- Is a real estate agency profitable?
- The costs of a real estate agency
- Taxes and setting up the company
- The Office
- The tools of the trade
- Employees and collaborators
- The real estate portals
- The real estate website
- Real estate marketing
- The total costs of setting up a real estate agency
- How many houses can you sell?
- Do the maths
The property market has its strengths and weaknesses over time. Some years there is little movement, and in other years there can be large economic bubbles, with lots of selling in between.
But even so, people are always buying or selling houses. Unlike other sectors, housing is a necessity for living. That’s what makes real estate companies endure and last over the years. So maybe a thought has crossed your mind:
Is it worth setting up my own real estate agency?
Is a real estate agency profitable?
Real estate agencies are basically like any other business. They are there to generate income and to be a profitable way of making a living – while providing a useful and valuable service.
A real estate agency generates income from the sale of homes; it takes a home from a private individual interested in selling and manages that sale. This involves several services:
Promoting the property to find buyers
Advising the owner on the selling price
Receiving viewings and persuading a prospective buyer to buy
Handling the paperwork involved in the sale and purchase.
All these services have a number of costs: staff salaries, office costs, marketing budget and so on.
So as long as your income is greater than your expenses, you have a profitable business. In other words, a business that makes money every month and stays afloat.
So how do I calculate profitability?
There are many ways to know how easy it will be for you to achieve profitability in your real estate business, but the easiest way is to start with your expenses.
If you can estimate how much it costs to keep your real estate business running on a day-to-day basis, you will have a clear idea of how many houses you need to sell.
The costs of a real estate agency
A real estate agency is comparable to any other physical business. In most cases, you will need to hire a team and open an office – although it is also possible to open a 100% online real estate agency.
Let’s take a look at each of your fixed expenses, which you’ll need to cover to make ends meet and keep your business afloat.
Taxes and setting up the company
The first expense you will have is the self-employment tax. In order to be self-employed in any profession, you will need to become self-employed in the eyes of the tax authorities. This includes real estate.
You can start selling houses in two ways: as a self-employed person or through a company:
As a self-employed person, you act in your own name and are personally liable. The advantage of being self-employed is that it is a simpler form of self-employment, and there are fewer associated costs. The management of a self-employed person is also simpler.
As a company, you can have a company in your own name and become an employee. This has the advantage that the company is a separate legal entity from you, and has some tax advantages. The problem is that keeping the accounts of a company is much more complicated than with a self-employed person, and there are also more expenses. For example, the self-employment fee can be up to €75 more expensive.
To start a real estate company, my recommendation is to start with the practical: be self-employed and have as few expenses as possible to be profitable as soon as possible.
Tax expenses: €640
100€ social security
160€ administration (labor, tax, and accounting)
You will also need to have a place to receive your clients. In most cases, this means renting premises and setting up a real estate office.
To do this you will have to buy office equipment: desks, chairs, wiring, computers… the initial cost is high, but from then on your biggest expense will be rent.
It is essential to have a well-located office so that you can be seen by everyone and people are interested in your shop window. In these cases, rent can be quite expensive: in a small town, a medium-sized office can cost around €1200 per month.
In any case, remember that the office is optional.
Instead of subjecting yourself to monthly expenses from the beginning, you can have a more secluded place. For example, an office in a business center.
An office is only necessary if you want to set up something big and with a large team. But nowadays it is perfectly possible to work online and sell flats through the Internet. Of course, you will not have the comfort of an office in the center of your city, but you can have a profitable business with much less risk.
Monthly office expenses: 2000€.
200€ water and electricity
100€ office supplies
100€ for miscellaneous maintenance
Whether you have an office or not, you will need working tools. That means you will need to buy a computer – laptop or desktop – as well as software tools for your day-to-day work.
Software tools are essential to your productivity as a real estate agent. Here is a short list of the most useful ones for a real estate agent:
Vendomia, as a real estate CRM: is necessary to keep track of your clients, manage your property portfolio, and publish to real estate portals.
Dropbox, to store your files: it allows you to have all your files in the cloud, both to share them and to safeguard them. If your computer breaks down, you will need a backup copy.
Microsoft Office, for managing documents: since you will have to work with documents and spreadsheets, it is essential that you use an office suite.
