Do you have a dream of investing in real estate? Do you want to generate an additional stream of income that ultimately supports you through retirement? Are you serious about building a portfolio of income-producing properties?
If you answered yes to any of these questions, then you’re a good candidate for starting your own real estate investing business. Let this article serve as a guide to get you started.
Technically speaking, starting a real estate business is the same as starting any type of company. However, there are some nuances and special points of interest to be aware of. In light of this, here are a few practical tips:
It’s smart to begin with some very clear goals regarding what you want to accomplish through your business.
Are you hoping to generate passive monthly cash flow that you can use to cover your personal household expenses? Or is the objective to keep cash in the business and build a rich portfolio of properties over many years?
Are you interested in all types of properties? Or are you laser-focused on single-family residential, multifamily, commercial, etc?
Do you anticipate staying with a small one or two-person team? Or is your goal to build a massive company with employees – one you can eventually exit with a sale?
It might seem premature to think about all of these things – and in many ways it is – but a business that’s started with clear goals will almost always perform better than one that’s haphazard and foggy.
While it’s technically possible to be a one-man or one-woman show, you’ll be much more successful if you have a team on your side. (This doesn’t mean you need to share equity or ownership, but you should have a group of people you can call on and work with.)
Your team will be unique to your business goals, but it may include lenders, contractors, insurance advisors, attorneys, and property managers.
Financing will always be property- and deal-specific. However, you can increase your company’s chances of being successful by developing inroads with the right financiers on the front end. This might include a combination of traditional lenders and hard money lenders. You might even have friends and family members who are willing to dish out hard loans.
Create a list of vetted financing options and nurture this list. Talk regularly, send Christmas cards, do favors for them, etc. Financing is the one stumbling block that prevents a lot of Houston real estate investment businesses from being successful. If you can erase this point of friction, you’ll enjoy better results.
You can’t have a business without a name. While it’s not as important as most people make it out to be (especially if you’re a solo investor), it’s still worth giving some thought. Here are some pointers:
Again, don’t overthink this. Most people will know your real estate business by your name, not your company’s name. However, you never know where your path will take you. Your business could eventually scale from a one-person shop into a larger company with a brand. Be prepared for this.
Most real estate investors find it’s best to set up a limited liability corporation, or LLC.
“An LLC for real estate is an established legal entity that allows investors to purchase and own real estate in such a way that protects them from personal liability,” FortuneBuilders.com notes. “This means that the investor buys and sells real estate, as well as conducts other business, in the name of the LLC, rather than as an individual. In case any outside entities or individuals make a claim, the individuals behind the entity are able to avoid personal liability.”
Another benefit of an LLC is that they’re simple to start and require very little ongoing maintenance or rigorous reporting. As long as you follow the rules, you’ll enjoy pretty good protection.
Once your business has an official name and an LLC designation, you’re ready to get to work. Marketing and networking are the first big steps.
Marketing is important because it helps to solidify your brand in the local marketplace. You don’t have to go overboard, but a basic website, some social media profiles, and the occasional newsletter or advertisement will help.
Networking is arguably more important – particularly if you’re a solo investor. You want to constantly be meeting new people and building relationships where you’re able to add mutual value to one another.
So much of the real estate investment process is fluid. What works today, might not work tomorrow. Laws and regulations change. Tax codes evolve. Interest rates bump up and down. The housing market tightens and loosens. Seller’s markets become buyer’s markets. It’s a game where the rules are always changing.
In order to be successful, you must be willing to iterate your processes and improve over time. A failure to do so will render you obsolete.
At Green Residential, we take pride in our ability to provide Houston real estate investors with first-class, comprehensive property management services that improve efficiency and maximize profitability. If you’re looking for a trusted partner to do some of the heavy lifting on your behalf without eating away at your ROI, we’re here to help. Contact us today and we’ll be happy to point you in the right direction!
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