What Is A Real Estate Business?
A real estate business is a business entity that deals with the buying, selling, management, or investment of real estate properties. According to The Balance, real estate is defined as “the property, land, buildings, air rights above the land and underground rights below the land.”
Today, many face an unfortunate reality: less than five percent of people who reach age 65 have enough money to retire or are “financially secure enough,” according to the US census bureau. If you want to set yourself up for a stress-free retirement, it may be time to consider starting a real estate investing business to achieve your personal financial goals.
Starting a real estate investment business will not be easy, but it will be well worth the work with the right preparation. Best of all, there are several resources on small business systems that can make the learning process easier and more efficient. Read through our guide below; after all, it is designed to help you succeed.
How To Start A Real Estate Business
Those wondering how to start a real estate business should be cautioned that owning a real estate company is no easy feat. Just like starting a business in any other industry, entrepreneurs should log countless hours conducting research and craft a meticulous business plan before actually jumping into business. Take guidance from the following tips as you open the door to starting a real estate business:
- Think Through Professional Goals
- Conduct In-Depth Research
- Organize Your Finances
- Craft Your Business Strategy
- Form An LLC
- Plan Your Marketing
- Build A Website
- Launch Campaigns
- Stay On Top Of Leads
- Build A Support Network
Set Your Business Goals
Before you hit the ground running, take time to evaluate and prioritize your plans for the future. This means thinking through your personal, professional, and financial goals—as these will influence how you start and build your real estate investing business. Start by asking yourself where you plan to be in five, ten, and fifteen years. Then, strategize more immediate steps to help you get here. The importance of this process cannot be overstated. Goals not only help investors stay focused, but they also help them take action.
One framework I find particularly helpful is SMART goals. This stands for specific, measurable, attainable, relevant, and time-bound. Essentially, it helps investors balance ambition and action steps as they plan out the future. SMART goals operate in both short-term and long-term frameworks, making them perfect for any starting point. For more information on setting SMART goals, be sure to read our guide today.
Conduct In-Depth Research
A successful business plan is always preceded by in-depth industry research, identifying a specific niche, market area, and potential competitors. There are several exit strategies your real estate business could focus on, though some are more geared towards beginners. Many first-time investors will opt for wholesaling, allowing them to learn the ropes before purchasing properties. However, depending on your goals, rehabbing or buy-and-hold strategies may be great options as well.
Your research should then focus on what market area is best suited to your investing niche. “A good understanding of the market is important to close better deals,” says Orefice. “I wish I knew this earlier because I often made random investments that resulted in losses, and it took me considerable time to bounce back to normal. With proper research about the market, one can make informed decisions and close better deals.”
Look at median home values and rental prices, research neighborhood amenities, and most importantly, don’t be afraid to look outside your current location. Online research, networking events, and even getting a mentor can help during this process. Always remember, the more research you complete now, the more prepared you will be to start developing your business plan.
Organize Your Finances
There are several methods to get involved in real estate with no money down; however, that doesn’t mean you should avoid taking stock of your current financial standing. Chances are, when you approach a lender, they will want information on your financial history. It is important to take a look before you are ever approached with questions. Request a copy of your credit report and review any existing accounts or investments you have. I always tell investors that no matter where you start financially, there are ways to get started in real estate investing.
A few financing options may be right for you depending on your investment strategy. Real estate investors can start somewhere traditional, like a financial institution or government loan mortgage. Or, they can opt for nontraditional financing options like private money lenders, business partnerships, and even crowdfunding. You don’t have to settle on one “method” right now, but you should be familiar with a few options. That way, when it’s time to get your business up and running, you know exactly where to go.
Craft Your Business Strategy
Once you have conducted sufficient research, you should already have started formulating ideas in your mind on exactly what will help your business succeed in your market. Write out a business plan that also includes the resources and tools you plan to leverage.
