Real estate investment is a growing industry. But despite its growth, many people are confused by real estate investing, how it can benefit them and how to get involved with it. Learn how to start real estate investing to earn passive income, comply with legal requirements and grow a viable business.
What Is Real Estate Investing?
Technically, anyone buying or selling a residential, commercial, industrial or vacant property is investing in real estate. One of the main purposes is to make significant financial gains, which can even allow investors to ditch their 9-to-5 jobs and fully commit to real estate investing.
Real estate investors can make money in a few ways, such as renting out property, appreciation and the profit generated by business activities on a property.
Some of the benefits of real estate investing include:
- Passive income
- Tax advantages
- Real estate leverage
- Secure cash flow
- Portfolio diversification
- No need to own, operate or finance properties
People involved in real estate investing can leverage residential properties such as apartments, condominiums, townhouses, homes, or they can invest in commercial properties like retail stores, office buildings, storage facilities or warehouses. For example, an investor can consider buying properties, improving them and selling them. This process is known as flipping properties and it can yield high profits but often depends on several factors.
How to Start a Real Estate Investment Business: 7 Steps
It’s well-known that investing in real estate can help people grow their wealth, support a comfortable lifestyle and diversify their investment portfolio. But how can someone new to the industry start their own real estate investment business? Check out the six steps below to learn how to do just that.
1. Perform In-Depth Research
Before starting a business and hitting the ground running, interested investors must do their due diligence and perform in-depth research. Any investment venture requires investors to figure out why they want to invest, if they can afford to invest and what they hope to accomplish by investing in real estate. The first step is to search the local real estate market and find the answers to these questions.
2. Outline Business Goals and Strategy
After completing the research, the next step is to outline a business plan. A business has a better chance of success with a well-thought-out, comprehensive business plan. Here are some vital factors investors should include in their business plan:
- Mission statement
- Real estate market analysis
- Business structure
- Financial statements
- Implementation strategy
Ultimately, a business plan and strategy aims to get down the specific details of the real estate investment business, its prospects and how the investor plans to keep the business operational.
3. Form a Business Entity
The next step is to create a business entity. Investors will have to choose what type of business they want to form, whether it’s a sole proprietorship, partnership, corporation or LLC. LLCs are typically the entity of choice for real estate investors. Keep in mind that exiting a partnership could prove difficult, as the IRS makes it challenging for partners to part ways if they choose to do so down the road.
4. Organize Finances
Starting a business can be challenging initially, especially in terms of financials. However, investors need to have all their finances in order during this process. They should reach out to multiple lenders to secure financing and get more information about their investment plans.
5. Implement the Strategy
Completing the previous steps allows investors to start implementing their business strategy. Investors can begin searching for their first real estate investment property, which should have particular characteristics to ensure profitability.
It would help if investors developed criteria to follow — for example, they might only want to invest in certain commercial properties, or homes with a specific number of bedrooms and bathrooms. All these criteria help investors stay aligned with their business goals.
6. Use the Right Tech Tools
Business can only operate successfully with the right tech stack. For example, using a customer relationship management system can be highly useful in real estate investing. Another top technology in modern real estate is virtual reality (VR).
Agents use VR headsets to immerse customers in virtual tours of properties to help them decide to buy or rent. These tools can help investors garner clients to support their income goals.
7. Build Relationships Within the Industry
Every business owner must build positive and supportive relationships with other real estate investors, property managers and business owners in the area. Eventually, the goal is for an investor to establish a healthy network of professional real estate investors who can help them learn the ropes of the business and succeed in a competitive market.
Getting Started With Real Estate Investing
Real estate investing can be highly profitable. While it does require a lot of hard work, it can be worthwhile for many investors. Investing in real estate is considered a good investment — if done correctly. Follow the steps outlined here to get started with real estate investing and build a viable, successful business.
Devin Partida writes about investor technologies, big data and apps. She is also the Editor-in-Chief of ReHack.com.