One of the common question young professionals ask when considering entering the real estate industry is “what is the career growth potential as a real estate agent?”
Well, there are a lot of career choices one may consider in the real estate industry, such as branching into property management, mortgage agent, and becoming a landlord. The last option is popular among successful agent who have earned and saved up enough money to acquire a property and start renting out to collect rental income. There is another path a successful agent may choose within the industry, which is to start one’s own real estate brokerage. There are two types of brokerage on the market; the established franchised brokerage with brand names, such as 21 Century or ReMax, and there are the independent start-ups.
Why Start a Real Estate Brokerage
Real estate agent relies on the commission from each sale. The income will stop once they take a break, and thus they must continuously look ahead and ensure there will be more deals in the future. Opening one’s own brokerage marks the transition from a salesperson to a business owner. Your income will not be solely based on the number of deals you close, but also the deals closed by agents working in your brokerage.
Unlike an agent, the brokerage owner can be away on holiday, while still have income coming in as long as the agents are performing. This is an entirely different mindset from a sales agent. However, it is also a big responsibility on the owner’s shoulders to provide quality training, effective marketing initiatives and administrative support to attract good agents as well as helping the agents to do their job smoothly.
More importantly, owning a brokerage allows the individual to grow the business and scale up. As a real estate agent, your capacity is limited by the finite amount of time you can devote to work. However, as a brokerage owner, the earning can increase as long as there are more agents closing deals in the name of your brokerage.
In addition, there are a variety of tax saving strategies available to brokerage owner that aren’t available to a real estate agent. The most obvious one is the entitlement to the corporate tax rate (15.5% in Ontario) on taxable income, instead of the personal tax rate for self-employed sales agent (up to 48.6% in Ont.). This is a significant tax saving even if there will be a second taxation at the personal level, which could still translate to tens of thousands of dollar a year, depending on the net income claimed for a particular tax year.
How to start a brokerage
- Save up for the start-up costs for business registration, office equipment, logo design, furniture, website and utility. Also have enough budget for the marketing campaign and at least 6 months of rent. In addition, make sure all legal and regulatory requirements for starting a real estate brokerage are met.
- Set up the errors and omission insurance for your brokerage. This is a common practise in the industry, which will protect you and your agent in the event of such clumsy liability.
- Recruit quality real estate agent. Be sure to find the ones with the work attitude and personality that fit with your brokerage. Also be sure to state in the contract how the commission will be split, the performance expectation of each individual, the code of conduct, company policies and what type of services will be provided by the brokerage to the agent.
Make sure to continuously develop client base and increase profile. Sponsorship, advertisement or online marketing all can increase the public awareness of your firm. Don’t forget this is a relationship oriented business. Many brokerage can also specialize into a specific market segment, such as commercial real estate (see market status) or farm land real estate. This career choice is for people who are capable of handling more responsibilities and manage an actual business. If this is your long-term goal in the real estate market, you should start considering this option more closely.
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