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Eight steps to setting up a real estate investment business
So, you think you found the perfect fixer-upper property, but before you start counting how much money you are going to make there are 8 steps to consider; such as financing, finding good contractors and having the right advisors. This is the short list of what it encompasses.
1. Getting the right Financing
If you did your homework, you probably know the first and most important question is: Do you have financing? Key to investing in Real Estate is limiting the amount of your own money that goes into the transaction; it should be as little as 5%. Sweet deals can come from owner financing in which you may only have to pay interest until the property is in shape to be occupied or until you sell. Do not limit yourself to one source. Shop around! Hopefully you will find the right one, especially if you are seriously planning to get into the Real Estate Investment business.
2. Limiting you Liabilities
Forming a Limited Liability corporation will keep your personal assets protected from any law suits. Talk to your spouse, or partners investing with you. Knowing what everyone expects from the venture and how your partners plan to exit if things don´t go as planned is a vital part of establishing the procedures. Setting up the rules of the game from the beginning can ensure an operational level of success. Seeking the expert advice of an attorney is a must, even if your partners are family members.
3. Consult you Accountant
Finding out what are going to be the tax implications arising from you investment may determine the correct strategies to follow. Your CPA will be your best advisor. In addition, you should decide how long you plan to keep the property. Short term investments yielding capital gains are taxed at a 15%. So attention should be paid from the beginning and before you start making any commitments.
4. Finding a Licensed Real Estate Agent
Another expert you will need in your corner is your Licensed Real Estate Agent; after all he will be the person selling the property. An agent that knows the area can even help you determine what kinds of features are most desirable in a home in that part of the city. From there you can draw how much you want to expend fixing the property to avoid later having to overprice the property and finally taking a loss.
5. Finding a Contractor
Is your lender allocating funds for repairs? Have you consider the fixer upper may need more serious repairs than just paint and carpet? Do you have the right contractors? You will need to know some skilled laborers and professionals like an electrician, a roofer, a plumber, a carpenter, someone to install carpet or tile and a painter. Depending on the house and house amenities, you may have to add to the list a landscape or pool designer. When preparing you budget, allow room for unexpected problems. Oftentimes this is the case; dealing with contractors is not an easy task and Murphy´s Law3; while repairing the roof, you have to trim the trees, and to trim the trees you need additional permitting or something else will go wrong. If you are planning to do the repairs yourself, a fair analysis of your abilities is required. Are you qualified to deal with electrical problems? How about plumbing?
Managing your Real Estate Investment may take most of your available time, and it´s no easy task; considering the effort, do you want to do the labor as well? These are some of the things you have to decide before you start.
It is necessary to know your city and county requirements as well as the building code. In addition, familiarity with pulling permits can help otherwise it can be frustrating. Your Real Estate Agent can probably recommend a few reputable contractors in your area.
6. Find an Insurance Agent
You will need to have insurance while the repairs are being made. A short term policy until the property is sold is what will be required.
7. Find a Settlement Company
They will handle the closing and will hold the funds in escrow.
8. Find a Title Company
They will do all the research on the title assuring you there are no liens or claims on the property or properties you buy.
Putting your ducks in a row and having a clear vision of the commitment that is required to be successful are fundamental in overcoming obstacles. Be thorough, responsible and do your homework, having said that, the Real Estate Investment business requires work and knowledge but in return, pays better than most investments.
GBrey | 