1. You would get setup with a "master domain" which would most likely be your site that you would use to sell hosting to others.
2. There are a variety of ways to pay. You'd either need a merchant account or to register with 2checkout.com or a similar third party processor. 2checkout.com is one of the less expensive alternatives to start.
3. I can't make a suggestion here. What type of account are you looking for? Windows/Linux? What type of control panel are you looking for? There are many many choices out there
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Also worth mentioning: If you dont want to pay the setup fee for a 2Checkout account you could always sign up for a PayPal Business Account which attracts no setup fees. Bear in mind however that persons from certain countries may be unable to use PayPal.
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Yeah but Paypal I would think is the best way of starting up, then when I got a bit more money I could buy something a bit more complex.
Im not sure but would a paypal business account just get all the details that the customer fills in and sends me the money to my paypal account and then I could just add the hosting account he wanted manually?