How to create a passive income real estate company

30 Replies

I have been an entrepreneur for several decades and am ready to create my final - hopefully, masterpiece - company. The idea is to develop a business that is a hybrid of the turnkey model, where the majority of the services to operate, manage, renovate, etc of a property is taken care of by one or more entities/service providers, but the property selection, purchase, and determination of renovation needs is determined by this new company. Another twist will be to have a mix of long term rentals away from the tourist attractions and vacation rentals close to the beaches.

I am looking for advise, tools, samples, insights on how to best create a business plan and identify the best tools (software/apps) for the establishment of this new company. The goal is to get all legal aspect, founding capital and entity structure in place by the end of 2019 (earlier if possible).

The help of the BP community is highly appreciated

Hey Alex,

We do a turn-key model here but with partnered companies just like you are mentioning. Your ideal model would emulate that of Memphis Invest or Morris Invest in terms of transparency and fluidity. (There are many others but those two come to mind immediately).

So, you will be looking to have an arm for the following functions:

  • Real Estate transaction (brokerage)
  • Property mgmt
  • construction

So, what we did was vet our 3rd party service providers with things we would want personally as investors and ensured they can provide that not only locally but at a distance as well:

  • Transparency 
  • Communication
  • Quality

Then we made sure they all were aware of the intent and understood not only our process but in which order each step would need to be completed. Then we put them in contact with everyone else that was a party to the process as well. 

It becomes really simple after a few test runs because of being able to work out the kinks with the team. It also is simply because as you leverage other companies, it is what they do every day. It's just them organizing the volume you provide.

So, as mentioned me and my team are the broker side of the house in this process for our local market. We have been able to create this company on the residential side and now we are working on the commercial side with the same intent. 

It is very doable. Best of luck and continue to grind away at it. Let me know if I can help at all. 

Originally posted by @Michael Glaspie :

Hey Alex,

We do a turn-key model here but with partnered companies just like you are mentioning. Your ideal model would emulate that of Memphis Invest or Morris Invest in terms of transparency and fluidity. (There are many others but those two come to mind immediately).

So, you will be looking to have an arm for the following functions:

  • Real Estate transaction (brokerage)
  • Property mgmt
  • construction

So, what we did was vet our 3rd party service providers with things we would want personally as investors and ensured they can provide that not only locally but at a distance as well:

  • Transparency 
  • Communication
  • Quality

Then we made sure they all were aware of the intent and understood not only our process but in which order each step would need to be completed. Then we put them in contact with everyone else that was a party to the process as well. 

It becomes really simple after a few test runs because of being able to work out the kinks with the team. It also is simply because as you leverage other companies, it is what they do every day. It's just them organizing the volume you provide. 

So, as mentioned me and my team are the broker side of the house in this process for our local market. We have been able to create this company on the residential side and now we are working on the commercial side with the same intent. 

It is very doable. Best of luck and continue to grind away at it. Let me know if I can help at all

I appreciate your mention of our company.  However, as a point of pride in our reputation and the level of integrity that we operate with, mentioning our company with the company Morris Invest should never happen.  From what I know, our two companies could not be more polar opposite from the standpoint of philosophy to execution.  To that point, from what is said here on the forums, Morris Invest is neither a Turnkey company nor a company that most entrepreneurs would want to emulate.  

Originally posted by @Chris Clothier :
Originally posted by @Michael Glaspie:

Hey Alex,

We do a turn-key model here but with partnered companies just like you are mentioning. Your ideal model would emulate that of Memphis Invest or Morris Invest in terms of transparency and fluidity. (There are many others but those two come to mind immediately).

So, you will be looking to have an arm for the following functions:

  • Real Estate transaction (brokerage)
  • Property mgmt
  • construction

So, what we did was vet our 3rd party service providers with things we would want personally as investors and ensured they can provide that not only locally but at a distance as well:

  • Transparency 
  • Communication
  • Quality

Then we made sure they all were aware of the intent and understood not only our process but in which order each step would need to be completed. Then we put them in contact with everyone else that was a party to the process as well. 

It becomes really simple after a few test runs because of being able to work out the kinks with the team. It also is simply because as you leverage other companies, it is what they do every day. It's just them organizing the volume you provide. 

So, as mentioned me and my team are the broker side of the house in this process for our local market. We have been able to create this company on the residential side and now we are working on the commercial side with the same intent. 

It is very doable. Best of luck and continue to grind away at it. Let me know if I can help at all

I appreciate your mention of our company.  However, as a point of pride in our reputation and the level of integrity that we operate with, mentioning our company with the company Morris Invest should never happen.  From what I know, our two companies could not be more polar opposite from the standpoint of philosophy to execution.  To that point, from what is said here on the forums, Morris Invest is neither a Turnkey company nor a company that most entrepreneurs would want to emulate.  

