How to Create a Real Estate Investment Company (2023)

Real estate investment is a very attractive avenue for wealth building, as there are few other business opportunities where the potential for income is so high. However, it can be a very risky endeavor to step out on your own and jump into a volatile market. Navigating the financial and legal issues surrounding real estate investment can be an incredible hassle. Still, thousands of people are doing it every day and the smart ones are coming out on top.

Here are a few of the things these successful investors consider before jumping into the fray:

Flipping or Long Haul Investing?

The first step to real estate investment is to decide what type of investor you’ll be – a house flipper or somebody who’s in it for the long haul.

Flipping houses has become something of a hot button issue. Televisions show across the networks have capitalized on the trend and popularized this quick-return type of property investing. However, it’s not all glitz and glamour…

(Video) How To Start A Real Estate Investment Company

Flipping involves buying fixer-upper homes, slapping on some “quick fixes” to increase the value, and then selling for a profit. Usually the whole process takes a month or two and profits can range from several thousand to several hundred thousand dollars, depending on the market, the investment, and how quickly the property actually flips.

But often, first-time flippers wind up sinking money into properties that won’t sell quickly enough for them to realize a profit. They may spend too much on renovations, fail to understand the particular market, or get hooked into high-cost loan arrangements that were supposed to last for 30 or 90 days, but end up lasting years.

Long-haul investment (usually in multiple unit residential properties) offers a different type of financial opportunity. Generally, these properties are purchased because they offer rental income and require little renovation up front. While these business opportunities are more stable, it may take some time before profits are ever realized. The idea of residual income is great, but when that actual amount earned is levied against mortgage payments, first-time landlords are often lucky to break even.

When considering which type of property to invest in, consider the wise words of Adam Baker – the popular Man vs Debt blogger who detailed his experiences as a real estate investor on the Get Rich Slowly website:

(Video) How To Start A Real Estate Investment Company

“A property or purchase can be a fantastic deal for one person and a horrible mistake for another.Crunching the numbers is essential, but you’ve got to take the steps to ensure it fits into your portfolio and life plans.”

Financing

Unless you’re independently wealthy, you’re going to have to find a way to pay for your investment properties. Any of the following options – or some combination of different techniques – may be right for you.

Though zero-down opportunities do exist, they carry a high level of risk if you can’t secure income relatively quickly from a property. Still, it’s a good idea to tie up as little of your own money in the process as possible. The good news is that these are competitive times and lending agents are aggressively looking for your dollar. Some offer down payments as low as 5% for real estate investment properties, so it’s worth the extra effort to apply with several lenders in order to find the best loan terms.

On the other hand, finding a wealthy partner might be the best option, as it is for many first-time investors. That said, if you take this approach, it’s important to always have an exit strategy to get out of such a relationship if you want to take your business in a different direction.

(Video) How To Structure A Real Estate Investment Fund | Bridger Pennington

Another tip: always secure more than you need. This extra capital will allow you to do the necessary refurbishments to a property to either increase the value at sale or to increase your monthly rental prices. Either one of these options will help to boost your profits and do more than break even.

Legal Set-Up

You can buy properties in your name and go from there, but that’s just asking for financial failure! You should always create your business as a business. There are several options available, based on the tax status you’re willing to accept – but generally, most real estate investment businesses are setup as LLCs. This option allows owners to legally separate themselves from liability in order to protect personal property and finances in the event of a catastrophic failure (such as a lawsuit).

It’s generally quite easy to create an LLC. The two main requirements are filing articles of incorporation with state agencies and maintaining a business of “good standing.”

However, even when setting up simple LLCs, it’s a good idea to seek the advice of a real estate attorneywho’s experienced with real estate matters (or you can post a job with UpCounsel to save 30-50% off your legal fees). Additionally, you may want to ask a financial advisor before doing the actual paperwork to see if any other incorporation options suit your needs better.

