10 Steps on How to Start a Real Estate Investment Company

Real Estate investment allows fantastic returns and unlimited possibilities, however, real estate investment companies are governed by many regulations and standards. Having an experienced lawyer on your side can help your business last.

Process of Starting a Real Estate Investment Company

It is fairly easy to start a real estate investment company because there are not many regulations. You do not have to use a particular entity; you could even operate your company as a sole proprietorship if you wish. From there, you have only to secure financing and buy your first property.

Once you buy your very first property, the regulatory requirements start to arise. You have to pay attention to property taxes, insurance, and zoning laws. There are also federal, state, and local laws that will regulate your business.

Real Estate Investment vs Real Estate Trading

The two main ways real estate investment companies make money, investing and trading in real estate.

Investing in real estate means holding real estate long-term and renting it out in return for a steady return. This requires a bigger initial investment and takes more time to make a profit.

Trading in real estate means buying low-value properties, fixing it up and then flipping for a profit. This requires less capital upfront and offers a fast profit. However, real estate traders have the risk of not being able to flip the property for as much or faster than expected.

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Which option is better will depend on your investment strategy, the market, access to capital, and your expertise. Both options have potential to be lucrative, and both have the potential to cause major losses if not executed properly.

Legal Business Entity

While incorporation is unnecessary when you first start your company, it is important to incorporate once you grow to separate your personal and business assets. By incorporating as early as possible, you reduce any risk of mixed liability and piercing the corporate veil. The most popular business entities that real estate investment companies use are an LLC, as they offer flexibility and fewer reporting requirements.

Investment Strategy

Having an investment strategy will help you to organize your business structures and secure initial funding for your business. Your investment strategy will include what type of investing you plan to do as well as minute details like what type of properties or which areas you will pursue.

Real Estate Financing

Investing in real estate requires significant capital compared to other forms of investment. Securing multiple forms of financing is wise. This may include loans, investors, or short-term loans.

Insurance

Insurance is an important part of protecting your investments and a legal requirement for a real estate investment company. Ensure you research what type of insurance the law requires and what you need to do to protect your investments and reduce your liability. Tenant contracts are an important factor in limiting liability.

Work With a Trusted Real Estate Agent

An experienced real estate agent can help you with breaking into new markets or areas you do not know well. If neither you nor your partner is an expert in real estate, working with a real estate agent will be a big advantage. Building a good relationship with a real estate agent means you will be sent information about good investment properties before they go on the market or the minute they are released.

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A real estate agent will also help you with selling your properties or finding renters. They may even be able to help you with industry connections.

What Is Flipping Real Estate?

Flipping is where a property is bought at a low price, the buyer makes a few minor changes, and then it is sold for a small profit. This can be extremely lucrative, but it can also carry a risk when the property doesn’t sell quickly.

Can I Use a Real Estate Investment Company to Invest in REITs?

Yes, but it differs greatly from regular real estate investment as REITs are similar to stocks; you buy and sell them on exchanges.

Do I Need to Hire a Property Manager For My Real Estate Company

It will depend on your business objectives and the demands of your properties. Many real estate companies will hire a property manager to oversee the properties and deal with emergencies, repairs, renters, and maintenance, but other companies will deal with those things themselves. Analyze the benefits and costs of each and decide what is best for your company.