Introduction

Over the last several years, the real estate industry in almost every major city market has experienced a boom. Property values are increasing and people are selling and buying homes at an amazing rate. While fortunes can be made quickly in the real estate industry, most people only think about entering the industry as a real estate broker. While becoming a real estate broker is a very lucrative real estate position, there are other positions in the real estate industry that are capable of generating a healthy return for you. If you are considering chasing after a portion of the multi-billion dollar real estate industry pie then you might want to consider these positions: real estate broker, real estate appraiser, real estate inspector, or a real estate flipper.

Real Estate Broker

The most visible real estate position that most people are familiar with is the real estate broker. This person can represent sellers exclusively, they can represent buyers exclusively, or they can represent both buyers and sellers. The difference is what portion of the commission from a sell of a house that the broker will get. If they are the listing agent then they get half of the commission regardless of whether they are the ones that sell the property or not. Conversely if they are the agent that sells the house, and are not the listing agent, then they receive only half of the commission with the remaining half going to the listing agent. If the agent works as both the listing and selling agent and a property sells, then they get all of the commission.

On average the total commission is 5% of the sale price. In areas where the housing costs are between $500,000 and $1,000,000 for a midlevel home, such as in Los Angeles, this commission will range between $25,000 and $50,000 per home sold. With the frequency of homes that are put up for sale weekly this can lead to an enormous income potential. Even in areas where homes only sell for about $150,000 to $200,000 for a midlevel home the commissions will still range from $7,500 to $10,000 per sale if the agent acts as both the listing and selling agent. If the agent only sells one house a month, this can still result in an annual income of between $90,000 and $120,000.

If these kinds of returns sound good to you, then you might want to become a real estate agent. To do this you will need to contact your state’s department of real estate. They will tell you how much pre-license education you will need, what schools they will accept credits from, what professional requirements need to be met, what fees will be charged for your licensing, and where and how to take the state real estate licensing exam. In general you will need to complete between 60 and 90 hours of pre-licensing education, and most states will accept correspondence program credits as long as the school has been pre-approved by the state.

While you are taking the required courses you will also probably need to gain work experience in the real estate industry. This can be accomplished by working as a salesperson for an established real estate broker. Here you will get on the job training for the work that you will be doing once you get your own license. Other options include working for a property management company, escrow insurance company, or some other real estate related business. Check with your state’s department of real estate to make sure that the company that you work for will be accepted as real estate experience.

When you finish your education and experience requirements you will want to fill out the required paperwork for your licensing exam and pay any filing fees. Your next step is to study for the real estate licensing exam and pass the test. Without passing this test you will not be able to become a real estate broker so study and be prepared.

Once you have passed the exam you will need to fill out the paperwork associated with licensure and pay yet more fees. These fees will include your annual licensing fee, recovery account, and renewal fee. The amount of your first year fee will depend on whether it is an odd or even year.

Every state will have different continuing education requirements so check with your state department of real estate for the requirements that are applicable to your situation. In general expect to take about 12 credit hours of continuing professional education each year.

Once licensed you will probably need to purchase a business license as well as business liability insurance. Again state requirements will vary. You will also need to have a dependable and nice looking vehicle to drive to properties. You can have a permanent sign painted on the vehicle and deduct the mileage as a business expense, so make sure that you budget for a new, or at least a newer vehicle that is in step with the clientele that you want to attract. In this business appearance is everything!

Now you are ready to make money. Starting your business you should expect to be on call 24/7 until you are established. To help reduce the stress created by this amount of time devoted to your new business you may want to consider working with an established broker, or taking on a partner or two that you can split the on-call time between.

As a real estate broker you will need to know a lot about your market including: what buyers are looking for, what financing options are available, how clients can qualify for a mortgage, what laws are applicable to the sale of homes in your market, who your competition is, and how to target clients. In order to acquire all this information you may need to attend additional classes, seminars, and read as many trade books as you can get your hands on.

Real Estate Appraiser

If selling is not your strong point, but construction is, then you might want to consider becoming a real estate appraiser. This position requires less of a time commitment, but it is still a service that is in high demand. In fact real estate appraiser services are needed for more than simply the sale of a home. Other situations that require an appraisal include: divorce proceedings, getting a mortgage, taxation, placing a home on the market to sell, and even during probate proceedings.