(Video) How To Start An LLC For Rental Properties

Insurance Needs

Incorporation doesn’t protect your business from litigation due to unsafe conditions or accidents. Insurance does. Long-term rental property investors will want to have iron-clad insurance policies in place that include stipulations about what’s covered by the insurance and what is the responsibility of the renter.

Short-term investment properties must be covered by short-term insurance policies. You simply can’t afford to go without, but – at the same time – there’s no reason to lock yourself into a long-term contract if you’re going to offload the property as soon as possible.

Whatever type of insurance you choose be aware that there will always be exclusions. These eventualities are not covered by the policy and are one of the reasons why you should always incorporate your business to protect yourself. For instance, black mold is almost never covered by insurance policies, but is a common problem for property owners.

Work with a Realtor

When setting up your property investment business, you may be tempted to skimp as much as possible to reap the lion’s share of the profits for yourself. However, it’s not a good idea to go it alone during the property search on your first couple of go rounds. No matter how much market research you do, you’re not going to be an expert the first time or two you purchase income properties.

(Video) Setting Up LLC For Real Estate Investing (Your 1st LLC!)

In addition, realtors understand the market within a given geographic area better than you ever could. Your goal should be to find the worst houses in the best neighborhoods and spruce them up to reap the biggest rewards. You don’t want to get hung with a mediocre property in a neighborhood that’s on the decline. This may mean sacrificing some of your predicted profit, but it’s a valuable learning experience that will help you cut the cord in the future.

Be Cautious of Starting Small

It seems wise, at least on the surface, to start small and grow bigger in the real estate business, but this may not always be the best option. Generally, single unit rental properties and small single family homes are the most attractive to newbie investors, as they usually cost less to purchase. However, the profit from these properties is often swallowed up by the mortgage, renovation budget, and maintenance on the properties.

As a result, it may be a better idea to partner with a wealthier individual or to secure more financing in order to purchase a more profitable property. This isn’t to say that you should ever over-extend yourself, but beware that properties requiring small initial investments often offer small profit potential. Take this – and all of the other factors described above – into consideration before signing on the dotted line of your first investment property.

FAQs

How do I assemble a real estate investment group? ›

Create a plan on how you want your REIG to operate (e.g., rules, fees, and meetings) and what types of real estate you want to invest in; then solicit members, including those who are experienced and skilled in real estate investments. Once the group is formed, market to investors.

What is the most effective starter for a real estate investment? ›

A real estate investment trust (REIT) is a great option for first-time investors because it doesn't involve actively buying or managing a property.

How do I start a property portfolio business? ›

How to start a property portfolio
  1. Identify your goals. ...
  2. Do your research. ...
  3. Start your portfolio with one property. ...
  4. Have an offer strategy. ...
  5. Stay on top of finances. ...
  6. Choose tenants wisely and look after them. ...
  7. Grow your portfolio cautiously. ...
  8. Have a long-term plan.
3 Aug 2021

What is the most important factor for real estate investors? ›

Property Location

The adage "location, location, location" is still king and continues to be the most important factor for profitability in real estate investing. Proximity to amenities, green space, scenic views, and the neighborhood's status factor prominently into residential property valuations.

How do I start a small investment group? ›

  1. Step 1: Find Potential Members for Your Stock Investment Club. ...
  2. Step 2: Hold Meetings With Potential Members to Organize. ...
  3. Step 3: Form a Legal Entity and Create a Partnership Agreement. ...
  4. Step 4: Establish Club Operating Procedures. ...
  5. Step 5: Open a Brokerage Account for Investing in the Stock Market.
5 Aug 2019

How do I find people to invest in real estate? ›

You can find real estate investors for a partnership in several ways: through bank financing, a real estate investment club, crowdfunding, your current personal or professional network, and online resources such as social media. Let's learn a little about each option.

What is the ideal real estate investment strategy? ›

Buy, Rehab, Rent, Refinance, Repeat (BRRR) is a popular long-term property investment strategy.

