The world of real estate investing is an exciting one to get into. Whether you want to buy, sell, develop, or rent out real estate, there are plenty of opportunities in the residential and commercial sectors. You can make great money, love your job and provide a home for individuals, families and businesses. What’s not to love?
Real Estate business formation guide
In this guide, we’ll explore everything you need to do to set up your real estate investment business and maximize your chances for success. We’ll cover:
Understanding the world of real estate
Information on taxes and finances for your real estate investing business
Questions you should ask to see if you’re ready to start a real estate investing business
Hiring employees, marketing and administration
Choosing the best legal structure for your new organization
Resources for your real estate business
Basic rules and regulations you may need to follow
... and much more
By the time you’ve read through our complete real estate investing business guide, you'll have all the information you need to set up and manage a thriving real estate business. Let’s get into it.
Understand the World of Real Estate Investing
Let’s start by exploring the world of real estate and understanding what the opportunities are.
Background Data & Stats about the Real Estate Industry
Estimated value of all property globally. This is nearly three times the yearly U.S. GDP. Around three-quarters of this property is residential.
Percentage of investors in real estate who believe the investment gave them financial success.
Percentage of investors who believe real estate is important in diversifying investments.
Average yearly return from residential and diversified property investments.
Statistics about Real Estate businesses
The industry has been growing by 9% year on year over the last five years.
The sale and rental of residential property accounts for around 72% of real estate business income in the US.
The real estate industry has been growing by 9 percent year on year over the last five years.
The sale and rental of residential property accounts for around 72 percent of real estate business income in the U.S.
High corporate profits are increasing opportunities in commercial and industrial real estate.
Revenues in the real estate business market are expected to continue to grow over the next few years.
This all points to the real estate investment world being ripe with new opportunities for focused entrepreneurs, so now might be the perfect time to dive into starting your real estate investment business. Incfile is here to help you form your business and understand the ins and outs of owning a real estate company.
There are two main ways you can take advantage of real estate business opportunities.
How to Invest in Real Estate
There are several ways to create a real estate investing business, depending on your focus. This might be through buying a property, renovating it and making improvements, then selling it on at a profit. Alternatively, you might buy up a number of units and rent them out or make money in some other way such as vacation accommodation or Airbnb.
Understand Your Real Estate Market
If you want to get into the real estate investing business yourself, you need to decide the specific part of the industry where your business could be most successful.
Real estate property development
Building or upgrading existing residential or commercial property to resell at a profit.
Leasing and rental of residential property
Developing or enhancing residential property and arranging for rental as a rental agency or individual landlord.
Sale and purchase of commercial or industrial property
Working with other businesses to locate and arrange for transactions on property for profit-making purposes
Leasing and rental of commercial or industrial property
Developing or enhancing business property and arranging for rental as a rental agency or individual landlord.
Real estate development for resale
Investing in commercial or residential property and making income when you sell the property.
Real estate property management services
Real estate property management services
Once you know the type of real estate business you want to run, you need to identify the size of the market and number of customers in your local area. Explore how successful and volatile the property market is and establish the likely number of individuals or businesses buying, renting, developing or selling real estate on a yearly basis.
See how many competitors there are in your local real estate markets. A lot of competitors isn’t necessarily a bad thing; it could mean there’s plenty of demand. Get involved in local real estate discussion groups and ask questions about your regional market. You can even offer to take other real estate investors or business owners out to coffee to ask them questions about what it's like to run a real estate investment business in your region.
This initial time spent fact-finding will make sure you're pursuing a viable business opportunity.
What Your Real Estate Clients are Looking For
When it comes to real estate, your customers will have different needs depending on the type of investment business you run.
Provide a complete package
Keep everything as simple as possible for your clients, whether they are buying a developed property, renting from you or something else.
Be proactive in your communications
Buying and renting property is very stressful for most people, so active communication from you will give them peace of mind.
Deliver exceptional value
Clients are looking for quality, accuracy, speed and reassurance when it comes to dealing with property.
Show additional benefits
Clients will likely have plenty of choices when it comes to deciding where to buy or rent. Make sure you clearly explain the benefits of the property and the services you provide.
If you can get these in place and explain your unique selling points, you'll have a good chance to stand out from the crowd.
Questions to Ask Before You Get into Real Estate
Is Real Estate Entrepreneurship for You?