Chris I about spit out my coffee and was going to come to protect the honor and integrity of the Clothier family.. but you beat me to it..

Will leave it at that.. the two cannot be more polar opposite.. you have best in class and you have an absolute nightmare company that has ruined hundreds of people financially emotionally etc etc.

Carry on..   JLH 

Alex,  I believe before you get to far down the road your going to want to talk to a good securities attorney. 

@Jillian Sidoti   there is this thing called the Howry test I learned of it when I went toe to toe with regulators in Oregon.

Will leave it at that.. highly suggest you run the model by very good council first. 

it could be as simple as having Ms Sidoti create a custom PPM for you that incorporates your vision and business model

@Michael Glaspie Thank you. I will. @Jay Hinrichs @Chris Clothier I am a fan of MI and a few other turnkey companies and have learned how important the selection of great partners is. I don't plan on being competition in any way. All I like to do is being involved in the selection process on the front end as well as the closer monitoring for the vacation rentals. That's why I am calling it a hybrid that follows a model I am currently applying in my consulting company: I call it the expert model where each part and service is provided by experts under a common umbrella that describes common goals.

I have not heard about the Howry test but will explore. Thanks Jay for pointing it out

One other point if your going to get compensated for bringing a buyer and seller together in a real estate transaction your going to need a License broker in that state.. and if you want compensation you will need a license in CA and make referral fee's. 

other wise I guess your just working as a referring consultant on a fee basis. but be very careful of putting compensation on a hud. things go sideways that's the first place the lawyers are going to check.. were you licensed.

@Jay Hinrichs Thanks but the plan is that the company I am creating will be the buyer. I agree that I will probably get aat last an agent license or have someone in the company with an agent or broker license. There is no goal of selling. The idea is to develop the portfolio of properties that will allow accelerating the portfolio growth and ultimately lead to investments in other property types.

Originally posted by @Axel Meierhoefer :

@Jay Hinrichs Thanks but the plan is that the company I am creating will be the buyer. I agree that I will probably get aat last an agent license or have someone in the company with an agent or broker license. There is no goal of selling. The idea is to develop the portfolio of properties that will allow accelerating the portfolio growth and ultimately lead to investments in other property types. 

Ok as long as you own the properties your fine of course.

then you get right back to a securities offering if you are not putting up 100% of the money yourself.  or borrowing it from banks / lenders

if your putting private investors into these deals.. then as stated quick chat with someone Like Jillian is warranted.. don't listen to the internet  LOL  

Originally posted by @Axel Meierhoefer :

@Michael Glaspie Thank you. I will. @Jay Hinrichs @Chris Clothier I am a fan of MI and a few other turnkey companies and have learned how important the selection of great partners is. I don't plan on being competition in any way. All I like to do is being involved in the selection process on the front end as well as the closer monitoring for the vacation rentals. That's why I am calling it a hybrid that follows a model I am currently applying in my consulting company: I call it the expert model where each part and service is provided by experts under a common umbrella that describes common goals.

I have not heard about the Howry test but will explore. Thanks Jay for pointing it out

Reach out to me Alex.  We have always been willing to help other entrepreneurs, especially those looking to get started in this field.  It may not progress beyond a phone conversation depending on if/how we can help, but I'd be happy to help you get your thoughts together and line up properly. 

I think you've already got the model built @Axel Meierhoefer

Well, the operational model. Go get those key people in the right market and start building those relationships.

The two bits you'll really have to focus on once those are in place are acquisitions and investor buyers. Those are your two sales pipelines. Do everything you can to learn to acquire properties at discounts well, and be able to sell them quickly and easily off-market.

@Chris Clothier Thanks Chris. I am in touch with Ashley anyway as we are working on the 1031. The exchange property is planned for listing this month and then things might get rolling pretty quickly. That's on the private side and any advise for the new venture will be much appreciated.

@Elliott Elkhoury I am not planning to sell but rather hold, which is where the passive income would come from. Ultimately I am hoping to develop a cascade where the passive income from existing properties will allow for the purchase of new properties, at least for down payments of financing. I still believe in leverage until interest rates get really high, at which point cash buying might make more sense, but that is probably years away for this new entity.

@Axel Meierhoefer ahhh that makes sense. Sounds like being able to refinance very quickly is going to be the rate limiting step in the process. A very fast construction crew & manager that can fill quickly + a relationship with a local bank that will be less conservative about volume for a new relationship and without a seasoning period are what come to mind for me. Keep in mind I don't keep the majority of my deals so this is pure rhetoric.

For the vacation rental part I am also still wonder if anybody has good ideas about decorating. I believe people are looking for some sort of a vacation theme. I saw some cool ideas on AirBnB but wonder if that could be over-configuring it?

