If you want to get your feet wet in a lucrative business opportunity, then real estate investing is a choice you don’t want to overlook.
Real estate investment is an attractive opportunity that offers the potential for a high income. However, it also can be a risky endeavor if you are unprepared. Real estate is a volatile market, plus navigating legal or financial issues can be challenging. Still, if you want to come out on top, it is possible to succeed as long as you have a plan.
What Kind of Real Estate Property You Want to Purchase as Investment?
The first step you want to take when investing in real estate is the determine what type of investor your will be. Do you want to be a long-term investor or do you want to, for instance, flip houses?
Flipping Real Estate – What It Entails?
Flipping homes entails purchasing fixer-uppers and quickly repairing them to increase their worth. In turn, you sell them for a profit. Typically, the entire process takes about two months and the profits usually range from a couple thousand dollars to hundreds of thousands of dollars, depending on the particular investment, the market, and how rapidly the real estate flips.
Some of the Drawbacks of Flipping
Unfortunately, many first-time flippers sink their money into real estate that does not sell quickly enough for them to see a profit.
They may also spend too much money on repairs and improvements. If they do not understand the market, they can get trapped into high-cost loan agreements that last far longer than their intended duration of 90 days.
Long-term Real Estate Investing
Long-term investments usually involve the purchase of multi-unit residences and offers a different kind of financial opportunity. Usually, these properties are purchased because they provide leasing income and need little in the way of upfront improvements.
While these opportunities are more stable than flipping houses, it also may take a while before you see any profits. The concept of residual earnings is a great idea, but when the actual amount that is earned is levied against the financing, you might find that your “earnings” are in the red instead.
Therefore, a purchase of real estate can be a great deal for one person while it is a regrettable mistake for someone else. To set up a real estate investment company then, you need to make sure you set it up as a corporation and that you can rely on professionals in the real estate, legal, and financial (accounting) fields to assist you in your real estate objectives.
Create a Real Estate Business Plan before You Begin
You also need to create a business plan before you begin. A business plan is essential as it enables you to show lenders and other business partners how you plan to steer your ship, and what type of course you want your vessel (or company) to take.
The Parts of the Plan Real Estate Business Plan
The business plan should be made up of the following components:
- Executive Summary
- Business Overview
- Market Analysis
- Market Plan
- Financial Plan
- Important Assumptions
Devising the Business Plan
When devising the plan, use templates online to help you through the process. You also want to seek assistance from your attorney and accountant. Your accountant will be of great help when you set out detailing the financial plan for your business.
Don’t write out the executive summary until you write out the other portions of your plan. The executive summary is meant to pique a lender’s interest and quickly overviews how you plan to use any money that you use for financing.
You can get more info regarding Real Estate Business Plans from this address: Developing a Real Estate Business Plan
Get Ready to Negotiate
Once you have your plan in place, you can better negotiate financing and track your overall progress. Business plans are meant to help you stay on course so you can reap the strong financial rewards that a real estate investment business offers.
After all, unless you are wealthy yourself, you need to find a suitable way to invest in houses or multi-unit properties. The idea is to tie up as little of your own cash in a transaction. Fortunately, lenders are aggressively seeking to do business, given the current competitive climate. Therefore, some lenders offer real estate down payments as low as 5%. Apply to several lending institutions then to find the best financing terms.
The Advantages of a Partnership
Instead of forming a corporation for your business model, you might also consider partnering with another person. If you are a first-time investor, this might be a good approach. Align yourself with someone who has a strong interest and understanding of the real estate market.
Realize a Healthier Return
While setting up your business and applying for financing, you also want to make sure that you apply for more capital than what you actually need. This extra financial cushion will permit you to make the required repairs and improvements to a property. Doing so will increase the monthly rental rates or enhance the resale value of the real estate.
However, don’t forget – more loan means more monthly payments down the road. Make your calculation carefully, for not having some financial issues later on.
Either way, by securing more money, you will see a healthier return on your real estate investments (as long as your financials are good).
Get the Needed Assistance for your Real Estate Investment Company
Employ an attorney’s help if you establish yourself as a limited liability corporation or a partnership. If you create an LLC, you need to file articles of incorporation with the appropriate agencies in your state.
You also need to maintain a good business standing in your local community. Use an experienced real estate attorney’s advice and assistance. You also want to speak to your accountant before you fill out the incorporation paperwork.
Obtain the Appropriate Insurance
While incorporation safeguards your personal assets to a certain degree, it does not protect you from litigation due to mishaps or unsafe conditions.
If you are a long-term property investor, you need to make sure you protect yourself with liability insurance. Make sure you fully read the plan(s) and review the stipulations for coverage. What is covered by the insurance and what are the responsibilities of a renter?
Look for the Exclusions
If you have a short-term real estate investment property, then safeguard it with a short-term policy. If you plan to off-load the property in the near future, you don’t need to sign a long-term contract.
Whatever type of insurance you choose, look at the exclusions. Exclusions are the areas that are not covered by the insurance plan – another reason why you should incorporate your business. For instance, most policies will not cover certain common issues, such as mold. Therefore, you need to survey your insurance policy with a fine-toothed comb.
Work with an Experienced Real Estate Agent
You can also gain the needed assistance by working with an experienced real estate agent. If you start an investment company, you cannot take care of every detail yourself. It simply makes doing business difficult. Therefore, be aware that you need assistance, when beginning as an investor, from a real estate attorney, an accountant, and a real estate agent. Just like a business plan, incorporation, and insurance, you cannot go without this type of aid.
In order to do well in real estate, you need to know how to best allocate your time. You also need to know who to rely on when you are buying and selling properties. While real estate investing is an entrepreneurial activity, you cannot get involved in the business as a lone wolf. If you want to make money and realize your objectives, you need the additional assistance.
When you use the services of a realtor, you can get a better idea of the market and the geographic area that you are targeting. Your goal is to locate distressed properties in better neighborhoods and fix them up to realize large rewards. Don’t focus on the declining areas of town. A real estate agent can help you stay on course so you can learn more about the market.
Ask for Assistance
Establishing a real estate investment business is about making a commitment. It is not an easy venture. But most things in life worthwhile really are not designed to be that way. If you want to take a successful route in life, then you need to stay on track and ask for assistance from key professionals in the trade.
And here is your success…