Running a real estate investment business isn't for everyone — it can be a stressful experience! You will need a combination of resilience, project management and deal-making skills, as well as the ability to manage clients, contractors and high-pressure deadlines.
You will often be working long hours or on weekends, especially as you're starting your new business. You need patience, chutzpah and the ability to juggle multiple tasks to succeed. Plus, you have to be prepared for your income to arrive all at once, or sometimes not at all.
What Skills do You Need to be a Successful Real Estate Investor?
If you want to be successful in the world of real estate, here's what you need.
Excellent interpersonal skills
You will need to deal with contractors, local authorities, clients and buyers all the time. Great interpersonal skills and the ability to handle people well are essential.
Powerful time and task management
You will likely be juggling multiple opportunities together with managing your business. You must have a good way to manage your time, tasks and appointments.
Strong talent for negotiation
Negotiating real estate finances and pricing is an art. You need to have great deal-making and negotiation skills and understand exactly what the client wants to get out of the real estate transaction.
Range of background skills and experience
You will want an excellent knowledge of your local market, strong relationships with mortgage providers (and other real estate support professionals) and an understanding of the legal nuances of buying and selling.
What Are the Main Challenges for a Real Estate Business?
Your main challenges will likely involve dealing with real estate property development, handling negotiations, managing a very busy schedule and keeping your clients happy. You will likely have a very full voicemail and email inbox and will need to put aside plenty of time for communications.
You will also need effective marketing, especially if your local real estate investing market is very competitive. Look into partnering with other related businesses for mutual benefit.
What Does a Day in the Life of a Real Estate Entrepreneur Look Like?
Each day is going to be different, but you'll likely be doing the following:
Reviewing development work on properties
Dealing with contractors and other tradespeople
Taking calls from clients
Negotiating deals between different parties
Arranging for contracts and legal formalities
Setting up showings
Preparing offers and other related documents
Running your business (including taxes, bookkeeping, scheduling, emailing and more)
Formally Registering Your Real Estate Investment Business
Now that you have all the background information for your real estate business, it's time to choose the right structure or "legal entity" for your business. In the U.S., there are several business structures. They are:
This is the "default" business structure and is what your business will be if you decide not to create a more formal structure. We don't recommend this type of business as it doesn't give you the legal protections you need.
This is a special type of LLC entity that's only available in certain states. It allows you to create "mini" LLCs, each with their own limited liability and separate assets, under the umbrella of a master LLC.
These are the largest and most complex types of businesses and are far more than the average entrepreneur or business owner will need.
A Special Note on Series LLCs
Series LLCs are ideal for real estate investors. A series LLC gives you all the same benefits as a regular LLC, but it serves as a sort of “umbrella company” with additional flexibility and protections for multiple companies or lines of business within your overall operation. For instance, a series LLC can give rental property owners a way to separate their real estate investments from one another.
Even though series LLCs were created to simplify investment portfolio management, this type of business structure is still a relatively new approach to LLCs. In addition, series LLCs are currently only available in eight states:
Special Considerations for Setting up a Real Estate Business Entity
As a real estate investment entrepreneur, the standard or series LLC is very likely the best option for you. They do not have a lot of administrative overhead and still provide you with good liability protection.
Do you need to build a website? Should you have a logo designed professionally? Will you need business cards? Since real estate is such a networking-based business, you'll probably want to develop strong branding and use it on collateral you can hand out at in-person events.
Where are you going to run your business from? Will you work from home, get an office, use a shared working space or something else? Many real estate investors can easily work from home.
What business processes are you going to use to run your business efficiently and effectively? You should come up with good processes for negotiation, managing legal details and more.
Is there software that can help you manage and market your business? Real estate investors should focus specifically on scheduling, customer relationship management, project management, document management and task management.
What equipment do you need to manage your real estate investment business? What about transportation or specialized equipment? Make sure you understand exactly what you need to spend so you can write it off against business expenses.
Most states require businesses to file an Annual Report report once a year. You will also be expected to pay estimated taxes on what you plan to earn in the current business year. Also, your federal, state, regional and city business licenses and permits may need to be renewed on a regular basis, typically once a year.
Here are some really great online tools for managing your real estate business. They will reduce the time you spend on administration, help you to collaborate with others and free up your time to grow and manage your new venture.
There you have it — our complete guide to starting a successful real estate business. We hope this has given you all the information you need to think about, plan, start and manage a successful venture. Remember, we can help you with creating and maintaining your real estate business