consider, whether your business is going to represent the buyer’s or seller’s side, or both parties. In some cases, it is better to choose one option.
- Leases or Sales. Most parts of businesses are specialized in sales but it is also important to take into account the leases.
- Existing Buildings or New Construction. Specialization in new construction may bring a higher potential profit but the number of new construction homes can be lower than expected, that is why the existing buildings are likely to attract more customers.
- Commercial or Residential Property. Both of these types of real estate have advantages and disadvantages. For instance, commercial property is likely to provide a higher level of finance, the terms of the lease are generally longer than for residential property. Also, the risk of losing income is lower than for the residential type of property due to the larger number of tenants. The difference between commercial and residential property investing lies in the way of defining the value. The owners of commercial property can increase its value faster, in comparison to residential type.
The benefits of investing in the residential type of real property are the cost of entry that is usually less than for the commercial category of real estate. The other advantage is a better performance during the economic crisis – people always need housing, no matter what changes happen in the economy. In addition, residential real property investors often have a larger pool of potential tenants or buyers.
If we compare the drawbacks of investing in commercial property in comparison to residential real estate, we will face the following problems. Commercial real property is more sensitive to the negative changes in the economy – the demand for the offices usually drops during the economic downturn. The value of commercial properties tend to drop very fast, it is harder to find the tenants, and the changes in infrastructure define the success of the failure of the investment.
Launching the Business
Before creating the business, you need to focus on the several steps that we will describe below. These steps will help you to create a plan.
- Determine the aim of your business. Think of the focus of the business, what tasks and problems it would solve. Define the target audience. This should be made at the beginning to avoid some mistakes further.
- Make a business plan. It is important to plan things ahead, a few steps forward, to have a clear view of the final goal. You need to create a very detailed business plan and think of every vital issue – how you will attract the new clients, how you will launch the business at the beginning, etc. A good plan is a key to future success.
- Think of the initial budget. Firstly, you should calculate the amount of money needed to set up your business. Create a budget that includes office space, promotional materials, extra costs, and other expenses.
Marketing a Real Property Business
Marketing is a vital factor that affects the effectiveness and success of your business. Due to the marketing approach that you choose, your clients will be able to discover the services offered by your business. There are several common ways to promote your business.
Traditional approach. Traditional marketing methods are quite simple but effective. These methods include the flyers, printed advertising and the signs “For sale” on the facade of the building.
Business website. This marketing method has a lot of benefits over the traditional approach, and it works better for the clients.
Optimization of the website. After creating the website, it is necessary to make it visible for search engines, otherwise, the future clients will not be able to find it on the Internet among the thousands of other pages, created by your competitors. Optimize the website to rank it higher in the search results for easier access.
Social media marketing. Social media is the other effective approach that helps to reach new clients. Some well-known world brands use social media as platforms for creating promotional campaigns and enlarging the target audiences. If your business has a narrow niche, social media is also a perfect way for people to find out more about your business.
Pay-per-click ads. This marketing method has proven its effectiveness, especially for social media. The ads are usually aimed at the target audience in the defined area. The potential customers will see the advertisements related to their previous search results or interests and the chances for your business to receive new offers are very high. This approach needs a great amount of costs but it is worth it.
Email campaign. An email campaign is a method that is suitable not only for new clients but also for your regular customers. Through this marketing method, your business can build customer loyalty, sending some important information and news.
Starting your business in real estate from scratch is always not an easy matter. It requires a lot of time, effort and knowledge. There is a great number of things to consider in the beginning. The decision to launch the business should not be spontaneous, it should be a well-thought-out plan of action. Note the basics that we listed above. You need to think of your business plan, marketing activities, calculate your budget and include emergency costs, consult with the specialists in your sphere of business. Every goal should have a deadline and be very clear and specific. Only if all the listed above conditions are met you are likely to achieve great results in real estate investing.