How To Start A Real Estate Investment Company: 10 Steps You Need To Know
Are you interested in learning how to start a real estate investment company? Maybe you dream of leaving your 9-5 job behind, or youve already left and are ready to pursue more freedom both financially and with your time. Here, well go over what a real estate investment company is and provide you with the steps you need to start a real estate investment company.
How To Start A Rental Property Business Pick A Niche
After doing your research, your next step would be to pick a target niche.
When learning how to start a rental property business, youâve already made the choice when it comes to the investment strategy that you want to use. However, there aredifferent types of rental properties and different strategies for investing in them.
When learning about the different types of rental properties, you will come across two main types that are very common:
- Long-term rental properties
- Short-term rental properties
Each of these types has its own unique advantages and disadvantages, as they function very differently from one another.
Short-term rentals, in particular, require more research for investing in them due to the complicated laws and rules surrounding them, and how these laws differ from one location to another.
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Additionally, there are multiple strategies that you can use for investing in rental properties. For example, you can start a rental property business using your own home or primary residence by renting out a room or a section of your house.
You can also invest in rental properties abroad and rely on professional property management companies to run and manage the properties for you.
Learning as much as you can about these different aspects will help you determine which one you want to focus on, and this type of property or strategy will become your niche.
Why Its Best To Start A Real Estate Company Before You Start Investing
It is usually a lot easier to create a real estate investment company before you buy a property than to transfer a property you own to the company after the fact. For example, if you own a rental property such as a single-family property and want to transfer ownership from yourself to the company, you will have to execute and file a deed with the county showing a transfer of ownership. You’ll also have to update the insurance policy to have the company properly named as owner, and any lease agreements or contracts that may be in place with the tenants. While it can be done at any time, its far less time consuming and cost-effective to create the company beforehand.
In most cases, the benefits of starting a real estate investment company outweigh the negatives. However, there are circumstances in which it may not be the right choice for you. If you do feel it could benefit you make sure you do your due diligence on the various structuring types and the process of starting a company in your state.
As previously mentioned, speak with a qualified specialist to understand whether creating a company makes sense for you or not and which structuring would be best. Investors should consider the associated costs of creating and maintaining a holding company and ensure the cost is worth the protection and tax benefits the company can provide.
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Do Options On Real Estate Work For Buyers
Real estate options can, but rarely work, for buyers and/or sellers. In a booming real estate market, sellers don’t just have to tie up their properties, so they probably shouldn’t. And buyers should only take advantage of this opportunity if they are confident that they can complete the transaction later.
Review Your Accounting Processes Annually And Make Adjustments
When starting a real estate business, do not under-estimate the importance of a periodic review of your bookkeeping, accounting, and tax strategies. You neglect to take a hard look at the systems you have in place and the people managing those systems at your own peril.
Are you doing your accounting most productively and cost-effectively? Does your CPA have the right level of real estate industry knowledge to advise? Does your tax-preparer have the skills and expertise to keep you on the right side of the law? And finally , can you find ways to reduce your expenses while maintaining high-quality controls?
Take the time to reconsider your overall accounting strategy and find ways to strengthen and improve it.
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Business Plan Operations Setup
The second step is to write a business plan, which calculates cash flow expectations, establishes your private equity fund’s timeline, including the period to raise capital and exit from portfolio investments. Each fund typically has a life of 10 years, although ultimately timelines are up to the manager’s discretion. A sound business plan contains a strategy on how the fund will grow over time, a marketing plan to target future investors, and an executive summary, which ties all of these sections and goals together.
Following the establishment of the business plan, set up an external team of consultants that includes independent accountants, attorneys and industry consultants who can provide insight into the industries of the companies in your portfolio. It’s also wise to establish an advisory board and explore disaster recovery strategies in case of cyberattacks, steep market downturns, or other portfolio-related threats to the individual fund.
Another important step is to establish a firm and fund name. Additionally, the manager must decide on the roles and titles of the firm’s leaders, such as the role of partner or portfolio manager. From there, establish the management team, including the CEO, CFO, chief information security officer, and chief compliance officer. First-time managers are more likely to raise more money if they are part of a team that spins out of a previously successful firm.
Real Estate Private Equity
Starwood Capital Group Property
Real Estate Private Equity refers to firms that raise capital to acquire, develop, operate, improve, and sell buildings in order to generate returns for their investors. If youre familiar with traditional private equity, REPE is the same, but with buildings.
As the private in private equity suggests, these firms raise capital from private investors and deploy that capital to make investments in real estate.
