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How to Start a Real Estate Investment Company With No Money

Are you interested in starting a real estate investment company? If YES, here is a complete guide to starting a real estate investment company with NO money and no experience.

Real estate investment is a very attractive avenue for wealth building, as there are few other business opportunities where the potential for income is so high. However, it can be a very risky endeavour to step out on your own and jump into a volatile market. Navigating the financial and legal issues surrounding real estate investment can be an incredible hassle.

Still, thousands of people are doing it every day and the smart ones are coming out on top. Real estate investments help people improve their respective living standards.

Real estate gains combine property value appreciation alongside rental income. On the other hand, expenses stemming from owning real estate include mortgage loan interest, property tax and maintenance costs. Devise your real estate investment strategy prior to setting up a business structure and securing financing. The ultimate goal should be to improve financial returns while managing risks.

Steps to Starting a Real Estate Investment Company With No Money

1. Understand the Industry

This industry consists of establishments that construct or develop commercial, industrial and multifamily residential property and establishments that provide commercial real estate services, including renting, leasing, managing, buying and selling real estate. Other related services, such as appraisals and consulting, are also included.

Interesting Statistics About the Industry

The Real Estate investment industry, composed of companies specializing in a variety of real estate activities, has recovered over the past five years from its recessionary challenges. The industry is expected to grow moderately in the five years to 2016, despite tight lending conditions, weak construction activity and significant business closures early in the period.

As buyers take advantage of historically low property prices in the next five years, industry revenue is projected to continue its resurgence. Easing credit markets will encourage new investment, and consumer spending will yield new demand for commercial and residential real estate developments.

The Real Estate investment industry has a medium level of capital intensity. Though most industry segments are service related, the leasing of heavy construction equipment raises average depreciation costs across the industry. Nevertheless, for every part of the industry, wages comprise a larger share of revenue than capital costs.

Total wage costs (including in-house salaries, subcontractor payments and sales commissions) are estimated to account for 64.7% of revenue in 2016. In-house alone, wages are estimated to total 34.2% of industry revenue, compared with 3.4% of revenue absorbed by depreciation. The average operator spends about $0.10 in capital investment for every $1.00 spent on labour.

2. Conduct Market Research and Feasibility Studies

  • Demographics and Psychographics

The first step to real estate investment is to decide what type of investor you’ll be – a house flipper or somebody who’s in it for the long haul. The target market are adults, business owners, as well as private individuals.

3. Decide Which Niche to Concentrate On

Real Estate Investment business has many different types of investment niches all within the same “investment box”. Some might appeal to one type of person; some might appeal to another type of person. However, each investment niches uses most of the same basic principles and fundamentals.

  • Raw Land
  • Single-Family Homes
  • Duplex/Triplex/Quads
  • Small Apartments
  • Large Apartments
  • REITs
  • Commercial
  • Notes

As you can see, there are a lot of different niches and within each niche there are sub-niches as well and different roles within those sub-niches. This may seem daunting, but the wide variety of different niches is actually a great thing, as there is a type of real estate that appeals to almost everyone.

The Level of Competition in the Industry

Demand for real estate is driven by population growth, personal income, employment rates, interest rates, and access to capital. The profitability of individual companies depends on property values and demand, which are both impacted by general economic conditions. Real estate companies also rely on the supply of investment capital.

Large companies have competitive advantages based on their financial resources and broad geographic reach. Small companies can compete effectively by focusing on local or regional markets. The US industry is highly fragmented: the top 50 companies account for about 20% of revenue.

4. Know Your Major Competitors in the Industry

  • Blackstone – New York, NY
  • Invesco RE – Atlanta, GA
  • Prudential RE Investors – Madison, NJ
  • Goldman Sachs – New York, NY
  • Cole RE Investments – Phoenix, AZ
  • AREA Property Partners – New York, NY
  • JP Morgan – New York, NY
  • LaSalle – Chicago, IL
  • AEW Capital Mgmt – Boston, MA
  • LNR Property Corporation – Miami Beach, FL
  • Hines – Houston, TX
  • Brookfield Asset Mgmt – Toronto, Canada
  • GE Capital – Stamford, CT
  • Inland Real Estate Group – Oak Brook, IL
  • Morgan Stanley – New York, NY
  • TIAA-CREF – New York, NY
  • TA Realty – Boston, MA
  • American Realty Capital – Jenkintown, PA
  • CWCapital – New York, NY
  • CPP Investment Board – Toronto, Canada
  • RREEF – Santa Ana, CA
  • Beacon Capital Partners – Boston, MA
  • Clarion Partners – New York, NY

