How to Start a Housing Development LLC
Developing a successful housing development LLC begins with drafting a business plan. A business plan should identify short, mid and long-term strategies for the corporation's profitability while demonstrating knowledge of the industry and competitors in the market. Housing development companies must pay particular attention to the housing market in the area. A Limited Liability Company (LLC) is a smart business choice for many housing-development corporations. The rules and regulations for registering an LLC vary by state. An LLC provides a business owner with limited liability for the debts and actions of the corporation while still allowing profits to pass along easily to the business owner.
A successful business begins with developing a business plan. Consult the U.S. Small Business Administration (SBA) website for a comprehensive resource. A business plan begins with an executive summary outlining the history and future of the company, including its mission statement. Consider the scale and scope of housing projects that will be undertaken on a short, medium, and long-term basis. The business plan should contain a detailed market analysis that analyzes both competitors (other developers) and demonstrates knowledge of the real-estate market. Consider how the business will be marketed to consumers, whether to first-time home buyers or to retirees looking for a vacation home. The business plan should include the LLC's management structure, sources of funding and a comprehensive budget. Things to consider include start-up costs, long-term resources, office space and employees. Check your local and state laws for insurance and other liability requirements.
Register the housing-development company as a Limited Liability Company (LLC) by contacting the Office of the Secretary of State or other authorizing office. Choose a name that accurately and attractively reflects the purpose of the housing development. The business name must be followed by LLC. Registration requires filing "articles of organization" with the state government. There is a fee of between $250 and $500 to file. Although not required, an LLC should have an operating agreement that outlines the company's daily operations, partner responsibilities and how profits and losses will be shared among partners.
Identify sources of funding. Using the outline in your business plan, begin to find sources of upstart capital. For a housing-development LLC, consider speaking with local banks in the community that have a vested interest in the community's development. Private lenders are also an option. Housing development LLCs should also research public-private partnership grants offered by local, state, and federal government. The Department of Housing and Urban Development (HUD) website offers a state by state breakdown of resources for housing development.
Finalize logistical needs. Before beginning operations, find office space and purchase office equipment. Costs and needs should be consistent with the business plan. If the business plan calls for hiring additional employees, begin to research the state and federal government labor laws before advertising for employees. Housing development companies should pay particular attention to licensing, insurance, and permit needs as mandated by local, state, and federal law. Government mandates on fair housing and equal opportunity must also be adhered to.
According to Forbes magazine, the top ten housing markets for investors in the United States are Indianapolis, Ind.; Springfield, Mo.; Denver, Colo.; Albuquerque, N.M.; Colorado Springs, Colo.; San Antonio, TX; Nashville, Tenn.; Austin, Texas; Mission, Texas; and Raleigh, N.C.
Starting your own Housing Development LLC does come with risks. Speak to your lawyer and accountant about the legal and financial risks involved.