How to Form a Real Estate Investment Business

bizfluent article image

David Sacks/Lifesize/Getty Images

A real estate investment business can be highly profitable to a savvy investor. Whether selling, renting or renovating properties, money-making potential exists. A neophyte real estate investor must be prepared. An intimate understanding of real estate transactions coupled with a great deal of patience will be the key to success. He must be prepared to spend months on a deal, only to see it fall through at the last minute. He must be able to brush off that disappointment and move forward on the next one. The requirements to start a business depend on a number of factors, but he can take certain steps no matter what type of investment real estate business he forms.

Obtain education in real estate investment. You don’t need a specific degree, but knowledge of real estate transactions will keep you from going in blind. Read books on the subject and look into classes at local colleges.

Create a structure for your business. Common entities types are Limited Liability Companies (LLCs), C-Corporations, Corporations, Partnerships and Sole Proprietorships. Each has advantages and disadvantages. Consult an accountant to determine the proper structure for you.

Register your business with the proper state authority. This is typically the Secretary of State or Department of Treasury. Fees vary by state, but can be as much as $200.

Raise capital. The amount required will vary based on the type of property, whether you will be obtaining financing and whether the property will require repairs. For your first property, you may need anywhere from $5,000 to $20,000.

Locate a good home inspector. Look for someone you can see working with long-term as you will likely work together on multiple properties.

Build relationships with real estate agents and mortgage lenders. Not only will they help you get to the closing table, they will likely generate leads for you. The more good deals you bring them, the more good deals they will bring you.

Research housing markets to find the best deals. Look for “Fixer-Uppers,” foreclosures and short sales. You will (ideally) be able to purchase these at a low price, renovate them and re-sell them for a large profit.

Purchase your first investment property. Start with just one to get a feel for the process. Once you have successfully sold/rented the property, build upon that experience to grow your investment real estate business.