Starting a real estate investment company can be very profitable. With proper planning, execution, and hard work, you can enjoy great success. Below you will learn the keys to launching a successful real estate investment company.
Importantly, a critical step in starting a real estate investment company is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps to Start a Real Estate Investment Company:
- Choose the Name for Your Real Estate Investment Company
- Develop Your Real Estate Investment Business Plan
- Choose the Legal Structure for Your Real Estate Investment Company
- Secure Startup Funding for Your Real Estate Investment Company
- Find an Ideal Location for Your Real Estate Investment Company
- Register Your Real Estate Investment Company with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Real Estate Investment Company
- Buy or Lease the Right Real Estate Investment Company Equipment
- Develop Your Real Estate Investment Company Marketing Materials
- Purchase and Setup the Software Needed to Run Your Real Estate Investment Company
- Open for Business
1. Choose the Name for Your Real Estate Investment Company
When choosing a name for your real estate investment company, it is important to find a name that reflects the type of business you are running. If your real estate investment company is focused on flipping houses, then a good name might be “House Flipping” or “House Hunting.” You will also want to make sure that the name you choose for your real estate investment company is unique.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally, you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your real estate investment company:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also, check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your real estate investment company.
2. Develop Your Real Estate Investment Business Plan
One of the most important steps in starting a real estate investment company is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your real estate investment business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your real estate investment company.
- Company Overview – this section tells the reader about the history of your real estate investment company and what type of real estate investment company you operate. For example, are you a real estate investment company that buys homes, flips them for quick profits, or leases them?
- Industry Analysis – here you will document key information about the real estate investment company industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important in services like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build a competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions, and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your real estate investment company? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization, and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your real estate investment company make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
3. Choose the Legal Structure for Your Real Estate Investment Company
Next, you need to choose a legal business structure for your real estate investment company and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a company entity in which the owner and the company are legally the same person. The owner of a sole proprietorship is responsible for all business debts and responsibilities. A sole proprietorship does not require any formalities to set up or run, and it is simple to do so. One of its major advantages is that it is the easiest company entity to create and maintain.
A business partnership is a legal entity utilized by small enterprises. It’s the agreement between two or more people who want to start a company. The business partners split any profits and losses from the company equally.
The advantages of forming a partnership are that it is simple to start and the business partners share in the profits and losses of the firm. The disadvantages of real estate investment partnerships are that the partners are jointly responsible for the company’s debts, and partner conflict resolution may be difficult.
3) Limited Liability Company (LLC)
An LLC, often known as a “limited liability company,” is a sort of business entity that protects its owners from responsibility. This implies that the proprietors of an LLC are not personally liable for the firm’s debts and liabilities. The flexibility of an LLC includes management freedom, pass-through taxation (which avoids double taxation), and limited personal liability.
4) C Corporation
A C Corporation is a business entity that is independent of its owners. It has its own tax identification number and can have shareholders. The major benefit of a C Corporation is that it provides limited responsibility to its shareholders. This implies that the company’s owners are not held accountable for the firm’s debts and liabilities. The disadvantage is that C Corporations are taxed separately from their owners, which means they also pay taxes at the corporate tax rate.
5) S Corporation
An S Corporation is a type of business organization that offers its owners limited liability protection and allows them to transfer earnings from their company to their personal tax returns, avoiding double taxation. There are several restrictions placed on S Corporations, including the number of shareholders they can have, among others.
Once you register your business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your real estate investment firm.
4. Secure Startup Funding for Your Real Estate Investment Company
In developing your real estate investment business plan, you might have determined that you need to raise funding to launch your business.
Other common sources of funding for a real estate investment firm to consider are personal savings, family and friends, bank loans, crowdfunding, and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a real estate investment company that they believe has a high potential for growth.
5. Find an Ideal Location for Your Real Estate Investment Company
When choosing a location for your real estate investment firm, you should consider factors such as your budget, customer demographics, and the demographics of the real estate market.
