If you are to enter the commercial real estate industry and establish a new business, there will be certain costs and expenses that need careful consideration and planning. They can be merged into your business plan and overall cost structure.
Let’s assume that you want to establish a new real estate brokerage. Here are some of the main and most common expenses that will need to be considered:
- Premises – You will need to operate the business from a location in your town or city; that location should be relevant and central to your property market. In many respects the convenience of communication and technology will allow you to remain highly mobile as part of your business activities. In other words, you really do not need a large office with the associated high overheads. When you compare commercial real estate to that of residential, you will find that the requirement for an office location in a prime site is not as significant. Most of the negotiations and transactions that you are to be involved with will be conducted ‘on site’ or at the premises associated with the parties to the transaction. If you choose to lease office premises, there are variables of rental and occupancy costs that should be merged into your business plan; only lease the premises that you can afford, and consider the expansion factors that could be important to how you move ahead. The terms and the flexibility of the lease should also match your business intentions and requirements.
- Website and e-mail – Creating a website can be a technical and costly process requiring experts; your real estate website will need to take and or push the feeds from your listings to the portals. There is a mechanism to that process that requires an experienced website developer familiar with ‘xml feeds’ and the associated algorithms. At the very start of your business and in website establishment, the portals will be giving you more online presence and listing hits than your website, however over time your website should gain online relevance and many more hits as property owners and investors make online enquiries.
- Domain name – Choose a domain name that matches your location and your specialty rather than just your business name. The domain name should be something that relates to a common search that a person would undertake when looking for particular property types in your area. For example, let’s say your business name is ‘Rex Commercial Real Estate’. Most agents would just choose a domain name that incorporates those words; if your business is new to the area, the hits that you get from the search engines as a result of that choice will be minimal. It would be far more effective initially for you to choose a domain name that relates to your area such as ‘Your Town Commercial Real Estate’. After some 12 months when ‘Rex Commercial Real Estate’ has market share, then you could open up your other domain for that word grouping. In the end you could be running 2 websites each feeding leads and new business to you.
- Marketing material – The marketing material that you choose should be simple and direct; there is no need to spend a lot of money initially on marketing until you understand the elements of how you are marketing. At a bare minimum you will have business cards and letterhead. You may also require a brochure or flyer to drop into business letter boxes.
- Property marketing – All high quality properties and ‘exclusive listings’ should be ‘vendor funded’ when it comes to marketing. Pitch your real estate services on that basis. Any ‘open listings’ should be generically marketing at no great cost to your business.
- Signboards – As your property market is local in almost all respects, the signboard you choose should be well designed for layout, colours, and branding. The logo and colours of the board should match the business image of commercial property; primary colours suit commercial real estate more than ‘earthy colours’. Your logo and signboard branding should feedback consistently across your website.
- Postage – Initially the postage costs will largely be associated with direct mail with prospecting. Budget for undertaking a mail out at least once per month for 12 months. Depending on the size of your territory, that cost can be predicted.
- Database – Your database will be a key part of your business growth. Every agent in your brokerage will need a database strategy and system; they should be prospecting every day and the database will be critical to getting results in sales and leasing. Choose the database software system with due regard to your property market and property types.
- Business Name and Brokerage Licence – Depending on your location, town and state, your Business Name will be a cost as will the Brokerage Licence. You can investigate those costs at the licencing board for your area.
- Communications – Telephone and internet costs today are predictable and economical providing you choose the right plan and package for your commercial real estate business. You can get a ‘communication bundle’ including mobile telephone, internet, and fixed telephones. Try to get a ‘bundle’ that allows unlimited calls and a large internet data package; you will be using both methods of communication extensively.
- Memberships – You may want to take up a membership with your local ‘Real Estate Association’. That can be useful to help with information relating to industry trends and legislation changes.
- Franchise costs – Many real estate agents and brokers choose to be part of a franchise for the ‘systems’ conveniently offered. Some franchise groups do offer ‘systems’ advantages, however the costs should be compared and studied against those that you can get directly from outside suppliers; in most cases with franchises, the costs of ‘systems’ can be high due to the franchise group funding costs. Franchise fees generally come off the top of the commissions earned before other operational costs; franchise fees are usually between 8% and 10% of gross commissions earned. The question you must ask is how much value you get back from the franchise fees paid.
- Car parking – You will need convenient car parking and that should be near to your brokerage. There can be a cost associated with that parking so budget for it from the very start.
- Motor vehicle running costs – Most of the real estate business that we do is out in the local area and in the streets around our property market. Every agent should budget for running a motor vehicle, allowing for the many miles that will be covered each week.
- Office furniture and fitout – Your office should have a ‘professional’ image. The furniture and fitout of your office should suit the image you require and your branding as a real estate business. It is not unusual to spend $20,000 on a simple office layout; it’s a big cost so plan it wisely.
- Stationery Systems and Property Documentation – The very fact of property negotiation requires industry based documentation that can support the transaction correctly and legally. Contracts, marketing, leases, and other property situations all require certain documents. Make sure you have a good supply or source for these special forms and systems.
So all of these things add up and will have a real impact as you establish your real estate business. Create a budget for these items as well as any others relevant to your situation and property market. When you correctly understand your expenses budget, you will soon know how much income you will need to earn to reach your targets.