What is the best type of investment property? ›

One reason commercial properties are considered one of the best types of real estate investments is the potential for higher cash flow. Investors who opt for commercial properties may find they represent higher income potential, longer leases, and lower vacancy rates than other forms of real estate.

How do I set up a property company? ›

You'll need to create a company name and give an address for your company. Next, you'll need to appoint directors and shareholders, and give a definition of business activity (relating to letting property). Our step-by-step guide to registering with Companies House gives you an overview of everything you need to do.

How can I start a property business with no money? ›

9 Ways To Get Into Property With No Money
  1. Get your head in the game. The first, easiest and cheapest thing to start off with is the right frame of mind. ...
  2. Take in a lodger. ...
  3. REIT. ...
  4. Property lease options. ...
  5. Peer to peer lending. ...
  6. Property crowdfunding. ...
  7. Joint venture. ...
  8. Use your own equity.

How do I build a successful property business? ›

So, without further ado, let's get stuck in.
  1. Strategy 1 – It's a Bonafide Business. ...
  2. Strategy 2 – Know Your Limits. ...
  3. Strategy 3 – One Property At a Time. ...
  4. Strategy 4 – Buy Low Sell High. ...
  5. Strategy 5 – Be Good to Your Tenants. ...
  6. Strategy 6 – Save, save save! ...
  7. Strategy 7 – Enhance the Value of Your Portfolio.
1 Aug 2018

What are the three most important things in real estate? ›

 If you have been involved in real estate for any length of time, you've heard it said that the three most important things when it comes to real estate are “location, location, location.” I've heard nationally-recognized experts say that over and over on national media.

What are the attractive aspects of real estate investments? ›

10 Reasons To Invest In Real Estate
  • Steady Cash Flow. Owning real estate is a way to boost your monthly income. ...
  • Great Returns. ...
  • Long-Term Security. ...
  • Tax Advantages. ...
  • Diversification. ...
  • Passive Income. ...
  • Ability To Leverage Funds. ...
  • Protection Against Inflation.
17 Aug 2022

Can I start my own investment fund? ›

Yes, you could start with much less capital, or go through a hedge fund incubator, or use a “friends and family” approach, or target only high-net-worth individuals. But if you start with, say, $5 million, you will not have enough to pay yourself anything, hire others, or even cover administrative costs.

How do I start an investment business with friends? ›

Here are some tips to start a successful investment club with your friends.
  1. Set the Tone for your Investment Club. When friends get together, good times closely follow. ...
  2. Agree on Terms. ...
  3. Structure Your Meeting. ...
  4. No Room for Freeloaders in an Investment Club. ...
  5. Make it Fun.
3 Feb 2021

How do investment companies make money? ›

Investment companies can be privately or publicly owned, and they engage in the management, sale, and marketing of investment products to the public. Investment companies make profits by buying and selling shares, property, bonds, cash, other funds and other assets.

How do beginners make money in real estate? ›

Here are six of the best ways for beginners to make money in real estate:
  1. Invest in single-family homes.
  2. House hacking.
  3. Invest in turnkey properties.
  4. Rent out properties on Airbnb.
  5. Manage real estate properties.
  6. Lend to investors.

What is the fastest way to make money in real estate? ›

  1. 7 Fastest Ways to Make Money in Real Estate. ...
  2. Renovation Flipping. ...
  3. Airbnb and Vacation Rentals. ...
  4. Long-Term Rentals. ...
  5. Contract Flipping. ...
  6. Lease to Buy. ...
  7. Commercial Property Rentals. ...
  8. Buying Land.

How do real estate investors connect? ›

If you're looking to make an easy connection with real estate investors, one of the best things you can do is join online forums.
...
4. Use the Online Facilities
  1. Get Involved in Your Local REIA (Real Estate Investors Association) ...
  2. Use Social Media. ...
  3. Contact Investment Firms.

