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Setting Up A Real Estate Business In New York

By RealtyBiz News | June 1, 2024

Are you looking to launch a New York real estate business? Whether you’re looking to become a broker or agent for commercial and residential real estate, there are important steps to consider.

A career in New York real estate can be satisfying, lucrative and exciting. Planning for such a career and establishing your real estate business means understanding some key factors shaping your company’s success.

1. Choose the Right Business Structure

As a business owner, one of the most essential decisions you need to make is the business structure for your company. A business structure is the legal basis for your company and will greatly shape the way you operate.

Different business structures have a significant impact on how you operate, your tax obligations and your liability.

A limited liability company (LLC) is one of the most popular options for real estate businesses in New York. An LLC provides limited liability protection for your business and extensive operational flexibility.

In an LLC, you and any fellow owners can choose to operate the business in several ways. Owners (called members) can function as a member-managed company or a manager-managed company. In a member-managed structure, you or one of the other owners runs the day-to-day business. In a manager-managed structure, you hire a manager to run operations.

From a tax perspective, an LLC is simple. The LLC is known as a “pass-through” entity, which means that the company itself is not taxed. Instead, any income and costs are passed through to the owners’ individual tax returns.

An LLC is a popular choice due to the liability protection for your business it provides. With an LLC structure, your personal assets are protected in the case of a court judgment against your company. That means that creditors cannot seize your home, car or savings.

To establish an LLC in New York, you’ll need to register your business and declare a registered agent, who will receive legal documents on your behalf.

2. Obtain a Real Estate License

Like most states, New York requires real estate professionals to obtain a real estate license. The licensing requirements and process are straightforward and it takes some time and study.

There are several requirements for obtaining a real estate salesperson license, including:

  • Be at least 18 years old
  • Register for and complete a 77-hour course from the New York Department of State
  • Find a licensed New York state real estate broker to serve as your sponsor
  • Schedule and pass an exam with the state Department of State Occupational Licensing Management. The exam will cover multiple components, including real estate regulations and principles and fair housing laws
  • After you pass the exam, complete an online application and pay the fee to apply for your license

The New York real estate salesperson license course has multiple components, including:

  • Agency, license and contract law units
  • Commercial properties
  • Environmental issues and regulations governing land use
  • Property management
  • Real estate investments and finances

To receive your license, you’ll also have to undergo a background check and be fingerprinted. You’ll also have to complete training in implicit bias and fair housing.

With a license in place, you can legally represent buyers and sellers in the state. Once licensed, you’ll need to complete 22.5 hours of coursework every two years to maintain your license.

How to Start an LLC in New York | Tailor Brands

3. Know the Regulations

No matter where you work, your business will be governed by various local and state regulations governing the real estate industry. Among the most common regulations you will face are:

  • Zoning Laws. Different areas within a municipality will be zoned for use for a certain purpose or purposes. These guidelines, for example, will allow commercial properties to be built only in certain areas, typically not in residential neighborhoods. Exceptions to these zoning rules typically require a special permit
  • Building Codes. Building codes are in place to ensure that new construction is done with safety in mind. Building codes can also affect renovations to existing buildings.
  • Occupancy Permits. Before residential or commercial tenants or owners can live or work in a space, occupancy permits may be required. These permits are granted after inspections to ensure that building codes are being followed

4. Develop Your Client Base

A real estate business often succeeds or fails based on the size of the potential client base. Whether you’re representing buyers, sellers or owners leasing property, you want to have an extensive clientele list. Building this list can take some time.

Your client list can come from many sources. Start with friends, family and existing business relationships. Let them know you’re starting a business, the services you offer and how you can support them in their real estate needs.

Having a strong database of potential clients is essential for business success. You’ll likely need to advertise and use marketing strategies to augment your initial list.

A comprehensive marketing plan will likely include multiple components. A website is a good place to start. On your website, you can detail the services and benefits you offer to potential clients. Consider augmenting your online presence with a strong social media strategy that focuses on the platforms where your audience spends a lot of time.

5. Understand the Finances of Real Estate

As a real estate agent, you will likely be working under a different financial model than base salary. Many real estate income packages are driven largely on commissions, i.e. a percentage of the real estate transaction you receive for your work.

That means your income will be variable from month to month. The timing of sales will shape when you are paid. You will also be at the mercy of the broader economy and real estate market, the values of the properties in which you work, how you’re able to build your client base and the fee split you agree upon when you’re your brokerage or agency.

Here are some definitions of the key financial terms in real estate:

  • Commission. The percentage of a property’s sale price paid to real estate agents
  • Split. The portion of the commission that you earn and the portion that goes to your company. That company portion is likely the source of income for all your business expenses
  • Costs. The core costs of your real estate brokerage, including licensing fees, property mortgage or leasing costs, utilities, salaries to other employees, marketing and general business expenses
  • Average Salary. Varies widely and is dependent on market conditions and sales volume

6. Plan for Income Variability

Your success as a real estate business owner will depend largely on the work and relationships you build. When you’re starting out, however, your income can be highly variable.

Preparing for the launch of your business is important. You may need to build up savings, tap into existing savings or borrow to support some of your living expenses.

If you don’t have this financial cushion, you may need an alternate business stream while starting. This income will support you during the early and uncertain days as a real estate professional.

7. Understand Real Estate Contracts and Processes

The real estate industry is a complex, fast-moving space. It’s important to remember that the transactions that you’re involved with may be among the biggest in people’s lives.

Real estate transactions are big, important and complicated legal affairs. Understanding the legal side of real estate and the contracts that are used is critical. As a new real estate professional, it is wise to hire an attorney to help with the contracts and other legal machinations.

Remember, too, that there are multiple steps to the process. Negotiations are variable and fluid. Inspections and contract terms are a norm in the real estate industry. You’ll want to understand the pace, processes and cadences of a real estate transaction.

A career in real estate is a powerful opportunity that can reap major rewards. Understanding the structures, licensing, legal processes, finances and other procedures to complete can position your business for great success.

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