Economic Analysis

In the past, uses of economic indicators reside in the domains of governments, corporations, educational researchers, large institutions and sophisticated investors. These entities understand the importance of possessing an awareness of the statistics regarding current economic conditions and likely regional, national and international trends. Economic indicators provide essential information, which affects customers, tenants, buyers, workers, businesses and investment strategies.

Consider economic indicators indispensable tools for any investor. Today, small business owners and investors must employ economic indicators in their investment analysis to help determine current economic conditions, forecast future economic possibilities and make better decisions. Real estate residential investors can benefit from using economic indicators in their real estate investing business.

5. Decide Whether to Buy a Franchise or Start from Scratch

It seems wise, at least on the surface, to start small and grow bigger in the real estate business, but this may not always be the best option. Generally, single unit rental properties and small single family homes are the most attractive to newbie investors, as they usually cost less to purchase. However, the profit from these properties is often swallowed up by the mortgage, renovation budget, and maintenance on the properties.

As a result, it may be a better idea to buy into a franchise, partner with a wealthier individual or to secure more financing in order to purchase a more profitable property. This isn’t to say that you should ever over-extend yourself, but beware that properties requiring small initial investments often offer small profit potential. Take this – and all of the other factors described above – into consideration before signing on the dotted line of your first investment property.

6. Know the Possible Threats and Challenges You Will Face

Real estate is an entrepreneurial business where almost everyone aspires to do their own deals. That’s part of what makes it so interesting. There are a lot of really smart professionals out there eager to do their own deals, however starting your own firm is incredibly challenging.

Here are the 8 challenges of starting a real estate investment firm in today’s hot market:

  • Timing is often the biggest driver of deal success
  • It’s hard to get comfortable and pull the trigger on the first deal
  • Investors have unlimited investment choices
  • The opportunity cost of leaving your job is higher in a hot market
  • Hard to efficiently sift through all the over-priced deals
  • Unlikely to experience a near-term capital event
  • Hard to be patient even though that may be the best course of action
  • Also tough to start an investment firm in a down market

Bottom line, it’s tough to start your own investment firm, but it’s especially hard in today’s hot market but proper researching and steadfastness might be all you need to succeed.

7. Choose the Most Suitable Legal Entity (LLC, C Corp, S Corp)

You can buy properties in your name and go from there, but that’s just asking for financial failure! You should always create your business as a business. There are several options available, based on the tax status you’re willing to accept – but generally, most real estate investment businesses are setup as LLCs. This option allows owners to legally separate themselves from liability in order to protect personal property and finances in the event of a catastrophic failure (such as a lawsuit).

It’s generally quite easy to create an LLC. The two main requirements are filing articles of incorporation with state agencies and maintaining a business of “good standing.” However, even when setting up simple LLCs, it’s a good idea to seek the advice of a real estate attorney who’s experienced with real estate matters. LLCs offer numerous other general benefits relative to other entity forms that aren’t necessarily unique to—but certainly apply to—the use of LLCs to hold real estate investments.

When delegating management responsibilities, LLCs enjoy much greater flexibility than either a corporation or partnership. While corporations are statutorily required to have officers and directors, the LLC can be easily managed by its owners or third-party managers. In the many states that impose increased fees based on the authorized number of shares, LLCs may pay lower state registration and maintenance fees than corporations.

Owners of LLCs can take advantage of the tremendous flexibility in the distribution of profits, as determined by the LLC’s operating agreement. Cash flow distributions do not have to be pro rata according to ownership like an S corporation, which gives the owners the ability to financially reward the “sweat equity” effort of select members through appropriate distributions of available cash flow.