Which type of real estate makes the most money? ›

The 6 Highest Paying Real Estate Careers with Good Salaries
  • Home Inspector. ...
  • Real Estate Lawyer. ...
  • Real Estate Broker. ...
  • Commercial Real Estate Agent. ...
  • Property Manager. ...
  • Corporate Real Estate Manager. ...
  • Wrapping up.
6 Jan 2022

What do you call a real estate owner? ›

homeowner. noun. someone who owns their house or flat.

What is the most popular type of real estate? ›

Residential Properties

Residential property is by far the most popular with both new and experienced real estate investors. Residential properties consist of single- or multi-family houses, vacation homes, duplexes, condominiums, and more.

How do I create a real estate investment plan? ›

How Do I Assemble a Real Estate Investment Plan?
  1. Establish Your Vision. ...
  2. Outline Your Short-Term Goals. ...
  3. Record Your Long-Term Goals. ...
  4. Identify Your Strengths and Weaknesses (SWOT Analysis) ...
  5. Take Inventory of Your Current Finances. ...
  6. Conduct Market Research. ...
  7. Develop Your Investment Strategy. ...
  8. Draft Your Marketing Plan.

What are the 4 real estate investment strategies? ›

When it comes to commercial real estate investment strategies, there are four main approaches: core, core plus, value added, and opportunistic. These investment strategies are not fundamentally different from each other–in all cases, investors buy properties with the goal of generating returns.

What type of commercial real estate is the best investment? ›

Properties With a High Number of Tenants

Properties capable of bringing in the highest return on investments are typically those with the highest number of tenants. These properties include RV parks, apartment complexes, student housing, office buildings, and storage facilities.

What is the 50% rule in real estate? ›

The 50% rule in real estate says that investors should expect a property's operating expenses to be roughly 50% of its gross income. This is useful for estimating potential cash flow from a rental property, but it's not always foolproof.

What is the 2% rule in real estate? ›

The 2% rule states that the monthly rent for an investment property should be equal to or no less than 2% of the purchase price. Here's an example of the 2% rule for a home with the purchase price of $150,000: $150,000 x 0.02 = $3,000.

What is the 1 rule in real estate? ›

How the One Percent Rule Works. This simple calculation multiplies the purchase price of the property plus any necessary repairs by 1%. The result is a base level of monthly rent. It's also compared to the potential monthly mortgage payment to give the owner a better understanding of the property's monthly cash flow.

What is a property investment company? ›

If you buy through a property investment company, you own the property investment company. The company then buys the properties, the mortgages are in the company's name, and the company pays corporation tax on any profit from the buy-to-let properties.

What is a personal investment company? ›

An investment company with no intention of making a public offering and whose members have investments elsewhere is a private investment company. Investors of private investment companies are those with an in depth knowledge of the industry. A good example of a private investment company is a hedge fund.

How do you name a property company? ›

So, most landlords will choose a name that sounds professional, business-like, friendly, non-threatening, non-corporate, possibly even bland or ordinary. You may want to choose a name that sounds like a letting agent (e.g. Jack & Jill Property Rental Ltd) – to avoid tenants thinking you are a rich landlord!

How can I raise funds for investment property? ›

6 Ways to Raise Capital to Buy Investment Property
  1. Save. The first, most obvious route to raising capital to buy investment property is to save. ...
  2. Sell. It might be that you own an investment property already and that all your money is currently tied up. ...
  3. Borrow. ...
  4. Refinance. ...
  5. Pension. ...
  6. Joint Venture.

How do I start an investment property portfolio? ›

10 steps to building an investment property portfolio
  1. Define your property investment goals and strategy. ...
  2. Understand the risks involved. ...
  3. Use your equity. ...
  4. Consider joint ventures. ...
  5. Do rentvesting. ...
  6. Search for properties in locations with expected capital growth. ...
  7. Consider buying off the plan.
8 Sept 2022

Is real estate a profitable business? ›

Being a real estate agent can be a highly lucrative career, especially if you develop expertise in a particular market or niche. The more you continue to grow and educate yourself, the more you'll achieve. A talent for connecting with others will go a long way in helping you grow your business.