Form A Real Estate LLC
A limited liability company (LLC) refers to a business structure set up to protect business costs from interfering with an investor’s personal finances. The designation allows investors to purchase and own real estate, without involving personal liability. Each state has different fees and regulations associated with establishing an LLC, though the overall process is largely the same:
- Confirm the regulations in your state before getting started
- Choose a unique business name
- File an Article of Organization with your state
- Create an operating agreement for the business
- Publish an intent to file (if required in your state)
- Apply for a tax identification number through the IRS
After you form your LLC, a few other permits may be required before you can officially open for business. Confirm with your state what these are, and you’ll be on your way to securing your first deal.
Plan Your Business Marketing
Having a successful real estate business is synonymous with having a successful marketing strategy. What is your unique value proposition? Answering this question will help you establish a brand for your business and any subsequent marketing campaigns. This is also a great time to settle on a logo, core values, and a mission statement. These components will help inform how you reach out to potential customers and serve as a jumping-off point for your marketing materials.
After creating a foundation for your real estate business, it is time to start your first campaign. Read through the following list of common marketing materials for some inspiration:
- Direct Mail: Believe it or not, direct mail still has a place in this digital age. Real estate investors are constantly using postcards, handwritten letters, and other mailers to reach potential sellers. The most important thing to remember when using direct mail is to remain consistent: more often than not, your response rates will increase on the second or third attempt.
- Email Campaigns: Email is a great way to reach potential leads, as long as you can gather enough contact information. Because email addresses are not as readily available as property information, putting together a strong list may take a while. That being said, in time, this is a highly cost-effective method to reach both buyers and sellers.
- Social Media: Social media is great for beginners because it is an entirely free way to spread the word about your business. Create profiles across Facebook, Twitter, Instagram, and LinkedIn, and post updates when you can. In time, you may find paid social media advertising to be helpful as well.
- Networking: Real estate thrives on networking,, in many cases it really is about who you know. Start by attending real estate events in your area, and branch out from there. Not sure where to find events? I recommend searching on Facebook or Meetup.com. Once you start building connections, you can even start organizing networking opportunities yourself.
- Bandit Signs: When newcomers think of real estate, this is often the first thing that comes to mind. Bandit signs are those posters that sit at popular intersections with messages like, “We buy houses!” or “Call us for a cash offer!” Have you ever stopped to think why there are so many? It’s because they work. Bandit signs can be a great way to spread the word about your real estate business. Just make sure they are legal in your area.
Build A Website
In today’s digital age, having a proper web presence is critical. This is especially true in the real estate industry. Most homebuyers report starting their search online before they’ll reach out to their agent. This means that having a solid website will increase your chances of attracting new business. Consider using websites like WordPress, Squarespace, and Wix, which offer beginner-friendly experiences at relatively affordable prices. Your website will often be your first point of contact with a potential client, so be sure to include pages that help relay who you are as a real estate professional, the values you stand for, and the value you can provide to them. Don’t forget to add your website URL to all of your marketing materials and social media pages, which will refer clients back to your site. Last but not least, you can help drive more traffic to your website by publishing relevant, timely, and valuable articles and content.
Make sure to be consistent across all of your marketing channels, whether social media, e-mail, snail mail, or traditional marketing. Be sure to schedule out follow-ups to each of the campaigns that you deliver.
Stay On Top Of Leads
One of the worst things you can do for your business is to launch marketing campaigns without a plan to track and follow up with your leads. Even if someone does not present an immediate opportunity, cultivating a relationship over time may earn you their business down the line. A great way to keep track of your leads is with the help of a Customer Relationship Management system or CRM. This type of software provides a way to manage your marketing campaigns and leads in one place. Programs like Hubspot, AgileCRM, and Apptivo are great places to start your research. Look for free trials or pricing plans based on the number of leads you work with.
