How to Start a Real Estate Investment Company

A real estate investment company offers the opportunity to build long-term wealth while separating your personal assets from business assets. Historically, real estate companies have had profits that average an increase of 5.4% per year over the last 60 years. Real estate investment companies provide key roles in urban regeneration, market liquidity, property development and building wealth for the company's owners. 

While opening an LLC or creating a corporation for your real estate investment company is relatively simple, you'll need to devise a solid business plan based on thorough market research. Read on for how to start a real estate investment company with key considerations. 

Understanding the Basics of Real Estate Investment

Real estate investment entails purchasing, renovating, renting or reselling properties, mortgages or related real estate vehicles. While the most common types of real estate investment are house or property flipping, rentals or wholesaling, there are many additional considerations. For example, you could focus on residential or commercial properties or a specific subset of either. 

You could choose multi-family rental units, commercial retail space or parking lots. In addition to buying, selling or renting real estate directly, you could invest in real estate investment trusts (REITs), real estate investment groups (REIGs) or real estate crowdfunding. Some REITs focus on a single market or type of investment property, while others focus on mortgages or real estate debt. 

The basic fundamentals of real estate investing are the same: you need a thorough understanding of a particular market or type of investment to understand value and return potential. You'll want to diversify across asset classes and even within real estate investments across investment types, market risks and other risks. 

How to Launch Your Real Estate Investment Business Like a Pro

Launching a real estate investment business like a pro starts with thorough research and building a great network that can act as a resource as you grow. To get started quickly, you can follow these steps. 

Conducting Market Research

The importance of researching local real estate markets can't be overemphasized. Sometimes, pricing or value changes from one block to the next. You can work with local realtors to research the MLS and Identify trends and opportunities for investment. At this stage, it can also be valuable to find the right location for your investment company.

Establishing a Business Plan

Next, you'll want to establish a business plan for your real estate investment company. Elements of a solid business plan include:

• Company vision and mission
• In-depth market research
• Competitor analysis
• Overview of the company's unique value proposition, strengths and weaknesses within the current market
• Financial projections, including necessary funding and cash flow

Understanding the financials and projections is essential for any business plan, especially in real estate investing, where you'll likely seek out other investors or pursue private lending opportunities. Consider getting financial advice or working with a CPA to make informed decisions about business structure and financial planning and create accurate cash flow projections.  

Legal and Financial Considerations

Once you have a vision of how the company will function and a solid business plan, you'll want to create a legal business entity. You could choose an LLC or a corporation based on business goals. An LLC offers simplified administration and liability protection, making it a good choice for most small businesses. However, if you want multiple shareholders or plan to take the real estate investment company public, a corporation could offer the structure to allow this. 

Whichever legal entity you choose, you'll need to register the company with the appropriate state governing body. You'll register with the Secretary of State or Department of Corporations in most states. 

Once the entity is legally formed, you must obtain the necessary licenses and permits. These vary by state and locality, so it's important to double-check with the Secretary of State and local municipality to get all permits or licenses. Finally, you'll need to get an EIN, open a business bank account and set up accounting and financial systems.

Funding Options for Your Real Estate Investment Company

Next, you'll need to evaluate available funding options for your real estate investing company. Most real estate investment companies don't rely on a single funding source. Creating a diverse funding strategy can help increase flexibility and long-term success, including personal cash, bank loans or mortgages, private money lenders,  private investors or other private loans.

To ensure a steady flow of funds, real estate investment companies can build relationships with potential investors and understand their investment strategy to contact them about relevant opportunities. This step can create new mutually beneficial opportunities for investors and your company.  

Building a Network and Team

Real estate investing relies heavily on networking. Networking in the real estate industry involves attending conferences, joining online forums and working with local professionals who work in industries either directly or tangentially related to real estate. 

You can work to build relationships with real estate agents, contractors, inspectors, real estate attorneys, other real estate investors and industry professionals. To create a strong network, remember to give. You can offer support and advice and be willing to show up if someone asks. When you give more, you get more through building long-term trust and solid relationships.

Hiring a strong, professional team and considering how you manage the team for your real estate investment company is also important. You may hire a manager or CEO or perform that role yourself. 

Finding and Analyzing Investment Opportunities

The key to successful real estate investing is purchasing under-market properties or identifying up-and-coming neighborhoods with high appreciation rates. You'll also want to evaluate risks, returns and potential for growth. Diversifying across markets and property types can diffuse some of the risk.

To find potential investment properties, you can use online databases for investors and search the MLS with a local real estate agent. Some investors will also drive through target neighborhoods looking for "for sale by owner" signs or properties with deferred maintenance where they could make an offer. 

Regardless of how you locate a property, you'll need to conduct a thorough property analysis, including its cash flow and potential for growth. You can learn more about real estate market analysis or how to calculate ROI on investment properties.  

Negotiating and Closing Deals

As a real estate investor, negotiating and closing real estate deals will be a key part of the job. Consider practicing negotiation skills and sales skills to increase closing. Many investors will also make all-cash offers and fast closing that are especially attractive to homeowners short on cash. 

Other strategies for getting the best deals include:

• Cover closing costs
• Create a compelling vision of what you plan to create
• Appeal to the owner's need for a fast close
• Promise low hassles
• Waive contingencies for a faster closing  

Some of these negotiation strategies investors commonly use come with risk, especially waiving contingencies. Work with a trusted real estate attorney and real estate agent to prepare and negotiate the offer and ensure a smooth closing process meeting all legal considerations.

Managing and Growing Your Real Estate Investment Company

Once you purchase the first property, it's time to consider effective property management techniques. Consider whether you'll work with a property management company or offer full-service property acquisition and management.

Consider scaling your business and expanding your investment portfolio as the company grows. For long-term success and sustainability in the real estate industry, research what works in your area, what is working for your company and how you can replicate that success or diversity in new markets. 

Real estate investment is a historically stable industry that can withstand other major market downturns if you've secured properties well-priced for current market movements. 

Other Ways to Invest in Real Estate

You can find many diverse real estate investment opportunities, some of which don't require investors to be directly involved. You have options if you want to profit from real estate investment but don't want to create your own real estate investment company or manage rental properties. You can consider REITs, REIGs and crowdfunding to own a portion of real estate without active management. 

Many of these options also allow you to invest a small amount to sample real estate investing returns without risking big losses in your portfolio as you learn the market trends. Find a complete guide to real estate investing for more inspiration.

Building Your Real Estate Investing Business

Building a business requires time, research and dedication but can pay rewards in stable cash flow and a growing company that can enhance your community and target markets. Carefully build your team, craft your business plan and establish a legal entity before launching a real estate investing business. 

With a strong network, in-depth research and a clear strategy with investment criteria, you could create a sustainable business opportunity for investors, homeowners and employees. A real estate investing company can help launch your vision while offering additional benefits for tax savings and scalability. 

Frequently Asked Questions