Starting Your Own Real Estate Investment Company
There are so many questions that need to be answered before stepping into the world of real estate business. Most of the time, people get hung up on questions such as these:
• What type real estate do I need to invest in?
• What type of marketing do I need?
• What type of strategy I am supposed to choose?
Asking the right questions
Actually, before you ask the questions listed above, you need to ask yourself some pertinent personal questions about the following:
• Your skills and strengths
• Your weaknesses
• What you like to do
• What you hate to do
Choosing Your Strategy
Once you’ve got the answers to those questions, the next step is to choose the right strategy. In order to do this, you will need a team of experts such as an accountant, lawyer, mortgage broker and etc. These experts will help you determine the value of your asset and aid you in maximizing your profits to the fullest.
Know the Reality of Your Investment
This is the time to have brutal honesty about your investment. Hard work and passion is required in every business, but when dealing with the real estate business, your drive for success may not be good enough. To kickstart your company, you may have to adapt to strategies that you are not passionate about.
Adapt to Strategies and Backup Your Skill Set with Additional Help
Adapt any and all necessary strategies to help your business succeed. For example, if you wish to make a purchase but you cannot get a loan, you need to have a partner. Together, you both may qualify for a loan. You may also need to add someone to your team to lend your company a previously missing skill set. An example of this would be partnering with a seasoned investor. They know their way around they market and will act as a safety net for you if you are new to the business. By doing this, you lower your risk of failure.
Regardless of your strategy, you need to know how to advertise. Every investor of the real estate market has a basic plan for attracting leads. Remember this: without leads, you have no deals. To do this, you need to develop a realistic marketing budget. Do not forget that starting a real estate investment business is not everyone’s cup of tea. Remain self-aware and able to determine if your real estate investment company is floundering because of your natural ineptitude at the business.
Tips on How to Start a Real Estate Investing Company
Real estate investment companies acts as brokers and represents both buyers and sellers and create ideal opportunities for real estate investors. They represent clients in the sale, purchase, exchange and the finance of the real estate investment. Real estate investment companies are ideal for individual investors who want to take advantage of the real estate market but are unable to spend time on it. Most companies give personal attention and due importance to individual investors as they are their primary and most crucial segment of business.
The real estate investment companies deal with active brokers, a wide variety of investors, vendors, consultants and governmental agencies. Individuals can avoid many dangers associated with real estate investment by investing through companies as most companies employ personals that are trained to handle the pressure situations that often crop up in real estate investment. The investors who see the market clearly and make decisions based on the best evidence would get much profit from the real estate investment company. The investors can achieve the financial security and freedom which enables them to pursue other involvements.
Acquisitions, property management, due diligence, redevelopment, leasing, debt analysis and procurement, tax documentation, disposition analysis and detailed monthly reporting are some of the important services provided by real estate investment companies. Real estate investment companies are also referred as Real estate investment trust (REIT). Real estate investment companies have special federal tax treatment and must comply with certain tax requirements. There is a slight difference between Real estate investment companies and real estate investment trusts. For a company to become a real estate investment trust, it should share out 90 percent or more of its taxable income to its shareholders once in a year.
Before selecting a particular company, look whether they are registered under proper acts. Get as much information on a company from as many sources you can.
Knowing some tips on how to start a real estate investing company or business program can help you avoid the pitfalls of the real estate arena.
No doubt you can make very good money in the housing market, but are you up to all the risks?
We recently saw an online work at home real estate online business and from a check of the sites traffic ranking at alexa.com, that person is easily raking in $100k + annually, probably doing very little “work”.
So, would you want to spend your free time, building up your housing empire, cleaning up mounds of junk left by tenants, chasing people for rent money, dealing with bureaucratic agencies that add cost to your profits, such as legal fees for evictions, City inspectors that your tenants may contact who will find some fault in your property and demand repairs made within certain time frames?
OK, there is a good side to this business, and we do have direct experience in the pros and cons. We just wanted to expose you to the down side and if you felt at all queasy, maybe this type of investing is not for you.
Here are some tips on what you need to think about before you plunge into an investing company that you might not have thought about:
1. Spouse: starting out, you will be spending hours away from home. Make sure your spouse or significant other is 110% in support of your new venture. Yes 110%!
2. Goals: set goals on how many units you plan to purchase and in what time frame, then stick to that goal.
3. Handyman: if you are not handy with simple repairs, and ideally in more extensive repairs, you could make little money if you need to pay contractors for everything.
4. Quantity: we feel that until you get to a certain number of units, it can be a struggle to maintain these additional real estate units. Plan to keep turning your profits over until you achieve the right volume so if you do have vacancies, you are not immediately “cash strapped”, with the loss of that rental income.
Once at the right volume for you, you can call this a real estate investment business.
5. Rent or Flip?: keep to your goal so if you plan to flip a property, then do it before you may decide to rent. Once rented it can be tough selling a property when there are renters. Also, if the rent is paid readily each month, you may get complacent and not flip the property like you originally planned.
6. Study: read as much as you can on real estate investing, and locate someone you know who is successful in real estate investing and ask them questions on what to know about YOUR location.
Last but not least, in real estate investing, it is all about location.
Real Estate Investing – How to Calculate Return Rate Using the Five Components of Return
How do you know that one real estate investment is better than another? Obviously, you must have some numerical way of judging one investment over another. That method is called real estate return rate!
Many real estate investment companies have no idea how to calculate the true return rate. That is unfortunate, especially in real estate investing for beginners. In today’s market, particularly, if you pick the wrong investment or invest in it in the wrong way you can lose hundreds of thousands of dollars.
There are tons of property opportunities…but which is the right one for you? There are five components of realty return. I’ll go over them briefly here so you can endeavor to find the best realty investments.
First, is appreciation. If your particular area goes up 5% and your investment property is worth $200,000 then you will have made $10,000 (5% x $200,000). Keep in mind that appreciation could well be negative as well and you might have to deduct $10,000.
Second, is cash flow. If you’re renting your property for $1,000 per month and your expenses and mortgage payment is $800 per month then you cash flow would be $2,000 per month or $2,400 annually.
Third, is principal pay off. Every time you make a payment, if you have a mortgage loan, then you are paying off principal. Since the principle deducts from your loan balance then you can add that as a component of return. Let’s say that you pay off $2,000 of mortgage principle for the particular year.
Fourth, is tax benefit. If you can depreciate $10,000 on your investment and you’re in the 50% tax bracket, then the tax benefit to you is $5,000 in real dollars.
Fifth, is something that I coined in my book thirty years ago. It is called equity discount. If you buy a property for $200,000 and immediate re-sell the property for $250,000 you have made $50,000. That difference is called equity discount. Keep in mind that equity discount can be a negative number as well if you are buying a property for more than it is worth. Why would you do that? Trust me, sometimes that are good strategies to do that.
Now, if we add all the components together, we get $69,400 ($10,000 appreciation + $2,400 cash flow + $2,000 principal pay off + $5,000 tax benefits + $50,000 equity discount). Now, we divide the $69,400 by the down payment. Let’s say you put $25,000 down on the property. If you divide $69,400 by $25,000 you get 277%. Wow! That is way more than you could get from an investment trust or through your bank.
What if you could buy the property for no down? Your return rate would be infinity! What if you could buy it for no down and put cash in your pocket? That’s another topic to consider.
Good luck in your investing pursuits!