While becoming a Realtor is not a necessary step to take in order to start your business, it can offer a great opportunity for discovering new leads. Jasen Edwards from Agent Advice suggests that “When it comes to starting a real estate business, the first thing you need to do is join the National Association of Realtors (NAR). With a NAR membership, you can gain full access to the Multiple Listing Services (MLS) – enabling you to search through all of the listings in the network. After all, knowledge is power. If you’re starting out, you need all the real estate market data you can get your hands on”.
Build A Support Network
As cliche as it sounds, no person is an island when starting a real estate investment business. On the contrary, many leads and deals in real estate will come directly from your personal network. Whether your network consists of clients, colleagues, mentors, or even competitors, make sure to invest ample time in cultivating these key relationships.
Is A Real Estate Business Profitable?
The simple answer to this question is, yes—if you handle your assets intelligently. “Entrepreneurs have the necessary experience and basic business acumen to kickstart their own real estate business,” says Martin Orefice, Founder of Rent To Own Labs. “Plus, they have the financial capital to invest, which is a huge advantage when stepping into the real estate business.”
The most common way a real estate business can be profitable is through appreciation. Appreciation is an increase in the value of an asset over time. The asset can be residential properties, commercial properties, and even undeveloped land. The increase can occur for a variety of reasons, such as increasing demand with a decreasing supply. Achieving profit in your real estate business comes through selling your asset after it increases in value—secondly, real estate profits from generating income through regular payments or rent.
Real Estate Profits Through Appreciation
For residential properties, the biggest factor that attributes to appreciation is location. An evolving neighborhood that adds better schools, new shopping centers, playgrounds, or anything that makes the area a more desirable place to live adds value to the home. Home improvements, whether interior or exterior, can also add a significant amount of value. In turn, your real estate business can make large amounts of profit through house flipping or rehabbing. Commercial properties work similarly to residential by gaining profit through developments in location and improving the property.
In terms of underdeveloped land, profits are also generated through development. As a city expands, the land outside its limits becomes more desirable to those who wish to develop it. Once a developer starts to build houses or commercial buildings, the value of the land increases even higher.
Real Estate Profits Through Income
Simply put, residential and commercial real estate generate income through rent. Tenants pay an agreed-upon amount per month which can increase through inflation and demand. After your costs are taken out, you claim the remaining portion as income. A smart move for your real estate business is to invest in a property in a desirable location, offering you the ability to secure tenants easily.
Depending on your rights to the land, raw land can also generate income as companies may pay regular payments for any new structures built on the land or royalties for any discoveries made. These include but are not limited to new access roads, pipelines, cell towers, pipelines, or pump jacks. It is common for raw land to be rented for agricultural purposes, and some land may have valuable harvestable assets that can be collected periodically.
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Examples Of A Real Estate Business
There are so many jobs within the real the real estate industry, many of which would be great opportunities for starting a business. Here are just some of the many examples of various real estate businesses:
- Real Estate Bird Dog
- Fix and Flip
- Buy And Hold
- Vacation Property Owner
- Property Manager
- Real Estate Developer
- Real Estate Appraiser
- Home Inspector
- Real Estate Agent
- Real Estate Broker
- Home Maintenance Provider
- Home Stager
- Construction Contractor
- Hard Money Lender
The above options are just some of the many ideas out there for starting a real estate business. Remember, there are numerous opportunities to choose from you just have to find the right fit.
Top 5 Benefits Of Starting A Real Estate Investment Business
The benefits that come with investing in real estate are nearly endless. Not only do you have to ability to make a sizable profit on every deal, but also, real estate is proving to be a solid hedge against the stock market and inflation. Some other benefits that are guaranteed to come with starting a real estate business include but are not limited to:
- Tax Benefits. If you gross $100,000 per year at your nine to five job and I earn $100,000 per year from my rental property, who gets to keep more after taxes? You guessed it; my rental property is taxed much lower because the government rewards rental property owners. The government also offers lower tax rates on long-term profits along with other benefits like depreciation and the exclusion of self-employment tax.
