Interested in starting your own real estate investment but not sure where to start?
Starting a real estate investment business requires planning. A successful investment business begins with a solid, well-researched, and well-outlined plan. Think of this plan as the blueprint for your business’ foundation.
Establish this plan before you invest in your first property. Use it until your last. If you do, you’ll reap the many benefits of a successful real estate investment business.
These benefits include numerous tax benefits, great cash flow, and a cushion to any retirement saving.
Owning your own business also means you can ride out a volatile market with ease. But before you do, you should consider a few factors.
This article will go over 5 factors to keep in mind as you begin your online real estate investment business.
Take Stock of Your Current Position and Save up Funds
Consider your present financial situation. Conduct a credit check on yourself or ask a mortgage advisor for assistance. Determine where your credit falls short.
Correct for any shortcomings before you begin to invest.
Take stock of your down payment sources. Analyze your access to cash, your investments, and equity in any real estate.
This last one is important! Don’t quit your 9 to 5. Consider your employment situation and how it will allow you to borrow.
While you get these things in order, you’ll need to save up enough funds to cover any start-up costs.
Looking for examples of start-up costs? These may include:
- Cost of renting or buying a space to operate
- office equipment
- graphic design including logo
- website design and hosting
- insurance costs
You’ll also want to enough funds saved to pay for operations for 3 to 4 months. These include rent, advertising, online fees, utilities, etc.
Beyond your financial position, consider where you stand in the current market. Do you meet your state’s real estate broker’s license?
Most states require completion of an approved course by persons 21 and older. You may also need to practice real estate as a salesperson for two years.
The Legal Aspects of Your Business
As far as the legal set-up of your business, you should create your business as a business. Buying properties in your own name could result in massive failure.
Most real estate investment businesses set up shop as LLCs. LLCs allow you to separate yourself from any liability. This protects your personal property and finances in case of failure.
What are the requirements for LLCs?
Typical requirements include:
- filing articles of incorporation with a state agency
- maintain a business in good standing
Next, you’ll need to secure proper insurance. Insurance protects your business from litigation. You’ll want rock-solid insurance that includes explicit sections about what the insurance covers and what the renter is responsible for.
Even if your investment is short-term do not skimp on insurance. Even an instance of black mould could set you astray.
Once you’ve considered your financial position and the basic logistics of running your business, it’s time to start planning the less tangible parts of your business blueprint.
Define Your Value Proposition and Your Ideal Client
Your Value Proposition
Real estate, like many other industries, is saturated with competition.
Most of your competition believes that price is the cornerstone of competition. This is incorrect.
Instead, you need to determine why you’re different. What makes your real estate investment business stand out from the crowd?
Competing based on price is distracting and easy. Competing on a unique value proposition that no other business can execute is the more beneficial choice.
Is your service unique? Do you deliver and communicate your service in a unique way?
A great way to begin determining how you stand out is to make a list of your skills. What do you do well? What can you improve on?
These answers will help narrow down why your business is unique.
Once you determine how you’re different, use this value proposition to define your ideal client (your target audience).
Your Ideal Client
You cannot cater to every single type of buyer. Determine the kind of client you want to work with. Determine the type of client attracted to your unique value proposition.
Knowing this information, you won’t waste valuable time and resources on clients unlikely to do business with you.
Many real estate investment business owners start by defining the type of client they don’t want to attract. What kind of buyer will drain your resources?
Answer this question to work your way toward your ideal client.
Next, with your target client in mind, you can craft a personalized marketing message.
Build An Effective Marketing Message and Follow Through
You’ll need to fine-tune your marketing efforts to appeal to your target market or ideal client. You’ll also need an appropriate marketing budget. Do not cut your marketing budget short.
Do not make the mistake of using a broad or general approach. Casting a wide net results in more work and more costs for you. You’ll need to spend more time and money wading through false leads.
Determine how you can communicate your unique value proposition to your ideal client. Do so in a manner that makes them want to do business with your company.
Of course, this process involves trial and error. You’ll need to edit and rework your marketing message and efforts as you find out what works and what does not.
Remember to ensure that all marketing material fits the message and impression you want to convey to potential clients.
They might not choose to do business with you but you’ll want them to regard you with positivity in any case.
Deliver on your marketing message. Shortcuts will cause your failure. Do not copy someone else’s marketing message or methods.
Make good on your promises to clients. Your real estate investment business will reap the benefits.
Implement Your Plan
If you plan to manage a group of people, remember that hiring the right people will make or break your business.
Your employees need to believe in your mission and work to achieve it.
Next, work to pre-position yourself for investing in properties beyond your first.
Refinance equity in your primary residence to include a Home Equity Line of Credit (HELOC) with a re-advanceable line of credit. Your credit limit increases as you pay down your mortgage principle.
Buy properties with good cash flow. Once you exceed five properties, your Debt Service Ratio cash flow determines your eligibility to borrow additional money. Buying the right properties will put you in a great position to avoid any obstacles in the future.
Beyond buying, set up a well-designed website.
Four out of five home shoppers begin their search online. This makes your website a crucial tool toward reaching clients.
Your website will provide the first impression for many clients. A website designed without your consumer in mind will turn people away. Choose a reliable web hosting service.
You can transform your business by using digital tools. Online equity is as crucial as financial equity to your business.
Plan For The Future
This might sound cliche, but planning for the future of your real estate investment business is paramount for your sustained success.
Consider refinancing before your fifth purchase. As you approach your fifth investment, review your portfolio for equity. Include your residence as part of this review.
Attempt to increase your Home Equity Line of Credit (HELOC).
Refinancing will provide access to more cash. Once you surpass five properties, this option may disappear.
Take stock of your amortizations. Amortisation is the process of paying debt with a fixed repayment schedule of regular installments. Examples include your mortgage or car loan.
In some cases, you can get 35-year amortizations.
Keep thorough financial records. Your mortgage records should include:
- all leases (keep these up to date)
- statements of net worth
- proof of income
- property tax records
- mortgage statements
Set goals. Think about your long-term revenue targets. Determine your end-game.
A Successful Real Estate Investment Business Is Possible
We know that starting a new business can seem overwhelming. But you can create a successful real estate investment business.
The key is to define your strategy and make an in-depth blueprint for how you want your company to operate. This strategy requires financial planning, legal set-up, defining your value proposition and ideal client, and planning for your future.
None of these steps are more important than the others.
Remember that this blueprint will need adjustment. As you engage with clients you’ll learn what works for your ideal client and what does not.
There is no shame in fine-tuning any part of your strategy. Running a successful business is a learning experience.
Before you begin this planning phase, ask yourself why you want to start a real estate investment business. What kind of lifestyle do you want to live? This will dictate the kind of real estate investment business you create.
These 5 factors will help you move forward in your business plan and operation. If you want to learn more about transforming your real estate investment business using digital, contact me today!