Like traditional private equity firms, REPEs raise money from Limited Partners these are private investors . As an important fine point, REPEs raise capital for specific funds . These funds have their own mandates meaning they have specific types of real estate investments they look for.
Another important thing to understand is that REPE funds are closed-end funds meaning that investors expect to get their money back within a specified time frame usually within 5-7 years.
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How To Find Great Investment Properties
Ever wonder how real estate investors actually find all the low-cost, high-profit deals they invest in?
Wouldnât it be nice to know a few of their secrets so that you can take advantage of these deals too?
You can in the real estate course âReal Estate Lead Generation: 17 Ways to Find Great Investment Propertiesâ.
There are dozens of discounted investment properties available in your area that you can either flip for profit or rent out for passive monthly income.
You just need to know how to find them.
In this course, youâll learn:
- 17 strategies, such as Bandit Signs, Fire-Damaged Properties, Estate Sales, Pay-Per-Click Ads, Referrals from Property Managers
- Access the top 50 MLS keywords for real estate investors to identify great deals
- And more!
Watch the real estate course here.
Profiting From Real Estate Syndication
A deal sponsor provides a valuable service for passive investors finding, vetting, closing on, and operating a lucrative commercial property. Passive investors fund syndicates because they do not have the time or the expertise to perform all of these tasks themselves.
That said, sponsors will typically co-invest in projects. In most cases this means the sponsor will contribute anywhere from 5% to 20% of the total equity needed and this will be invested on the same terms as individual, passive investors. Known colloquially as skin in the game, by having something to lose, the co-invest helps ensure an alignment of interest between the sponsor and their investors.
For this reason, and because the sponsor will be doing all of the work required to execute on the business plan for their deals, passive investors will also compensate the deal sponsor for their time and expertise. If the sponsor has a track record of success, they will agree to pay the sponsor a promoted share of the projects profits which is a bonus for delivering predefined return hurdles.
Syndication companies can therefore generate revenue from their sponsorship in at least three ways:
- A percentage of the collected rent. Anywhere from 2-5% of the gross receipts. This is the most common form of compensation, especially for new sponsors since their payment directly depends on the propertys financial performance.
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How To Start Investing
Start investing as soon as possible. Investing at a young age is one of the best ways to get a solid return on your money. Decide how much you want to invest. How much you should invest depends on your investment objective and when you need to achieve it. The general investment objective is retirement. Open an investment account. If you don’t have a 401, you can invest in an IRA for retirement, say B. in a traditional or Roth IRA. Know your investment options. Whether you invest in an employer-sponsored 401 or similar retirement plan, a traditional investment account or Roth IRA, or a standard investment account, choose Choose an Investment Strategy. Your investment strategy depends on your savings goals, the magnitude of your needs and your time horizon.
What Are The Different Types Of Real Estate Investment Strategies
Real Estate Investing involves purchasing property whether it is a house, commercial property, or land to sell or lease. There are many types of real estate investing strategies, all with varying processes and requirements to start. Many of these strategies can be done with little to no initial funding. Below are the most common real estate investment strategies:
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Should You Buy Real Estate As An Investment Over Time
Real estate is generally a good investment option. It can generate constant passive income and can be a good long-term investment as its value grows over time. You can even use it as part of your overall wealth building strategy.
Nasdaq Composite Index,How To Define Nasdaq Composite Index?The Nasdaq Composite Index is a market capitalization weighted index of over 2,500 common shares listed on the Nasdaq Stock Exchange. Types of securities in the index include US Certificates of Deposit, Common Stocks, Real Estate Investment Funds , and stocks in a limited partnership. The index includes all stocks listed on the Nasdaq that are not derivatives, preferred shares, NDS, exchange traded NDS or fixed incom
Hire Employees For Your Technical And Manpower Needs
When setting up your property investment business, you may be tempted to skimp as much as possible to reap the lions share of the profits for yourself. However, its not a good idea to go it alone during the property search on your first couple of go rounds. No matter how much market research you do, youre not going to be an expert the first time or two you purchase income properties.
In addition, realtors understand the market within a given geographic area better than you ever could. Your goal should be to find the worst houses in the best neighbourhoods and spruce them up to reap the biggest rewards. You dont want to get hung with a mediocre property in a neighbourhood thats on the decline. This may mean sacrificing some of your predicted profit, but its a valuable learning experience that will help you cut the cord in the future.
