You’ve decided to start your real estate business. Good job! Maybe you’ve already begun the process of setting up shop. Even better! The office space is ready, and you’re working on forming the relationships you need to move forward. Perhaps your first few deals are underway, and you’ve got some staff by your side.
As your real estate startup starts to take off, you want to ensure it has staying power. Seeing your business succeed in the long run is one of the reasons you’re doing this. The question is, what strategies can you put in place to make it happen? Let’s look at four possibilities.
1. Understand Your Niche
Real estate businesses may seem the same on the surface. While they share some similarities, there are noticeable differences if you dig deep enough. They’re the type of distinctions you’ve got to decide early on and understand well enough. In other words, you must carve out your niche while grasping what all that means.
Most notably, there will be market differences, including everything from zoning laws to competition. Take, for example, the type(s) of properties your startup will be investing in. Will you be focusing on commercial or residential? Single-family vacation rentals? Perhaps you’ll acquire and manage strip malls.
Another option is to buy and develop mobile home parks, which are considered commercial properties. Although most people think this type of real estate is residential, investors typically only purchase and maintain the land. It’s the homeowners who usually have the responsibility for the upkeep of their homes.
Say you decide mobile home parks will be your startup’s niche. A critical factor to consider is MH or mobile home zoning. Regarding zoning laws surrounding mobile home parks, Lifestyle Investing expert Justin Donald addresses a key challenge to consider.
Justin says, “One issue with an MH zoning is that it’s a place where you can’t build any more mobile home parks, which somewhat ties back to the zoning issue and that the homes can’t move. When homes can’t move, you have owners who will stay in the area.” MH zoning can become an investor’s competitive advantage since rent prices can be seamlessly adjusted regardless of economic challenges.
2. Identify Resource Needs
A key element of any business plan is identifying the resources needed to implement it. Resources include the software and tech equipment you’ll use. You’ll also want to determine staffing needs from a big-picture and granular perspective.
Think about property management as a starting point. Will you need to outsource this function, or would you prefer to hire in-house staff? If you go with the latter approach, will you have enough business to bring people on full-time? You could start with part-time maintenance and leasing employees, increasing those staffing levels as you grow your business.
However, consider what skills and expertise you can reasonably bring on board. This includes yourself, as some entrepreneurs wear multiple hats in the beginning. With this in mind, know that long-term success is tied to the execution of an idea.
Identifying the need for specialized resources influences how well you can execute your ideas. Even if you have marketing knowledge, including a background in advertising, you may still require specialized software, a part-time social media manager, or a digital marketing agency. An honest analysis of the demands on your time, capabilities, and implementation needs will reduce potential obstacles down the road.
3. Factor in Costs
A real estate startup will accrue expenses like any other business. Yet, there will be costs specific to your venture. Say your niche is strip malls, and you acquire your first property in your initial year of operations. The building is in relatively good shape, so you figure you don’t need to plan for any significant improvements right away. However, there are other considerations, such as taxes and maintenance expenses.
For instance, do the tenants contribute CAM fees for Common Area Maintenance costs as part of their lease agreements? What other upkeep expenses are tenants responsible for, such as HVAC repairs? In a shopping center with retail and office space, details like this will vary by the lease.
If tenants do contribute to common area maintenance costs, you’ll likely need to calculate reconciliations. Will you do this manually with spreadsheets, use a specialized accounting program, or pay to outsource the function? You’ll also want to estimate refunds and additional tenant revenue due to reconciliation calculations.
In terms of staffing, what will your onboarding costs be? Consider costs you can quantify and those that may be more challenging to assign a number to. For example, who will get employees up to speed? How much time is training going to take from other business activities? Even if you outsource specific functions, you’ll have onboarding time to consider, as vendors rely on your input and direction.
4. Have a Back-Up Plan
The unexpected can happen at any moment. In business, this could manifest as sudden market shifts. Volatility in the economy is an example. Consumer confidence can stall if there’s a whiplash-type effect with economic ups and downs. This usually means consumers delay or cut back on their spending, which impacts residential and commercial real estate markets.
Residential tenants may seek more affordable housing. They could also experience unwanted events like layoffs. Commercial tenants might see a drop in foot traffic and business revenue. Those up for lease renewals could decide to relocate. Some tenants may shut down.
A contingency plan for unfavorable market conditions can help your startup weather the storm. Strategies can include reserves and what actions you’ll take to address economic uncertainty. Could you offer flexible payment plans, discounted rates on longer-term lease agreements, and incentives? Other ideas include encouraging partnerships between commercial tenants to boost foot traffic.
Being able to pivot when the unexpected happens is part planning and part creativity. However, the ability to think on your feet and respond starts with anticipating what could go wrong. Outline your market risks, their potential severity, and what you can do to mitigate them.
Strategies for Long-Term Success
Your real estate startup’s long-term success requires vision and smart implementation. As an entrepreneur, you may be steering the ship. But effective steering means determining what can get in your way, plus the necessary resources to build and run the boat. With real estate, you’re providing a tangible product and service to the community. Your strategies must include immediate and lasting implications of your actions to stick around.