Originally posted by @Axel Meierhoefer :

For the vacation rental part I am also still wonder if anybody has good ideas about decorating. I believe people are looking for some sort of a vacation theme. I saw some cool ideas on AirBnB but wonder if that could be over-configuring it?

 @Al Williamson

Alex,

If you're able, connect with Al on the vacation rentals and Air BNB.

Hello @Axel Meierhoefer: I'm an Interior Designer/Decorator here in NW GA. If I may say, as far as the decorating goes, it all depends on your location and style of the home. Decorating is fun and unlimited. Just stay within your budget, keep it light and airy..don't over do it or over think it.. rule of thumb "KISS" keep is stupid simple. Good luck! 

Let me know if you need my assistance.  

@Tonya Slater Thank you. I am planning to. Part of what I am wondering about is the recurring business. Maybe I should reveal that I am a German male (trying for 25 years to improve but the DNA sticks) at this point. Someone recently used a wonderful way to describe it in the context of things that flow and things that appear hard to do. I think it was either Brandon or David on the podcast talking about light and heavy. Business and developing/structuring is light for me. Anything creative, designing, etc. feels heavy. With that in mind I am thinking about vacation renters who I would hope would like their stay so much that they would want to come back. I know based on my own extensive travels that it often has to do with the feeling a place gives.

I love the Mediterranean style and my future properties are planned to be close to beaches makes me wonder if that is something that should go into the furnishings and color schemes as well as potentially the name of the enterprise. This is probably an area that is light for you and others while I struggle but love to take input on-board.

Hi Alex,

As far as what apps and services to use, systems to put in place and features to offer. It can be overwhelming and often not practical to try and build your ultimate vision right out of the gate.

The most efficient way to build out your ultimate vision is to start with a Minimum Viable Product (MVP), the most simplified version possible of your ultimate vision. From there, you test things out and make adjustments and additions as needs arise.

This way of creating a large business model is popular these days because:

  • It costs less to start out.
  • You learn from mistakes and issues as you go so you won't waste money on things you thought were a good idea but didn't work out like you thought they would.
  • You get input from the users of your service along the way essentially letting them help you create what they really want which leads to great customer reviews, etc.

That's what we did when we started our online comps service. We started with a super simple service and website and built out from there. And now not only are we doing well with starting to expand into our ultimate vision but we are going in directions that never would have occurred to us in the very beginning. The key is, let your business build itself.

As far as your ideas for decorating, I came across what looks to be a great little app recently that is a virtual staging app for Realtors called Hutch. It let's you upload a photo of an empty room and fill it with realistic looking furniture, rugs, wall decor, etc. And you or your prospective clients can actually buy all of those pieces if you like them. Seems like a very inexpensive way to attract clients with decor.

@Lori Greene I hear you an on the tools I am doing that. I actually found a lot of the tools on BP really helpful. Thanks for the hint on the app. I will check that out

Originally posted by @Chris Clothier :
Originally posted by @Michael Glaspie:

Hey Alex,

We do a turn-key model here but with partnered companies just like you are mentioning. Your ideal model would emulate that of Memphis Invest or Morris Invest in terms of transparency and fluidity. (There are many others but those two come to mind immediately).

So, you will be looking to have an arm for the following functions:

  • Real Estate transaction (brokerage)
  • Property mgmt
  • construction

So, what we did was vet our 3rd party service providers with things we would want personally as investors and ensured they can provide that not only locally but at a distance as well:

  • Transparency 
  • Communication
  • Quality

Then we made sure they all were aware of the intent and understood not only our process but in which order each step would need to be completed. Then we put them in contact with everyone else that was a party to the process as well. 

It becomes really simple after a few test runs because of being able to work out the kinks with the team. It also is simply because as you leverage other companies, it is what they do every day. It's just them organizing the volume you provide. 

So, as mentioned me and my team are the broker side of the house in this process for our local market. We have been able to create this company on the residential side and now we are working on the commercial side with the same intent. 

It is very doable. Best of luck and continue to grind away at it. Let me know if I can help at all

I appreciate your mention of our company.  However, as a point of pride in our reputation and the level of integrity that we operate with, mentioning our company with the company Morris Invest should never happen.  From what I know, our two companies could not be more polar opposite from the standpoint of philosophy to execution.  To that point, from what is said here on the forums, Morris Invest is neither a Turnkey company nor a company that most entrepreneurs would want to emulate.  

不不不不不

Man this made me laugh. Talk about white/black, up/down etc....His YouTube channel is still growing tho, wonder how long that's gonna last.

@Axel Meierhoefer . Youve gotten good advice on this thread. Id listen to some of it.

I mainly just came here to say.. I count 5 times on this thread that you were called Alex.