Real estate is a rapidly growing industry and starting a real estate business can be a lucrative venture. However, most beginner real estate investors act individually and never consider using a real estate investment company. Most of them simply don’t know the benefits of forming one or how to start a real estate investment company.
If you are looking to get into real estate investing, it may be a good idea to start a real estate investment company. There are several merits to using a real estate holding company to conduct real estate deals and manage your property investments. For instance, you will have certain tax advantages, reduced personal liability, and unlimited growth potential.
If your dream is to be a real estate millionaire, it’s important to have a good understanding of how to start a real estate investment company before you even make your first investment. Here are the steps involved in starting a real estate investment company:
1. Get the Right Real Estate Education
Having a good understanding of the real estate world is key to forming a successful real estate company. There are several key elements of forming and managing a real estate investment company that you need to be familiar with before getting started. For instance, you will need to know about the investment risks, tax implications, real estate investment strategies, the process of buying an investment property, the power of leverage, the meaning of basic real estate terms, regulatory requirements, etc. Therefore, getting the right real estate education will help you build your real estate investing business on a solid foundation.
Starting a real estate investment company doesn’t require a degree in real estate or attending expensive seminars. You can learn the basics of the industry through real estate books, blogs, and podcasts. You can also learn a lot by having an experienced real estate investor as a mentor and working with him/her.
2. Establish a Business Structure
For business purposes, you will need to select the type of business entity you want your company to be. Typically, you can start a real estate investment company as a sole proprietor, a partnership, a limited liability company (LLC), a C-Corp, or an S-Corp. There are some small real estate businesses that are operated with no formal legal entity as is the case with a real estate sole proprietorship. However, due to the liability risk in real estate deals, it would be wise to form an entity that distinguishes your personal assets from those of your business. You can do this through incorporation.
Related: Real Estate Partnership vs LLC: Which Should I Form?
Incorporation will help to minimize your risk and protect your personal assets. Moreover, with corporations, you can sell shares in the business and access more capital from other real estate investors. However, they are subject to double-taxation. Apart from the taxes the corporation pays, you will also be expected to pay taxes on the personal income you get from the corporation.
A real estate LLC is the most common structure for real estate investment companies. It offers benefits relative to other entity forms. For instance, it provides greater flexibility when delegating management responsibilities and in the distribution of profits. However, you may want to check with a real estate attorney or corporate accountant to determine the best way to structure your business.
3. Write a Real Estate Business Plan
After getting the right real estate knowledge and picking a suitable business structure for you, you will need to write a comprehensive business plan. A real estate business plan is a crucial tool when starting a real estate investment company. It will help to validate your idea, give your real estate business direction, and keep you on track. Without a plan, it would be easy to get distracted by minor setbacks. A well-written plan will also make mortgage lenders and other business partners more willing to work with you.
Among other things, your business plan may include the company overview, market research, short-term and long-term goals, real estate investment strategy, financial plan, and marketing plan. For instance, if you want to invest in rental properties, you should specify which rental property type you want to focus on, the number of rental properties you want to own, expected returns, how you intend to finance your investment, lead generation options, etc. Keep in mind that your real estate investment business plan will need to be reviewed and revised as your portfolio grows.
Related: 8 Best Real Estate Investment Strategies for Beginners
4. Secure Real Estate Financing
Financing a real estate investment company is arguably the most intimidating thing for most beginner real estate investors. This is because starting a real estate investment company typically requires a significant amount of initial capital. Many people think that you need to have a lot of cash to invest in real estate. However, there are many ways you can finance your real estate business even with little or no money. If you are wondering how to finance a real estate investment company, here are some options to consider:
- Mortgage loans
- Owner financing
- Real estate investment partnerships
- Home equity financing
- Private money loans
- Hard money loans
5. Build a Real Estate Team
When starting a real estate investment company, it may be tempting to go at it alone and reap all the profits yourself. However, this is usually not a good idea. Investing in real estate entails a variety of things that can become overwhelming if you try to do them all alone. Moreover, no matter how much research you do, you are not going to master everything at once. That’s why you need to build a team of real estate professionals you can rely on to help you through the investment process. This includes real estate agents, home inspectors, appraisers, accountants, attorneys, property managers, general contractors, etc.
Building long-term relationships with real estate experts you trust will help your real estate investment company grow faster. To network more with local real estate professionals, be sure to attend real estate functions and join real estate investing clubs.
6. Search for Potential Investments
Once your real estate investment company is in place, you now need to find a good property to invest in. The first step to owning multiple rental properties is to choose a suitable investment location. The conditions of the location should be favorable for investment. Consider the economic situation, demographics, job growth, infrastructure, social amenities, crime rates, etc. These factors will determine your expected return on investment. To get you started, check out the following market reports on major US cities. The data and information collected will help you decide where to invest in real estate:
- Miami Real Estate Market Report
- Philadelphia Real Estate Market Report
- Phoenix Real Estate Market Report
- Chicago Real Estate Market Report
- Austin Real Estate Market Report
- Orlando Real Estate Market Report
- Nashville Real Estate Market Report
- Los Angeles Real Estate Market Report
- Atlanta Real Estate Market Report
- Dallas Real Estate Market Report
To have a good understanding of the profitability of a real estate market, make sure you conduct an extensive real estate market research. You can also do a neighborhood analysis using Mashvisor’s Heat Map Tool. After finding a profitable market and neighborhood, the next step would be to narrow down your options. This will depend on your investment criteria. The best way to do this is through Mashvisor’s Property Finder. This tool allows you to quickly find profitable investment properties that match your preferences using filters like budget, location, property type, etc. You can quickly estimate the expected return on investment for each investment property using our Investment Property Calculator.
Once you buy your first investment property, your real estate investment company will have kicked off. You can now work on marketing and growing your business over time.
Related: How to Do Investment Property Analysis
The Bottom Line
When starting a real estate investment business, forming a real estate investment company is a great way to grow and succeed as a real estate investor. Real estate investment companies are a popular choice for investors because of the many benefits they offer in terms of asset protection and taxation. You can also grow your team, increase your profits, and expand as you go. If you equip yourself with the right real estate education, a good plan, and take decisive action, you can start a successful real estate investment company in 2020 and build wealth.