Unlike an S corporation, foreign ownership and investment in U.S. real estate is possible through an LLC. LLC owners can also easily transfer their ownership in real estate holdings by proactively gifting the company’s membership interests to their heirs each year. Over time, it is entirely possible to effectively pass ownership of real estate owned by an LLC to loved ones without ever having to formally execute and record a new deed. This enables property owners to avoid transfer and recording taxes and fees, which can be substantial in many states.

Although not every company will seek these particular benefits, it’s safe to say that LLCs can offer steep rewards to companies that choose to take advantage of them.

8. Choose a Catchy Business Name

  • Advansed Syztems
  • Capitalcorp
  • Flexus
  • Integra estates
  • Komerci estate services
  • Liberty world
  • Black gold
  • Mantra wealths
  • Formula Grey
  • Four Leaf Clover
  • PowerBook partners
  • Sores services
  • Destiny Realty Solutions
  • Visage estates
  • Universal housing
  • Wealth contractors
  • Target reality

9. Discuss with an Agent to Know the Best Insurance Policies for You

Incorporation doesn’t protect your business from litigation due to unsafe conditions or accidents. Insurance does. Long-term rental property investors will want to have iron-clad insurance policies in place that include stipulations about what’s covered by the insurance and what is the responsibility of the renter.

Short-term investment properties must be covered by short-term insurance policies. You simply can’t afford to go without, but – at the same time – there’s no reason to lock yourself into a long-term contract if you’re going to offload the property as soon as possible.

Whatever type of insurance you choose be aware that there will always be exclusions. These eventualities are not covered by the policy and are one of the reasons why you should always incorporate your business to protect yourself. Basic insurances may include;

  • General business liability insurance
  • Investment property insurance
  • Real estate finance insurance
  • Loss of rental money insurance
  • Equipment breakdown
  • Umbrella insurance

10. Protect your Intellectual Property With Trademark, Copyrights, Patents

It is never too early to start thinking about intellectual property protection. Keeping a conscious eye on these assets is a critical part of a business’s success. Business owners are likely to face the following key issues during the early stages of their enterprises.

Many business owners mistakenly believe that a company name is synonymous with a trademark. A trade name is the legal name of a business entity, which appears on the articles of incorporation or bylaws filed with a secretary of state’s office

Great care should be taken when selecting a trademark. The U.S. Patent and Trademark Office website allows viewers to search for existing trademarks. A clear search, however, doesn’t necessarily mean that the desired name is available. As trademark rights are acquired through use of the mark, companies should consider conducting a comprehensive trademark search in order to uncover not only marks filed with the USPTO but any uses of the mark.

It makes little sense for a company to invest time and resources developing its intellectual property and then fail to protect it. With many other forms of IP to keep in mind (patents, trade secrets, non-disclosure and confidentiality agreements, to name a few), it’s worth considering a preliminary consultation with an attorney. This can help businesses identify which items merit consideration, saving them money and avoiding problems along the way.

11. Get the Necessary Professional Certification

  • The Certified Commercial Investment Member (CCIM)
  • The National Association of REALTORS®
  • Accredited Buyer’s Representative® / ABR®
  • Accredited Land Consultants (ALCs)
  • Certified International Property Specialist / CIPS
  • Certified Property Manager® / CPM®
  • Certified Real Estate Brokerage Manager / CRB
  • Certified Residential Specialist / CRS
  • Counsellor of Real Estate™ / CRE™
  • Certified Real Estate Team Specialist / C-RETS

12. Get the Necessary Legal Documents You Need to Operate

  • Bargain and Sale Deed
  • Contract for Deed
  • Grant Deed
  • Mortgage Deed
  • Quit Claim Deed
  • Special Warranty Deed
  • Transfer on Death Deed
  • Warranty Deed
  • Intent to Purchase Real Estate
  • Moving Contract
  • Property Agreement
  • Property Manager Agreement
  • Real Estate Easement Agreement

13. Write a Business Plan

Your business plan is not only a great sales tool, but it will also help you to think more deeply into your real estate investing business from varying angles. Of course, a big part of your business plan is to keep you on track through the growth of your business. However, it is very important that you write your business plan in a way that will make lenders and your other business partners want to work with you.