Adobe Photoshop, for retouching photos: if you don’t take good photos, people won’t be interested in your flats, it’s as simple as that.
Google Suite, for professional email: email is one of the most important elements of your business, so make sure you have a quality platform.
On top of that, you will need to have a monthly budget to buy tools and technology as you need them. Some of these include:
A good camera
A laptop or PC
USB flash drives
Chargers and batteries
It is best to allocate a small monthly amount for this type of expense.
Tools costs: 220€.
Real estate CRM: €70
Software licenses: €50
Employees and collaborators
Even if you decide to start your real estate agency on your own, you will need at least one assistant.
In the real estate business, there is a lot of paperwork to do: you have to keep the accounts up to date, respond to clients, run errands, send emails, and much more. All of this is fairly straightforward, but it’s time-consuming and will prevent you from selling houses.
That’s why you’ll need at least one person to save you time – an administrative assistant. Having an employee can cost you around €1400 if you include the social security costs and taxes associated with their employment.
Employee costs: €1400
1000€ net salary
400 for taxes and contributions
Real estate portals
To get potential clients, an easy way is to contract services on the main real estate portals. Depending on the type of flats you want to sell, it is very likely that one portal or another will be more useful.
Real estate portals should be one more expense in your real estate accounts. The amount to invest is variable, but in many cases, you can pay €500 or even €1000 per month. It all depends on the volume of your property portfolio and how many sales you generate per month.
What you should take into account is the optimization of your ads on real estate portals. Analyze at all times the money invested and the results you get, to know which portal works best for you.
Expenses in real estate portals: 300€.
The real estate website
If you have a real estate agency, you need to have a website. While paying real estate portals and getting clients in return sounds good, relying too much on them can become a problem. It’s out of your control and leaves you out in the cold.
That’s why having your own real estate website is important. Here you have all the control you need, and it is also advisable to invest in it to generate traffic and visits organically. It is not an easy task, but in the long run, a good real estate branding strategy can bring you more income than the portals themselves.
A website can be built at many prices, but as a minimum, you should expect to spend around €1000. That is unless you use a real estate CRM, which already includes it at no extra cost:
In any case, the important thing is that you can easily publish your portfolio of properties, and dedicate yourself first and foremost to selling.
Website costs: 1000€ (or 0€ with a CRM)
Real estate marketing
Finally, you need to put in place a real estate marketing strategy. Real estate marketing is what will help you to generate sales in the long term – for that, you can use many sales channels:
Real estate portals
You will need to dedicate time and effort to your strategy, as well as setting a monthly budget to spend on advertising. Portals already account for a portion of your expenses, so your property marketing can be focused on other media.
For example, you can start a real estate blog and position your website on Google. Or you can hire a billboard in a strategic location. Either way, you should always think about how to sell houses faster.
Spending on real estate marketing: €500
The total costs of setting up a real estate agency
As a business, these are the vast majority of costs that you will have to face month by month. In total, about €5,000 excluding taxes.
To this, you have to add your own salary. As you own the real estate, this can be a very flexible figure, but the norm is to earn at least €1,200 per month.
That means you need at least €6,200 per month. Or about €74,400 a year.
Now that you know what it costs you to keep the real estate agency open, you can make various estimates of what you would need to sell to be profitable.
The idea is to try different scenarios and see what possibilities you have to stay afloat.
Let’s try an easy target, an intermediate target, and a higher target.
How many houses can you sell?
This simulation depends on the city you lived in. Logically, a house is not worth the same in Madrid as in Albacete, so you will have to make your own numbers.
Let’s try with houses of an average of 200.000€, taking into account a commission of 3% (and minimums of 3.500€, although this figure is easily exceeded). That means an average commission of €6,000 per house. Your income would be:
10 houses per year: 60.000€ (-14.400€)
20 houses per year: 120.000€ (+45.600€)
As you can see, to stay afloat you should sell at least 13 houses per year. Do you see it as possible?
Make your numbers
Keep in mind that the numbers we have drawn are only an approximation. You can do without an office, or collaborators, and save on many aspects of your real estate. In fact, you may even have a competitive advantage.
Real estate is like any other business. Before you go into real estate, you should make a feasibility plan and have a rough idea of what you can earn versus what it will cost you.
This has been a simple example, and it all depends on the type of houses you want to sell, the area you are in, and the demand for flats.
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