- Cash Flow. Real estate investors can receive a substantial cash flow from steady wholesale or rehab deals, but they can also ensure themselves a secure monthly cash flow with rental property deals. The best part about rental property cash flow is that the extra money is considered a passive income after all of your bills are paid. You get to collect a monthly paycheck while managing the rest of your investing business.
- Appreciation. While you are paying off the loan of whatever property you invested in, the value of that property is increasing or appreciating. While things like recessions and market fluctuations are bound to occur, it is safe to say that the value of real estate will increase over an extended period of time. That being said, any property you purchase today will be worth far more 30 years from now; however, with a fixed-rate mortgage, you will always be paying the same dollar amount.
- Control. Arguably the greatest benefit of starting a real estate business is the control and pride you feel due to owning something you created. Your destiny is not tied to an office on Wall Street or your company’s CEO; it only belongs to you. Real estate investing puts you and you alone in the driver’s seat of your financial future. With control, however, investors also need to learn how to manage their appetite for unfamiliar situations; or, as Roy Morejon puts it, entrepreneurs need to “be comfortable with being uncomfortable.” As the president and co-founder of Enventys Partners and a serial entrepreneur, Morejon is well aware of the control entrepreneurs must exercise over their emotions. Regardless of your own experience, “you have to be comfortable with the idea that you won’t always know where you stand financially for a time period,” says Morejon.
- Security. Of course, investing of any kind will always be associated with some risk. However, steadily building a real estate portfolio over time means that you are securing your own future. Unfortunately, too many individuals today have no specific plan for how they will secure their retirement. Real estate investing is not only what some say is the fastest way to get out of debt but is an undeniable method of creating for yourself multiple streams of income that will continue well into your retirement years and can even be passed on to future generations.
It is not advised to jump into the real estate investing world without first properly educating yourself. You must learn the best ways to find deals, market yourself, negotiate, and finance deals; however, once you’ve mastered those, you’ll be on your way to maintaining a successful business. So my partners at CT Homes and I put together a comprehensive list of the most common questions for you to study before embarking on your investing journey. Start from the top and work your way down and once you’ve thoroughly analyzed each question, you’re sure to already be ahead of your competition.
How Much Does It Cost To Start A Real Estate Business?
It’s hard to pinpoint exactly how much you need to start a real estate business, but between $5,000 and $10,000 should help you get started. The fees to file an LLC are much lower — typically between $40 and $500 depending on your state. However, the rest of the start-up funds will cover any material costs, the time needed to attend events and build a network, any office supplies (such as a laptop), design fees for a website and logo, and more. While you don’t necessarily need to spend money on any of these things, they can help you get more serious about your business. Plan out your own budget, taking each of these costs into account, and see what you come up with. Many investors are even able to start wholesaling with no money.
How To Start A Real Estate Business FAQs
When you are finally ready to delve into the world of real estate investing, it is okay to feel anxious and overwhelmed. Starting your first real estate business will be no easy task, but if you do your due diligence and study the answers to these important questions, you are guaranteed to realize success.
- What Do I have To Do To Be A Successful Entrepreneur?
- How Do I Know If It’s The Right Time To Start My Business?
- How Important Is My Real Estate Education?
- How Can I Expand My Investing Network?
- How Do I Choose A Name For My Business?
- Do I Have To Care About Branding As A Small Business?
- How Do I Finance My Deals?
- What Is The Best Way To Structure My New Business?
- How Do I Craft The Perfect Offer?
- How Much Does It Cost To Wholesale Or “Prehab” A Property?
- How Much Does It Cost To Rehab Or Rent A Property?
- What Are The Best Investing Strategies Of 2022?
Starting a real estate business can sound overwhelming, but by following the above steps as well as familiarizing yourself with the answers to commonly asked questions, becoming a real estate professional will be easier than you’d think. Be sure to define your goals, review your finances and prioritize networking to build your circle and watch your business flourish. With the right tools, your business has the potential to help you achieve your goals and become financially free.
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