There are certain elements that must be included in your business plan. All of these elements should be included, but by no means think that you can’t add more if you choose. The required elements are (in order):

  • Executive Summary
  • Company Overview, Business model, and USP
  • Your Market Analysis and Specific Business Practices
  • Marketing Plan
  • Implementation
  • Financial Plan
  • Important Assumptions
  • Closing Statement

Once again, all of the sections above should be included somewhere in your business plan in order to comprehensively lay out your complete business on paper. Starting your business without a business plan is like going to war without a strategy or tactics. In war, without a comprehensive plan outlining everything possible, you are setting yourself up for slaughter. The same goes with real estate investing.

14. Prepare a Detailed Cost Analysis

Despite abundant advertisements claiming that real estate investing is an easy way to wealth, it is in fact a challenging business requiring expertise, planning and focus. Because the business revolves around people, investors benefit in the long run by operating with integrity and by showing respect to associates and clients.

Tough it may be relatively simple to enjoy short-lived profits, developing a viable real estate investing business that can last for the long-term requires additional skill and effort. Whether focusing on apartment buildings or commercial property. Listed below is a detailed cost analysis of starting a small scale real estate investment business.

  • Lease – $2500
  • Office equipments -$1700
  • Bank account – $500
  • Insurance – $20, 000
  • First property – $500, 000
  • Advertisements – $3000
  • Management team –  $15, 000

Total = $542,700

The cost of starting a real estate business might be big but its profit when managed well can be overwhelming. From the well researched cost analysis above it will cost a staggering $500,000+ to start a small scale real estate investment, showing how intense and rich the industry is!

15. Raise the Needed Startup Capital

The real estate investment business is an ocean of wealth where large finance brings back large profits. All businesses need finance and the real estate investment business is not left out as well. If you’re ready to seek out financing for your real estate investment business, these five tips can improve your chances of success.

  • Have a sizable down payment
  • Be a strong borrower
  • Shy away from big banks
  • Ask for owners financing
  • Think outside the box

16. Choose a Suitable Location for your Business

One of the most important things you can do is to acquire properties where conditions are favourable for renting/selling/lease. Most of the people aren’t going to buy a New York City high-rise or other in-demand trendy apartment building, but you can employ similar principles when choosing properties.

First off, you should focus on buying properties in areas where rental demand is growing faster than supply. This does include many metropolitan markets, but there is likely to be examples of this anywhere in the U.S.

For example, I live close to a major university, and the student population is growing faster than the number of available housing units. So, if I wanted to buy a new investment property, I’d probably start my search there, because not only is the property likely to stay occupied, but basic supply and demand indicate that the rent will rise over the coming years.

Another thing to look at is the demographics of the neighbourhood. It is well known that the 25-34 age groups will increase by 1.1 million over the next three years. And since the home-ownership rate among young adults has dropped from 43.6% to 35.3% over the past decade, this is a group that is likely to rent. In other words, areas with high concentrations of this age group are favourable places to own rental properties.

Of course, every local market is different, so this will require a little research on your part. And there are other factors to consider, such as the job growth in the area and proximity to favourable landmarks and services like public transportation and shopping/entertainment areas. Just keep in mind that your property’s location is the one thing you won’t ever be able to change, so it’s worth the time and effort to choose wisely.

17. Hire Employees for your Technical and Manpower Needs

When setting up your property investment business, you may be tempted to skimp as much as possible to reap the lion’s share of the profits for yourself. However, it’s not a good idea to go it alone during the property search on your first couple of go rounds. No matter how much market research you do, you’re not going to be an expert the first time or two you purchase income properties.

In addition, realtors understand the market within a given geographic area better than you ever could. Your goal should be to find the worst houses in the best neighbourhoods and spruce them up to reap the biggest rewards. You don’t want to get hung with a mediocre property in a neighbourhood that’s on the decline. This may mean sacrificing some of your predicted profit, but it’s a valuable learning experience that will help you cut the cord in the future.

The Service Delivery Process of the Business

If you sincerely desire to enter the real estate field, to purchase property as your investment, there are many ways that you can do it. Perhaps the simplest way of all, and the starting point of many real estate fortunes, is called the “Buy them, Fix them Method.” This refers to the strategy of buying properties needing work and fixing them up to increase their value.

There are several steps for you to follow in this method.

