Are you looking to start a real estate business but short on capital?
You’re not alone. More than 42 percent of millennial entrepreneurs say lack of capital is the one thing holding them back from turning their ideas into profitable businesses.
The good news is money isn’t always a problem, as long as you know where to look.
In this article, we’re sharing ways to secure funding for your real estate business.
Why Start a Real Estate Business?
In a marketplace where most small businesses fail, it’s vital to choose the right type of business.
With a real estate business, you’ve made a smart move, and here is why:
The Industry Is Trending Upwards
The financial crisis of 2008 had a major impact on the real estate industry. Fortunately, that’s now behind us, as the industry is showing strong signs of growth.
In 2017, for instance, over 6 million homes (5.51 million existing and 612,000 newly-constructed) were sold in the United States. This is an increase from 2016.
The commercial real estate sector is also booming, with investment sales transactions hitting $236 billion in the first 6 months of 2018.
There couldn’t be a better time to start a real estate business.
Unlimited Income Potential
When you start your own business, you gain the potential to earn as much as you want.
In real estate especially, your income potential is unlimited. Depending on how effectively you fund and market your business, there is no limit to the number of clients you can attract. Neither is there a cap on the number of real estate investments you can make.
Make a Difference in People’s Lives
You don’t have to be in the health sciences to make a real difference in the lives of people. A real estate business gives you the opportunity to help your clients find and buy homes, making their dreams of homeownership come true.
No Strict Startup Requirements
To start a law firm, you need to be a licensed lawyer. To start a private medical practice, you must be a qualified doctor. To start a public accounting firm, nothing short of a CPA credential will cut it.
What about starting a real estate business?
Yes, you need training as a real estate agent, but this training won’t take years. In most states, it takes between 4-6 months to become a licensed real estate agent.
And if you want to start a brokerage firm, you’ll need additional training, which takes about two years to complete. Brokerage firms are more complex than real estate agencies, so be sure to find out more about what it takes to run a successful brokerage business.
Grow Your Own Team
A real estate business is rarely a one-man show.
To build a successful real estate agency or brokerage firm, you need more hands on the deck. This means hiring office administrators, marketers, real estate agents, and other professionals.
Growing your own team is a deeply satisfying aspect of business ownership.
Funding Strategies for Your Real Estate Business
Now let’s dive into the money.
1. Use Your Own Funds/Bootstrap
It’s understandable that you might be reluctant to dig into your own pockets, but there are solid reasons to do so.
First, 82 percent of entrepreneurs use their own funds as startup capital.
Second, using your own funds ensures you maintain 100 percent control over your business. You’ll be the boss, steering the ship as you please.
However, personal funding has its drawbacks. If the business fails and you had invested all your savings, you could fall into a financial disaster.
Now, what if you don’t have any personal funds to channel to your business or what you have isn’t enough? The following funding options will come in handy.
2. Friends and Family
Do you have a rich friend or close relative?
If yes, it’s time to take your relationship with them to the next level. Approach them and strike a business relationship.
You could ask them to lend you the money straight up or offer them a partnership opportunity.
If they prefer to lend, don’t treat the money as a soft loan. It’s advisable to draw up an agreement detailing the terms of the loan, including interest rate charges, repayment period, and what happens in case you default. If they choose a partnership, ensure you have a partnership agreement in place.
What if you don’t have a friend or relative who can singly offer the money you need?
Consider asking your friends and family to make a collective contribution. If they believe in your business plan and want the best for you, many will gladly contribute.
A lot will also depend on how you make your appeal. You don’t have to refund the money they contribute. Rather, you can promise to render them free real estate services once your business is up and running.
3. Get a Bank Loan
For decades, banks have always been the go-to source of money to start a business.
This, though, doesn’t mean everyone qualifies for a loan. It’s especially challenging for new, small businesses to get approved for a loan because they have no credit record lenders can use to measure their creditworthiness.
To enhance your chances of getting a business loan, start by developing a relationship with a local bank that has a reputation for supporting small businesses. Open an account, transact often, and get to know the bank’s loan officers. After about six months, you can then apply for a loan.
Besides loans from traditional banks, you can also approach micro and online lenders. The good thing about these lenders is they typically don’t do credit checks. As long as you can prove your ability to repay the loan, you stand a strong chance of getting approved.
Regardless of where you get the loan, credit financing also enables you to maintain your business ownership stake. If you default, however, the lender could seize any assets you had attached as loan collateral.
4. Approach Equity Investors
If you watch “Shark Tank,” the ABC television show where entrepreneurs pitch business ideas to investors (sharks) with the aim of securing funding, then you already have a clue of what equity investing is.
Equity investors take a percentage of your ownership stake in your business in exchange for the money they give you.
Let’s say you own 100 percent of your company. Depending on the company’s valuation, you could offer anything from 1 to 50 percent stake for a certain amount of money. If you give away 51 percent or more, you’ve effectively given up majority ownership. That’s no longer your company!
But unlike credit financing where you have a legal obligation to repay the money, equity financing has no such stipulation. If the business fails, investors will lose their money.
The thing with equity investors is they love investing in innovative businesses with high growth potential.
Is this the case with your real estate business?
If yes, start looking for investors. A simple “equity investors network” online search will reveal websites where you can apply for equity investment.
5. Digital Crowdfunding
2017 saw $34 billion raised through crowdfunding
Your real estate startup can also get a piece of the pie, but it all depends on your innovativeness, the crowdfunding platform you choose, how you package your message, and how effectively you promote your campaign.
While crowdfunding can be a promising source of business funding, it’s not without drawbacks. If your business is uniquely innovative, somebody can copy your idea. Some platforms will also return money to the contributors if your fundraising goal isn’t reached.
6. Government Grants
The government is the last place is you want to look for business funding, mostly because of the bureaucracy and strict requirements.
When push comes to shove, though, you can try your luck.
Go to grants.gov, search for grants and apply those targeting real estate businesses. As long as you comply with all the requirements, there’s a chance your business could be awarded a grant.
Government grants are just that, grants. It is money you’ll never need to return.
Get Funding and Grow Your Business
Capital is one of the most important factors in business. Without it, your idea will remain an idea or your existing real estate business will stall and collapse.
Lucky for you, there is a good number of funding sources. From bootstrapping to securing bank loans, approaching equity investors and running crowdfunding campaigns, your quest to get funded just got easier.
Your task now is to choose the option that best suits your business and start taking steps towards the money.
Good luck and keep tabs on our real estate category for more tips.