What is the 5 rule in real estate investing? ›

Multiply the value of the home by 5%, then divide that number by 12 to get your breakeven point. If the monthly rent on a comparable home is below the breakeven point, it makes financial sense to rent. If the monthly rent is higher than the breakeven point, it makes financial sense to buy.

Who is the richest realtor in the world? ›

Li Ka-shing topped the list as the world's richest real estate entrepreneur at 94 years old with $33 billion, followed by Lee Shau-kee of Henderson Land with $27 billion, and Country Garden's Yang Huiyan of $26 billion, according to the Hurun Research Institute.

Is real estate investing hard? ›

Investing in real estate can be successful, but going it alone can be challenging and highly risky. Joint ventures, wholesaling, and property management are just a few of the ways that investors can profit from real estate. It also takes a little savvy to become successful in this highly competitive arena.

Can I invest in real estate with no money? ›

The first proven way to invest in real estate with no money is through seller financing. When buyers are unable to secure a loan from financial institutions, they may opt to seek real estate financing from the sellers.

What personality type makes a good real estate agent? ›

Engaging personality

A good real estate agent doesn't just sell properties—they sell themselves. It's important to show your real personality. People will respond to you if you have a great attitude, are personable and honest, have confidence in your abilities, and are interested in helping them and others.

How can I improve my real estate skills? ›

Here are six soft skills real estate professionals need, including the ability to negotiate and communicate.
  • Communication. Communication may be the most important soft skill of them all. ...
  • Active Listening. ...
  • Social Cues. ...
  • Negotiation. ...
  • Patience. ...
  • Tactfulness.

What are 2 types of real estate investments? ›

Real estate investments can occur in four basic forms: private equity (direct ownership), publicly traded equity (indirect ownership claim), private debt (direct mortgage lending), and publicly traded debt (securitized mortgages).

What are the 5 main categories of real estate? ›

There are five main categories of real estate which include residential, commercial, industrial, raw land, and special use. Investing in real estate includes purchasing a home, rental property, or land. Indirect investment in real estate can be made via REITs or through pooled real estate investment.

What type of rental property is most profitable? ›

But what type of real estate is the most profitable for 2022? The answer is quite simple- Investing in rental properties is the best investment for 2022. To be more specific, the best types of real estate investment are traditional and Airbnb rental properties.

What are the risks of real estate investment? ›

Real estate investing can be lucrative, but it's important to understand the risks. Key risks include bad locations, negative cash flows, high vacancies, and problem tenants. Other risks to consider are the lack of liquidity, hidden structural problems, and the unpredictable nature of the real estate market.

Why real estate is the best investment? ›

On its own, real estate offers cash flow, tax breaks, equity building, competitive risk-adjusted returns, and a hedge against inflation. Real estate can also enhance a portfolio by lowering volatility through diversification, whether you invest in physical properties or REITs.

How do I set up a real estate investment group with friends? ›

Best Practices for Investing in Property with Friends
  1. Get to Know your Friends Personally and Financially‍ ...
  2. Form an LLC and Create an Operating Agreement. ...
  3. Be Clear on Roles and Responsibilities ‍ ...
  4. Define Ownership. ...
  5. Pooling your Money. ...
  6. Confidently Invest In Property with Friends.
12 Jan 2022

How does a real estate investment group work? ›

Generally speaking, real estate investment clubs are made up of five to 10 people with similar investment goals. There are no legal limits or minimums. In most cases, members pool their money and make investment choices together. Clubs can be informal groups.

How do you structure a private REIT? ›

Once you have a plan for what you want to do, the following steps will take you from idea to REIT status.
  1. Form a taxable entity. ...
  2. Draft a Private Placement Memorandum (PPM) ...
  3. Find investors. ...
  4. Convert your management company into a REIT. ...
  5. Maintain compliance.