  • Do your real estate research
  • Pay the Lowest Down Payment Possible
  • Move in and get busy
  • Take Action To Maximize Your Investment
  • Repeat the process
  • Move Up To Larger Properties

18. Write a Marketing Plan Packed with ideas & Strategies

Real estate is a numbers game. The more leads you can generate, the better chance you have at landing a potential buyer. However, generating those leads requires a proven marketing strategy

One thing to note is that everyone will experience different results with their respective marketing campaign. Two different people in the same market could be doing the same exact thing and get very different results. And two different individuals, in two different markets can get similar results. That’s just the nature of the beast. Marketing strategies may include;

  • Apparel/Human Advertising
  • Direct Mail
  • Cold Calling
  • Bandit Signs
  • Newspaper/Yellow Page Ads

19. Work Out a Reasonable Pricing for your Services & Products

From a quantitative perspective, investing in real estate is somewhat like investing in stocks. In order to profit in real estate investments, investors must determine the value of the properties they buy and make educated guesses about how much profit these investments will generate, whether through property appreciation, rental income or a combination of both.

Equity valuation is typically conducted through two basic methodologies: absolute value and relative value. The same is true for property assessment. Discounting future net operating income (NOI) by the appropriate discount rate for real estate is similar to discounted cash flow (DCF) valuations for stock, while integrating the gross income multiplier model in real estate is comparable to relative value valuations with stocks.

20. Develop Iron-clad Competitive Strategies to Help You Win

There are many excuses for not getting started in real estate investing or not going bigger and claiming the results others are. One of the top excuses for not doing more is the competition from competitors. Either they are too well funded, too well established, well connected or just have better businesses.

The truth is, if you are equipped with the right real estate education and planning, you can compete and win in any business environment whether it’s against real estate agents, giant private equity firms or another investment company.

Just like small mortgage brokers won 60% of the home loan market from big banks, you too can compete and win against the giants in your market with the right strategy. So, isn’t it time you stopped griping and started crushing your competitors?

Then, find out what is it that your competitors are doing or not doing that is helping them win or lose consumers. Be a mystery shopper or track their marketing efforts and find opportunities where you can excel. It could be speed of response or friendlier customer service. How about a more tech-oriented approach or perhaps getting out from behind the screen to offer a more personal touch!

Find your real estate investing niche, own it and grow. Then you’ll be stronger, better funded and better able to branch out into other areas or take competitors on in other niches.

21. Brainstorm Possible Ways to Retain Clients & Customers

In general you will need to focus on real estate related activities which are done by customers when they actually don’t move to another home to be able to strive.

You may build on the personal connection with customers, a cheap way to do that would be to have social media profiles and blogs related to the activities they do with a home. Anything from gardening to property lease, just some ideas: Pinterest boards with appropriate topics, posting on the company Facebook profile. Use lots of pictures as people can most easily be impressed with these in this topic.

Be proactive, respond to comments but don’t be eager! A non eager way to keep your contact data around would be to curate content, present content on your blog where the contact data is shown, take it on pictures, link your blog with posts, use call to action solutions offered by the appropriate media (for example Pinterest rich pins, Facebook call to action buttons)

If you have a larger brand which would mean the contact is not that personal than you may be interested in partnering with companies dealing with stuff people do with their property, but you may still use the above mentioned techniques.

22. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity

Brand awareness for real estate means that your local home buyers and sellers know who you are. It means you are top of mind when they think of an agent. And since most people start their home search online, building brand awareness with digital advertising is the best bang for your marketing buck.

Most companies have to spend serious time, money and effort creating a brand — a corporate ‘personality’ that conveys its essence. Sometimes it works. Sometimes it falls flat. But real estate agents have a particular advantage with brand awareness.

Here are five secret weapons you must have to help you build brand awareness for your real estate business:

  • Your face can be your brand
  • You must be a storyteller
  • Your business is a service
  • Your must present yourself as an expert
  • You must know where your customers are

23. Create a Suppliers/Distributions Network

A network can provide important support and create opportunities to a new or experienced real estate investor. This group of associates can be comprised of a well-chosen mentor, business partners, clients or a non-profit organization whose interest is in real estate.

