How To Start A Real Estate Investing Business

Investing in real estate is one of the best ways to make money in the short and long term.

Just as with any other business, you have to make sure that you start on the right foot in order to succeed and generate profit.

To help those considering becoming property investors in 2019, we’ve put together this guide on how to start a real estate investing business from scratch.

Get Educated

While one of the most compelling features of real estate investing is that you don’t have to have a formal education, you definitely do need some knowledge and understanding in order to become a successful investor.

The best part is that you don’t have to pay a penny, as you can capitalize on the myriad of free online real estate investment resources.

Search for the best websites for real estate investors and choose a few to start with. Make sure that you read several, as each website is likely to focus on one specific aspect of the real estate business: buying a property, investing in rentals, flipping properties, wholesaling, analyzing properties, financing, working with an agent and more. 

To gain a comprehensive grasp of the business, you should rely on different perspectives and experiences. Each one will have something unique to add to your knowledge.

Start Networking

You might have heard that real estate is a people’s business, and this is absolutely true. A major aspect of real estate investing is knowing the right people and mingling with them.

These include other investors, property buyers and sellers, real estate agents and brokers, house inspectors, appraisers, property managers, real estate lawyers, financiers and others.

As soon as you decide to start investing in properties, you should enter the circle. Check out local real estate investor groups and meetups and start attending their events. You will be able to meet and get to know many real estate professionals, not just other investors.

Talk to them, introduce yourself and follow up afterwards. In this way, you will already have a vibrant network once you are ready to move forward with your first property.

Find A Mentor

You might be surprised, but real estate investors love sharing their experiences and successes with others. Moreover, they are always ready to lend a helping hand to beginners.

After all, it feels good to be acknowledged as an expert and as a successful entrepreneur in a field.

In addition, experienced investors know better than anyone else that real estate is all about connections, so they also constantly look for new opportunities to expand their network.

Finding a real estate mentor is of indispensable help to beginner investors. That’s the fastest and most straightforward way to learn about the business from firsthand experience and to receive ongoing support until you feel confident to continue on your own. Furthermore, your mentor might become your first real estate partner.

Look For Partners

Even experienced real estate investors sometimes prefer to conduct business with partners. Investing with a partner has many benefits over going solo: additional financing, the ability to grow your investment portfolio fast, sharing risk, a different perspective, added experience, capitalizing on others’ strengths to cover for your weaknesses and splitting up the work and responsibilities.

It is advisable to find a partner or two when you first start in real estate. Ideally, your partners will have more experience with property investments than you do so that they can guide you in the process while you contribute some of the financing, the legwork and the enthusiasm of a newbie.

The network you have already started building will be the best place to look for real estate partners. Remember that it’s ideal to bring together partners with different experiences, skills and fortes in order to develop a well-rounded team.

Choose The Right Investment Strategy

One of the best aspects of real estate investing is that it holds endless opportunities.

Buy and hold, long-term rentals, vacation rentals, BRRR, house hacking, fix and flip and wholesaling are just some of the strategies from which real estate investors can choose. 

While some of them are better tailored for those just starting in the real estate business, they are all feasible options as long as you have the right personality and are willing to learn.

You should study each one of these real estate strategies well, consider the pros and cons, take into consideration your personality and skills as well as the experiences of your partners and evaluate your access to financing to choose the optimal strategy for your particular case.

For example, wholesaling is a short-term strategy perfect for those with an active personality and limited financial resources who prefer not to own a property.

At the same time, house hacking is a good option if you do not own a home, need a place to live and are willing to commit to real estate in the long run. .

Long-term rentals are ideal if you don’t mind becoming a landlord and would like to make money in both the short run, through rent, and the long run, through appreciation.

With real estate investing, the sky is the limit.

Decide On The Best Legal Form

Depending on whether you invest alone or with partners and how you divide the rights and responsibilities among yourselves, you have to select the most appropriate legal structure for your real estate business. Some options include an LLC, a C corporation, an S corporation, a sole proprietorship and a partnership.

Once again, you should study the advantages and disadvantages of each one as well as the requirements in order to decide on which legal entity best fits your needs and interests.

As a beginner, you will probably need the help of a real estate lawyer to cover all legalities, so you’ll have to lean on your network once more.

Study Different Real Estate Markets

Many experts claim that real estate investing is all about the location, and there is a lot of truth in this statement.

The U.S. housing market varies immensely in terms of property prices, types of properties, house inventory, rental rates, rental demand, optimal investment strategy and financing options.

As part of your education as a new real estate investor, you should read about different markets and analyze the investment potential of each one of them to choose the best.

As a beginner, you might want to invest close to home in order to make your experience easier, but that’s not really an option if you live in an overpriced market such as Los Angeles or San Francisco.

If you work with partners and hire a professional property manager, investing out of state is a feasible alternative, even for beginners.

To help you out, here are some of the best real estate markets for buying a traditional rental property in 2019 if you choose this strategy.

Secure Financing

As a beginner investor, you probably have access only to limited financing. Different real estate strategies require various levels of financing.

For instance, for buying a property to rent out with a mortgage, you will need a minimum down payment of 20% of the property price in addition to closing costs.

Once you’ve selected a strategy and a market, estimate all the expenses that you will need and figure out how exactly you will finance them.

If you need to borrow money, talk to several different banks and other lending institutions.

That means talking to both small local banks and big national banks, as they will have different options to offer to you.

If you need to apply for a mortgage, get pre-approved before you start searching for properties for sale. This will give you an advantage over other buyers, which is particularly important in a hot seller’s market.

Search For Properties

Once you have everything else figured out, it is time to take on the most exciting part of starting a real estate investing business: looking for a property.

Use different sources such as local newspapers, websites with MLS listings and off-market properties, "for sale" signs, auctions and an agent.

Look for properties that are within your price range only, and don’t get tempted by more expensive and luxurious houses.

It is highly recommended that you start out with a small, cheap, simple property that will not exceed your budget, will not drive you to bankruptcy and is easy to manage and maintain.

Once you have mastered the skills required for real estate investing, you can go for a bigger and more expensive house.

Analyze The Profit Potential 

It is important to narrow down your choices to just two to three properties as soon as possible in order to focus on them, study their potential for making money and choose the best one for you.

Perform a comparative market analysis to know what similar properties are selling for in the local market. Overpaying for a house is a common mistake among beginner investors and a sure way to push your return down.

You should also conduct investment property analysis to estimate the rental income you can expect from your property, the one-time startup costs and recurrent expenses and ultimately forecast your return on investment.

Make sure that the rental income exceeds the costs so that you end up with a positive cash flow investment right away. Investing in a negative cash flow property is one of the worst mistakes in real estate.

Hire An Agent And Close The Deal

If you’ve worked without an agent or broker to this point, you'll need to hire one once you are ready to buy the property.

This is unless you or one of your partners has previous experience in real estate transactions.

Buying a property is much more complicated than what you might assume and requires the help of a professional to make the right offer, get the best possible price, negotiate optimal terms, and close quickly.

Although starting to invest in real estate might sound overwhelming, it is doable if you follow the steps above.

After all, there are millions of real estate investors in the U.S. housing market, and they cannot all be smarter than you.

If you think the time has come for you to join the exciting — and money-making — world of real estate investors, just follow the steps outlined in this guide, and you’ll be good to go.