Many people want to start a real estate business, but almost immediately lots of questions spring to their minds. These include:
What kind of real estate is the best for me?
What are the basics of setting up a real estate investment office?
What beginning marketing strategies should I use?
It’s good that you’re asking these kinds of questions. It not only shows that you’re thinking carefully about real estate, but also that you’re not going into the process blindly. The key thing to do is to ask the right questions. After all, you want to build a successful business. But you also want to work in a business that you enjoy and find fulfilling. Answering the following key questions put you on the path to both goals.
First, ask yourself about your strengths and weaknesses. Are you a detailed, numbers person? Are you especially good at personal interactions? Do you like working on short-term or long-term projects? What are your weaknesses?
Fortunately, people with very different strengths and interests can succeed wonderfully in real estate. There’s enough “face time” with people to please even the most pleasant people person. There’s also enough number crunching to satisfy the strictest account. Even better than that, with our help, you can balance each type of work personality in real estate and farm out the parts that don’t interest you as much. Very few businesses have that kind of flexibility!
After you’ve taken careful stock of your strengths, weaknesses, and interests, get started!
Starting Your Real Estate Investment Business
What kind of real estate is the best for you?
There are three major types of real estate:
- “Residential real estate” can include houses, apartment buildings, and even undeveloped land.
- “Commercial real estate” usually refers to office buildings, retail buildings, warehouses and storage buildings.
- “Industrial real estate” usually refers factories, farms, forested land, and mines.
Each type of real estate has its benefits in terms of profitability, depending on your local area. So, consider them all. But you’ll eventually want to specialize, at least in the beginning. Naturally, you should consider what type of real estate interests you most. But that’s not enough. Do some homework to determine whether your interest fits well with the profitability in your area.
How do you gauge the real estate market in your area?
Media: local newspapers, trade magazines, and specialty real estate publications can give you a guide to real estate trends in your general area, as well as pinpointing especially profitable neighborhoods. Read as much as you can. Remember that, if you choose wisely, you can profit from stable, recession-proof neighborhoods or from dynamic, riskier neighborhoods.
National real estate trends: Real estate publications also provide news on national trends, especially when it comes to mortgages and financing. Pay attention to whether interest rates are rising or falling, and how the stock market is doing in general. Read all the commentary on the near future of real estate investment that you can. You can’t read too much. But don’t let over-studying cripple you from acting!
How much money do you need to start investing in real estate?
There is no fixed amount needed to start investing, but there are a few steps you should take very early on to make sure you’ve got a stable financial base:
- Review your banking information: Determine how much cash you are able to devote to investing. Make sure the account for enough personal reserves so that you don’t dry out your savings! Also account for enough reserve for your business specifically so that it is not left high and dry either. If you are doing real estate full-time you will need a minimum of 6 months of cash for personal and business expenses, but you could need as much as 3+ yrs. It is also, extremely important to invest in markets you know well.
- While reviewing your own bank accounts, gather information about the interest rates for business loans, the collateral required to secure loans, and repayment requirements.
- Credit report: Get a copy of your credit report. Many sites or credit cards will give you a free report. Analyze your credit report carefully to make sure it is accurate. Mistakes should be corrected immediately.
- Reduce debt: Pay down as much debt as possible as soon as possible. Begin with the highest-interest debt you have. Usually, this is credit card debt. Make a realistic plan to pay down debt as possible in the future.
The Finances of Choosing Your First Property
Now that you’ve chosen your real estate specialty, built up your real estate knowledge, and gotten your financial house in order, you can start thinking about buying your first property!
We’ve discussed how to choose your first property elsewhere on this site. Once you’ve chosen which property to buy, you must estimate how much it will cost to buy and own.
Buying the property will probably include the initial following costs: mortgage down payment, closing costs, taxes, and fees. This is not all. In order for your property to make money, it must attract other buyers or tenants. Improvements may be necessary before the property goes on the resale or rental market.
Setting up Your Real Estate Business
Now it’s time to establish your business structure. At this stage, you should determine whether you want to be a sole proprietorship, a partnership, or a corporation. Each type of business has different advantages and different requirements.
- Sole Proprietorship: This is the simplest type of business for small or beginning investors. Income from a sole proprietorship is reported on your personal income tax return and it’s all pretty straightforward.
- Partnership: A partnership helps spread the cost and the work involved in a new business. A simple partnership works like two (or more) combined proprietorships — each partner reports his or her own income on their personal income tax returns. A legal agreement between the partners is a safe way to make sure there are no misunderstandings down the road.
- Corporation: Even small businesses can be corporations. Usually, they are Limited Liability Corporations (LLCs). Having a corporation limits your legal liability in case you’re ever sued. And any corporation of any size can sell stock in order to raise capital. You should consult a lawyer in order to set up an LLC or other corporation in the most solid way possible. Corporations pay their own taxes, and you will also pay personal taxes on the income you earn from the corporation.
- Business Bank Accounts: Set up a business checking and savings accounts. Shop around different banks to see which offers the best services for the lowest fees. Pay special attention to the kinds of accounting and business records’ management services that banks provide. Increasingly, banks are competing on the basis of how much work they can save you by helping with your ledgers and other records.
Marketing begins at home, but don’t forget to tell the world.
Once you’ve established your real estate business, tell the world, especially your friends and family! Good personal connections often lead to information about potential property investments, rental opportunities, and greatly increased business.