A network allows investors to challenge and support one another, and can aid significantly in advancing one’s career through shared knowledge and new opportunities. Because much of real estate investing relies on experiential-based learning, rather than on reading a book, for instance, savvy real estate investors understand the importance of building a network.

Real Estate can be an excellent way to create wealth and diversify your investment portfolio, but just like everything else in investing, there is a right and wrong way to buy and manage investment properties. One of the best ways to learn how to invest in real estate is to learn lessons from those who have been successful.

In a perfect world, your investment properties would never sit vacant, you would never have to evict a tenant, and nothing would ever break. Unfortunately, we don’t live in a perfect world — sometimes things don’t go as planned.

For this reason, it’s important to plan ahead for unexpected expenses like these. As a general rule, plan to set aside 10% of the rent to cover maintenance expenses, and this should be adjusted upward depending on the age of the property. And another 5-10% should be set aside for a vacancy reserve. That way, if the property sits empty for a couple of months between tenants, you can still cover your expenses.

Finally, make sure you have a good landlord’s insurance policy (similar to homeowner’s), and if you have more than a few properties, an umbrella insurance policy might be a good idea to protect your assets in case a tenant decides to sue you for whatever reason.

24. Tips for Running a Real Estate Investment Company Successfully

Real estate has long been regarded as a sound investment. Wholesaling and property management of commercial and residential property are just a few of the ways investors can profit from real estate, but it takes a little savvy to become successful in this competitive arena.

a. Treat Investments as Businesses

It is important for real estate investors to approach their real estate activities as a business in order to establish and achieve short- and long-term goals. A business plan allows real estate investors to not only identify objectives, but also determine a viable course of action towards their attainment. A business plan also allows investors to visualize the big picture, which helps maintain focus on the goals rather than on any minor setback. Real estate investing can be complicated and demanding, and a solid plan can keep investors organized and on task.

b. Know Their Markets

Effective real estate investors acquire an in-depth knowledge of their selected market(s). The more an investor understands a particular market, the more qualified him or she will be to make sound business decisions. Keeping abreast of current trends, including any changes in consumer spending habits, mortgage rates and the unemployment rate, to name a few, enables savvy real estate investors to acknowledge current conditions, and plan for the future. Being familiar with specific markets allows investors to predict when trends are going to change, creating potentially beneficial opportunities for the prepared investor.

c. Maintain High Ethical Standards

Realtors are bound to act according to a code of ethics and standards of practice policy, and real estate agents are held to each state’s real estate commission rules and standards. Real estate investors, however, unless they are associated with membership-based organizations, are not usually required to maintain a particular degree of ethics in their business practices, as long as they operate within the boundaries of the law.

Even though it would be easy to take advantage of this situation, most successful real estate investors, and especially those who remain in the business for the long haul, maintain high ethical standards. Since real estate investing involves actively working with people, an investor’s reputation is likely to be far reaching.

In the case of an investor lacking in ethics, the consequences can be damaging. Effective real estate investors know it is better to conduct fair business, rather than seeing what they can get away with.

d. Develop a Focus or Niche

Because there are so many ways to invest in real estate, it is important for investors to develop a focus in order to gain the depth of knowledge essential to becoming successful. This involves learning everything about a certain type of investment – whether it is wholesaling or commercial real estate – and becoming confident in that arena.

Taking the time to develop this level of understanding is integral to the long-term success of the investor. Once a particular market is mastered, the investor can move on to additional areas using the same in-depth approach. Savvy investors know that it is better to do one thing well than five things poorly.

e. Strive to be Good Customer Service Representatives

Referrals generate a sizable portion of a real estate investor’s business, so it is critical that investors treat others with respect. This includes business partners, associates, clients, renters and anyone with whom the investor has a business relationship. Effective real estate investors are good customer service representatives by paying attention to detail, listening and responding to complaints and concerns, and representing their business in a positive and professional manner.

f. Stay Educated

As with any business, it is imperative to stay up to date with the laws, regulations, terminology and trends that form the basis of the real estate investor’s business. Keeping current does require additional work, but it can be viewed as an investment in the future of the business.

Investors who fall behind risk not only losing momentum in their businesses, but also legal ramifications if laws are ignored or broken. When it pertains to the law, ignorance is no excuse. Successful real estate investors take the time and make.