How do I start an investment group with friends? ›

Here are some tips to start a successful investment club with your friends.
  1. Set the Tone for your Investment Club. When friends get together, good times closely follow. ...
  2. Agree on Terms. ...
  3. Structure Your Meeting. ...
  4. No Room for Freeloaders in an Investment Club. ...
  5. Make it Fun.
3 Feb 2021

How can I start real estate investment business with no money? ›

10 Best Ways to Invest in Real Estate With Little or No Money
  1. Purchase Money Mortgage/Seller Financing. ...
  2. Investing In Real Estate Through Lease Option. ...
  3. Hard Money Lenders. ...
  4. Microloans. ...
  5. Forming Partnerships to Invest in Real Estate With Little Money. ...
  6. Home Equity Loans. ...
  7. Trade Houses. ...
  8. Special US Govt.
9 Jul 2022

How do you generate capital for real estate? ›

How To Raise Capital For Real Estate Investing: 8 Techniques
  1. Private & Hard Money Lenders.
  2. Self-Directed Accounts.
  3. Private Placement Memorandums.
  4. Wholesaling.
  5. FHA Investment Loan.
  6. Peer-to-Peer Loan.
  7. Crowdfunding.

What is a group of investors called? ›

An investment club is generally a group of people who pool their money to invest together. Club members generally study different investments and then make investment decisions together—for example, the group might buy or sell based on a member vote.

How do investors get paid? ›

More commonly investors will be paid back in relation to their equity in the company, or the amount of the business that they own based on their investment. This can be repaid strictly based on the amount that they own, or it can be done by what is referred to as preferred payments.

How do real estate investors do? ›

A real estate investor buys property, intending to sell or rent it out. As this type of investment may require high capital initially, some investors don't own the properties they buy and sell, but they do it on behalf of others.

How does real estate investing worm? ›

Real estate investment is a financial strategy that uses the management, ownership, purchase, rental, and/or sale of property for profit. There are several ways to invest in real estate, but they all rely on similar economic factors to earn profit. The first is that the property must increase in value.

Can I form my own REIT? ›

What are the compliance rules for becoming a REIT? In order to qualify as a REIT, a company must make a REIT election by filing an income tax return on Form 1120-REIT. Since this form is not due until March, the REIT does not make its election until after the end of its first year (or part-year) as a REIT.

How do REIT owners make money? ›

REITs make their money through the mortgages underlying real estate development or on rental incomes once the property is developed. REITs provide shareholders with steady income and, if held long-term, growth that reflects the appreciation of the property it owns.

How much does it cost to set up a private REIT? ›

High minimum investments -- Private REITs typically have minimum investments that range from $1,000 to $25,000 (or more in some cases). On the other hand, you can invest in a publicly-traded REIT for the cost of one share, and many public non-listed REITs also have relatively low minimums.

What is the best legal structure for an investment club? ›

General Partnerships are preferred by most clubs since they allow the taxes to pass through to partner personal tax returns, and therefore, have minimal costs and minimal paperwork. General Partnerships are the least costly business structure.

How many members can an investment club have? ›

There's no real minimum or legal limit for the investment club membership, but one club usually consists of 10 to 20 members. The investment club will usually open a brokerage account in the name of the club, as established by the name of the legal entity.

How do I register as an investment club? ›

Requirements
  1. Opening cash deposit of Ugx.50,000.
  2. Copy of Investment Club bye – laws and minutes with a resolution to open the account.
  3. Copy of the Investment Club registration certificate.
  4. Copy of valid Identity documents for Account signatories including the following:

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2. Creating a Successful Real Estate Investment Company - 7 Tips from "Good to Great"
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3. How To Form A Real Estate LLC
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4. The LLC Setup You NEED For Real Estate Investing
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5. How to Start a Real Estate Investment Group [3 bonus strategies]
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