If you have a limited budget, you might want to choose a location where rent is inexpensive. If you’re operating in more rural areas with low population densities, it will be easier for you to find discounted real estate investment properties. However, if your target market is composed of customers who are located in the surrounding area, you will need to offer them easy access to your business. When choosing a location, you should also consider factors that could affect foot traffic such as where do customers live, work and play.
The real estate market also plays a role in deciding on a location for your business. For instance, some markets will be better for multifamily real estate, while some markets might be more suitable for commercial real estate.
You should also consider the demographics and the income and employment levels of potential customers in your target market. This is key to helping you determine location and customer traffic.
Places with high concentrations of upscale homes or luxury retail stores are examples of good markets.
6. Register Your Real Estate Investment Company with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a bank account in your real estate investment company’s name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your real estate investment company to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
The licenses and permits required to start a real estate investment firm include the following:
- Sales Tax License (if required in your state)
- Business License (if required by the city, county, or state where you plan to operate)
- Occupational Permit (often required for your business category)
10. Get Business Insurance for Your Real Estate Investment Company
Below are the main types of insurance to consider for your business:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Auto insurance: This can cover a single vehicle or a fleet of vehicles. If you have employees, it’s especially important to get auto insurance because your employees drive business vehicles.
- Workers’ compensation insurance: If you have employees, it works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Professional liability insurance: This protects your business against claims of professional negligence.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
11. Buy or Lease the Right Real Estate Investment Company Equipment
The equipment required to start a real estate investment firm include the following:
- Computer with Internet access for research
- Laptop or tablet with Internet access for on-the-go research
- Scanner Printer Fax machine
- Legal and accounting books and software
Depending on the laws of your state, you may be required to have a physical office in order to run your business.
12. Develop Your Real Estate Investment Company Marketing Materials
Marketing materials will be required to attract and retain customers to your real estate investment company.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your real estate investment firm. Your logo will be printed on company stationery, business cards, marketing materials, and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional real estate investment company website provides potential customers with information about the services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your companies name. Accounts on Facebook, Twitter, LinkedIn, and/or other social media networks will help customers and others find and interact with your real estate investment business.
13. Purchase and Setup the Software Needed to Run Your Real Estate Investment Company
The software needed to start a real estate investment company may include the following:
- Accounting software
- Email marketing software
- Office suite (includes word processing, spreadsheet, and presentation tools)
Real estate investment business-specific software is also available to help you track sales leads, manage projects, etc.
14. Open for Business
You are now ready to open your real estate investment firm. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start a Real Estate Investment Company FAQs
No. If you have experience in real estate, the right knowledge and training, good support from mentors, and some seed money to get started, then starting a real estate investment business should be relatively easy.
You can be successful without having prior knowledge or experience if you have good mentors to offer guidance. Additionally, consider taking real estate courses by attending seminars and finding mentors who are already successfully owned and managed real estate investment companies.
Yes. However, running a real estate investment business can also be risky and challenging. As with any business, you should research the pros and cons of starting your own before deciding to start one.
The most profitable real estate investment business is one that understands what type of real estate to specialize in and how to manage it. For example, a passive real estate business invests in high-profit real estate investments such as apartment complexes, shopping centers, and other well-established projects.
The cost to start a real estate business varies depending on the nature of your business. For example, opening a real estate company that invests in foreclosed investment properties requires less seed money than opening one that invests in rental properties for profit.
Ongoing expenses for a real estate investment company include licensing, payroll (employees and/or contractors), and marketing. Additionally, you should also budget for startup costs like rental and/or investment property and equipment.
A real estate investment business can make money in a number of ways such as through receiving rent from tenants, collecting loan interest and/or principal repayment, selling portions of the property or project, and consulting services.
You can make a good amount of money owning your own real estate investment company. However, the amount you will make depends on the type of business you run and how successful it is. For example, a passive real estate investor typically does not work directly on their projects and tend to make more than active real estate investors.
Yes, a real estate investment company can be profitable for those who understand the market and take the time to learn about all aspects involved in running a successful business.
Real estate investment businesses fail for many reasons. Some of the common causes are poor cash flow management, lack of experience/expertise, and an unprofitable business model.