An appraiser evaluates a piece of property including the main residence, any outbuildings or structures, the land, and any natural resources that the property hosts. This process can be done manually or by using a checklist. The appraiser has to know what the current market is like in regards to pricing and demand for certain elements. They also need to know a little bit about construction in order to determine the shape a house is in. All of these considerations are used to determine the properties fair market value. A private real estate appraiser can expect to earn about $200 to $300 per consultation.

To qualify to become a residential real estate appraiser you will need to obtain training and experience before you will be able to qualify to be licensed as an appraiser. You will also need to obtain a Residential License, Certified Residential License or Certified General License. Check with your state to see what license is required in your district.

Real Estate Inspector

A similar position to the real estate appraiser is the real estate inspector. This person is an expert in home construction and building regulations. It is their job to inspect a home and look for problems that a home has such as insufficient venting, leaky roof, foundation problems, or even infestations. They generally have a checklist of areas that they need to inspect, which follows state requirements. After the inspection is complete they fill out a report that tells the buyer if they found any areas of concern, or areas that will need to be repaired or corrected before a lender will be able to finance the buyer’s mortgage. Consultation fees for this profession again range between $200 and $300 per consultation.

If this profession appeals to you then you will need to take courses in home inspection. These courses are best done through a physical classroom that has field practicums as part of the class work. This way you get hands on experience conducting a home inspection before you try to convince someone to buy your services. In addition to classroom experience you will also need to purchase a business license, business liability insurance, and you will need to obtain a professional license for home inspection (if required by your state).

Currently only about half of the fifty states certify home inspectors so this may be one less fee that you will have to pay. However, check with your state regarding what licenses and certifications that you will need. Those states that do require certification usually have a training program created by the state that is offered to those seeking certification and licensing.

Real Estate Flippers

A new trend in the real estate industry is to flip real estate. This involves buying homes that have been abandoned, foreclosed, or are in need of repair at a low price, fixing them up quickly, and then selling them at a large profit before the first mortgage payment is due. While this seems like a no-brainer get rich quick opportunity, there are many issues that some people don’t understand before they enter into this profession.

First, flipping requires a large financial investment. You have to either have a lot of capital available to purchase homes and make improvements, or you need to have good enough credit to mortgage a home and pay for the improvements. You also need to have money in reserves in case you go over budget or if you are unable to sell the home and need to pay for carrying costs (paying the mortgage and taxes). To overcome some of these financial obstacles you may want to take a partner in this venture to help divide the financial burden a bit during the first few flips.

The next thing that flippers need to understand is politics. You need to know what people to talk to to get zoning and/or permits for construction. This includes knowing the areas that your properties are located in and what special considerations you will need to take, especially if the property is in a historical district. In historical districts you may be required to have exterior paint choices approved, as well as any physical alterations to the structure including adding decks, decorative elements, and what materials are acceptable for facades and architectural construction or reconstruction. Making friends with people in the permit department and with people who are on community boards will help make your flipping business run a lot smoother.

You will also need to be able to remain organized, on budget, and on time. At the onset of a new project make out a timeline of what needs to be done by when and who is responsible for getting what done by when. This will help you stay on track with your project and it will help you identify areas that may trip you up.

In order to ensure that you get your project done on time you will need to make decisions about colors and fixtures quickly and effectively. To help speed this process up, choose a pallet and décor scheme that fits with the architecture of the building as well as the current trends in decorating. Keep things neutral and basic, and spending extra money on quality items in the kitchen and bathrooms will help produce a more marketable end product. To reduce material costs develop a relationship with local suppliers and offer your business to them exclusively if they are able to give you a discount and guarantee delivery times.

One final issue that flippers need to understand is profit realization. When looking at a flipper’s track record you can easily see that they bought a house for $150,000, spent $50,000 on construction and then sold it for $300,000 with a profit of $100,000. This seems like a lot of money, however, what many people don’t take into consideration is how much tax they will have to pay on this profit amount. Since this is not the sale of a primary residency then short-term and long-term gains taxes may be applicable to the profit generated. If you buy and sell a home in less than a year than you will be subject to short-term gains taxes, however, if you keep a property for more than a year than you will be subject to the lower long-term gains tax. However, if the IRS sees that you have made many real estate transactions in a single year they may change your real estate flipping venture from an investment activity to a business operation activity, in which case your profits will be subject to regular, much higher tax rates. Keep this in mind when considering this profession.