9 Steps to Take BEFORE Setting Up a Real Estate Investing Business Entity
So you want to be a real estate investor. You’ve watched the commercials and reality TV shows, you’re addicted to HGTV, you see how much money your friends are making. Or maybe you just want to create passive income, and owning real estate seems like the way to go. You’ve heard you need to set up a business entity, make a website, print business cards, etc. But how much of that is really true? Turns out, not much. Here’s what you DO need.
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9 Steps to Take BEFORE Setting Up A Real Estate Investing Business Entity
Get your funding in place.
Despite what Brandon’s title says in The Book on Investing in Real Estate with Low (and No) Money Down, you can’t buy real estate with no money. You can buy it with none of your own money, but someone is putting up some cash before the seller will sign over the deed. If it isn’t you, then start figuring out who it will be.
Line up your partnerships, your hard money loans, your private money loans, your mortgage paperwork. Even if you are wholesaling, you’ll have to have some sort of earnest money deposit. Start working on that now, so you don’t have to scramble — and possibly lose a deal — later.
Get a great real estate agent.
Not all great agents are great investor agents. If you’re flipping or buying to hold, you’ll need someone to help you navigate the process. If you’re wholesaling, you’ll need someone to refer your sellers to when the numbers they need won’t make it a deal for you.
You want someone who knows typical market rents or before/after pricing for properties. It isn't helpful if your agent gives you inflated ARV (After Repair Value) numbers or recommends a rent that isn't realistic. While you are getting your funding in place, you can start asking everyone you know for a referral to an agent who works with investors.
Another great place to find investor-friendly agents? BiggerPockets. Search the site for your city’s name, and see how many agents pop up. Go to your local real estate club and ask around.
Learn your market.
You won’t know what makes a deal great if you don’t know your market. A good deal in Denver might be a terrible deal in Cincinnati. Learn your market. Know what houses typically sell for in great, good, and awful condition. Learn what areas are desirable and what areas you couldn’t pay someone to live in. Learn. Your. Market.
Set up a professional email address.
If your current email address is [email protected], you aren’t presenting a professional image. Your email address is telling the world that you don’t take your investing seriously. If you don’t take it seriously, why should anyone else take YOU seriously?
Gmail is an excellent email service that is 100 percent free. I’ve had several free email addresses over the years with various sites, and by far, Gmail is the best.
Your professional email address should be simple and easy to remember. Your name is a great choice, but be honest with yourself. If your last name is difficult to spell or pronounce, chances are good that it will get mistyped. Make it easy for people to get in touch with you and easy for them to remember your email. [email protected] is probably already taken, but [email protected] may not be. Personally, 303 is my local area code, which makes it easy to remember for local people. Ditto zip codes.
Set up a business phone number.
If you want people to get in touch with you, you want to give them as many ways to do so as possible. If you’re buying older, out-of-date houses, chances are excellent that you’re dealing with an older seller. They might be super tech-savvy, but I wouldn’t bet on it. Give them a phone number they can call. You might prefer email, but this isn’t about what you want.
An extra phone number doesn’t have to cost you a thing. You’ve already set up a Gmail account, go get a free Google Voice number. You choose the number, and have it forwarded to your current phone. Google Voice transcribes your voicemail messages into an email for easy reading. You have the option of blocking numbers you don’t wish to talk to, and you can customize the greeting for friends, family and acquaintances. Actually, there’s a lot of features that Google Voice offers. Did I mention it’s free?
Craft a letter.
The MLS is a great place to find a deal, but it isn’t the only place to find one. In fact, the hotter your market is, the harder it is to find a deal on the MLS. Driving for dollars can help you identify the properties you want to purchase, but you’re still going to have to contact the owner in order to buy it.
Craft a good general letter and mass mail to your list. Take that same letter, and tailor it to the individual houses you find while driving for dollars. If writing isn’t your thing, find someone who does enjoy writing, and have them write it for you.
A letter that doesn’t make any sense or is poorly written is a waste of paper and postage. A great letter doesn’t have to be a book; it just has to convey your message clearly.
Practice your pitch.
Your phone is going to ring at some point, with a seller on the other end looking for you to buy their property. What do you have to offer? Why should they sell to you? What can you give them/do for them/tell them to convince them to sell to you and not some other investor or buyer? Know your strengths, so you can sell yourself when the time comes.
Practice. Practice in your mirror. Practice on your friends. Practice with your family. Be comfortable with what you are saying and what you are offering, so you sound knowledgeable when you’re talking to these sellers who will call at their convenience, not yours.
Be prepared to get shot down. Some of those calls that come in are angry people who want to be taken off your mailing list. Don’t be offended; just remove their name. Some of those calls are going to be from sellers who want top ARV dollar for their pre-rehab property. Know how you’re going to tell them in a kind way that their property isn’t worth what they think it’s worth.
Get your contracts together.
Unless you plan on doing everything yourself, you’ll have to line up people to do work for you. And unless you have a great contract, someone is going to take advantage of you. Find a great contract for property management, rehab work, wholesaling, etc.
Remember, just because you put it into a contract, it does not make it legal or enforceable, so learn your local laws and make sure you follow them.
This is absolutely a save-the-best-for-last recommendation — or at least, save the most important for last. It doesn’t matter what niche you are pursuing: wholesaling, flipping, buy-and-hold, notes, tax liens, etc. If you don’t know what you’re doing, you are going to lose money. There are few things in real estate that are guaranteed, but this is one you can absolutely bank on. If you go at it blind, you’re going to lose.
Lucky for you, you have an amazing resource right here in BiggerPockets. From this Blog, to the Forums, Podcasts, FREE weekly Webinars and more, you’ve found the best place online to learn about real estate investing.
But wait, there’s more! Take this list of 21 Best Real Estate Books Books for Real Estate Investors, and go check them out at your local library.
Attend a local real estate investing meet up. Start networking with investors near you. Find someone who is doing what you want to be doing, and ask what you can do to help them. The education is worth more than an hourly wage.
Finally, set up your business.
Setting up your business entity is an important thing to do, but it isn’t the first thing you should do. You don’t need a business name if you don’t have any money to buy a property. You don’t need a website before you have your pitch put together.
After you have prepared yourself, learned about your chosen niche, and lined up financing, then you can start thinking about setting up a business entity.
What steps did you take before you created your business entity?
Don’t forget to leave a comment below, and let’s chat.