Real estate investing is very popular, so a lot of people want to learn how to start a real estate investing business.
So with a higher percentage of Americans preferring to invest in real estate, we want to share some basic tips on how to start a real estate investing business.
Start a Real Estate Investing Business
In order to be a successful real estate investor, it takes hard work and dedication. New investors often try different methods of investing in real estate, before settling on one or two that work best for them.
An investor may start by purchasing a turnkey rental property, which has less risk since the rehab has already been completed. Then after learning more about rental properties, he may use a real estate wholesaler to purchase a distressed property and rehab it with a contractor.
Another investor may start his real estate business by flipping houses, while another starts his business by wholesaling properties to other investors, and another starts by only dealing with multifamily properties.
The most important thing for beginning investors to do, just like any entrepreneur, is to quickly educate themselves and get started.
A real estate investing education is vitally important for every investor. Even for investors who have been in the business for years, continuing education about the industry and their geographic area of investing is an absolute necessity.
A great deal of education in real estate results from joining local and online groups attended by experienced real estate investors, such as investment communities, business groups, local meetups, and local development organizations. Networking with local investors is especially important, because they have valuable information about specific neighborhoods that are good for investing in real estate.
Online education with websites such as BiggerPockets is also very helpful, as well as free and paid seminars.
For many beginning investors, on-the-job training with an internship is an excellent method to learn about investing in real estate. It’s one thing to read and study about real estate investing, and another thing to find properties, close deals, rehab properties, flip houses, and generate cash flow with rental properties.
Bird dogging, which can be part of an internship, is also an excellent way to learn about real estate investing while generating an income. (“Bird dogging” is a term for a person whose job it is to “find” investment properties for purchase, much as a bird dog finds birds.)
Create a Real Estate Investing Plan
As part of your education, learn how to create a real estate investing plan, which you will need for self-guidance, and also need when pitching lenders and investors.
You’ll probably trash the first few real estate investment plans you create, but you’ll eventually have a plan to start your business and purchase your first property.
A typical real estate investing plan includes these component parts:
- Executive Summary
- Company Overview
- Market Analysis
- Financial Plan
- Closing Statement
Learn more about each component part of a real estate investing plan here: How to Create a Real Estate Investing Business Plan.
Form an LLC and Arrange Financing
While working on your education and a real estate investing plan, you can form an LLC while also working to raise the funds you’ll need to begin investing.
Operating under an LLC is popular among real estate investors. But, there are pros and cons you should be aware of, as explained by Jeff Weaver, Esq. in his LegalZoom article, Forming an LLC for Real Estate Investments: Pros & Cons.
Typical financing methods you will want to pursue include:
- All Cash
- Delayed Financing
- Hard Money
- Private Money
- Portfolio Lenders
- Self-Directed IRA
- Self-Directed Solo 401(k)
- 203K Loan
To learn more about these financing methods, see: Top 10 Financing Methods to Purchase Real Estate Investments.
Find and Purchase Your First Investment Property
As part of your education, you networked with local real estate investors with knowledge of good neighborhoods for investing. With that information, and your independent research of geographic areas favorable for investing in real estate, you are ready to search for specific properties.
There are several specific things you should evaluate when searching for investment property, including taxes, fees, the overall neighborhood, crime rate, etc. For a thorough list, see: Top 10 Tips to Find Investment Properties.
Many real estate investors use a wholesaler to find and buy investment property, especially large investors and busy professionals. The best real estate wholesalers are experts at finding excellent investment properties, and provide analysis to their clients about properties available to purchase.
Rehab the Property
Rehabbing an investment property is where new real estate investors make some of their biggest mistakes and suffer major losses.
Investment property should be inspected by the investor’s contractor prior to purchase, and a general budget for rehab should be established before an offer is made to purchase the property.
The ability of the contractor to estimate the rehab correctly and complete it within budget is critical, as well as the investor’s ability to use the estimate to purchase the property at a reasonable price and manage his team.
Some of the most significant mistakes investors make when rehabbing investment property includes: treating the home as if it was their own, trying to do the rehab alone, and not checking for permits.
To learn more about the top rehab mistakes, see: Top 10 Things You Should Know About Rehabbing Investment Real Estate.
Flip the Property, or Lease to Tenants
Before buying and rehabbing an investment property, an investor’s plan for the property includes whether to flip the property or keep it as rental property.
Flips and rental property are often treated differently from an investor’s perspective. A property might be in a neighborhood that is better for flipping to a homebuyer, rather than renting to tenants. And, the rehab is often different for flips than for rental property; a flip might be rehabbed with higher end materials, while rental property might be rehabbed with builder grade materials.
Graystone Investment Group
Graystone Investment Group is a real estate wholesaler. We have researched the Tampa Bay area neighborhood-by-neighborhood to determine where investments are likely to have the most most return on capital.
Unlike other wholesaling groups, we find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years, at no extra charge.