The Service Delivery Process of the Business
If you sincerely desire to enter the real estate field, to purchase property as your investment, there are many ways that you can do it. Perhaps the simplest way of all, and the starting point of many real estate fortunes, is called the Buy them, Fix them Method. This refers to the strategy of buying properties needing work and fixing them up to increase their value.
There are several steps for you to follow in this method.
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Prepare A Detailed Cost Analysis
Tough it may be relatively simple to enjoy short-lived profits, developing a viable real estate investing business that can last for the long-term requires additional skill and effort. Whether focusing on apartment buildings or commercial property. Listed below is a detailed cost analysis of starting a small scale real estate investment business.
- Lease $2500
- Management team $15, 000
Total = $542,700
The cost of starting a real estate business might be big but its profit when managed well can be overwhelming. From the well researched cost analysis above it will cost a staggering $500,000+ to start a small scale real estate investment, showing how intense and rich the industry is!
Start An Airbnb Management Company
An Airbnb management company manages every aspect on behalf of an owner and manages a complete day-to-day running of a rental property.
The services offered by the AirBnB management company includes: marketing a property, optimize financing, meet and greet guests, repairs, maintenance and cleaning.
An Airbnb management company fee structure is generally based on commission, flat rate and guaranteed income.
AirBnB management companies can easily increase the Rental Income by a minimum 30% to 50% without compromising on the guest experiences.
To become an Airbnb property manager, one should be able to find homeowners who will be interested in the services offered by you. Airbnb property managers can make an average annual salary of $55,000 or $27 per hour.”
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Rehabbing : Fixing & Flipping Your First House
Have you wanted to flip a piece of real estate, but youâve been hesitant because you donât have the construction experience, the money, or you have no idea where to start?
Thereâs a solution for each of these challenges: education.
âReal Estate Rehabbing 101: 7 Steps to Fixing & Flipping Your First Houseâ provides this exact education, taught by professional real estate investor and contractor Shawn Tiberio.
In this real estate coaching course, youâll learn step by step:
- How to buy, remodel, and sell houses using a proven system
- How to find and acquire the perfect âfixer-upperâ property in your local area
- How to make âhigh-ROIâ improvements to the property that will enhance your resale value
- How to manage the entire renovation process so that itâs completed on-time and on-budget
So if youâre ready to fix and flip your first real estate deal, you can find the real estate course here.
Do You Have To Be A Real Estate Agent To Manage Your Properties
No, you dont need to be a real estate agent to manage your own properties. However, depending on the location of the properties, you may need other licenses, such as a business license and rental property licenses. You can check with your local municipality to see what is required.
You can also visit our guide on how to become a real estate agent for more information about the process if you would like to take this career step.
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Become A Real Estate Agent
Real estate agents are professionals who assist clients in marketing and selling their properties. They also assist the buyers in purchasing properties. Their services include meeting clients, advising them about market conditions, providing guidance through the process of buying or selling properties.
The real estate industry has grown rapidly in the past few years and is likely to grow in the coming years as well. To become a real estate agent, you will need the below skills to perform the task efficiently:
- Administrative work: scheduling appointments, managing the property listing, creating legal documents and contracts
- Research: perform market analysis, search for properties
An average salary of a real estate agent is $50,000 in the US. Every states real estate licensing requirements are different. Based on the state’s requirement, a real estate agent will need to pass the real estate license examination.
A real estate career can be financially rewarding. However, the work requires good management skills, organization skills, customer service, handling complex paperwork and socially promoting yourself.
The pros of becoming a real estate agent include earning extra commission from clients and also setting your own working hours.
Is Real Estate The Best Investment
- Passive income. It’s important to find a way to separate your time from your income, at least some of your income.
- diversification. Diversification is an integral part of any investment strategy.
- It’s a physical blessing. Some types of investment property offer inflation hedging because it is a physical asset that can be monetized through rental.
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Great Annapolis Property Management Helps You Succeed
When reading about how to get into real estate investing, remember that success stories are rarely an easy path, and becoming a millionaire real estate investor won’t happen overnight. While very rewarding, most real estate investing is a hard-work business, where you put in a lot of good research and some old-fashioned sweat equity getting the rental into great shape. However, to make a rental property a truly passive form of investment income, property owners need help! Hiring a professional residential property management company is the best way to build a successful real estate investing career without doing much of the work yourself.
A property manager can be a great way to regain some time and move toward a less all-consuming role in your real estate investing business. Renters Warehouse BW Metro helps new investors get started well and build long-term success with our property management services. If you’re ready to learn more about investing success, give us a call!
Get more insights with a free copy of “How to Invest in Real Estate: A Guide!”