Real estate investing can be a very lucrative business.
It is one of the only assets where you can purchase assets with a small down payment and reap the benefits of owning that asset.
The majority of real estate investors are just those.... investors. They do not treat their investment activity like a business, therefore they struggle to build their portfolio, bring in more revenue or find success with the niches they use as vehicles.
By treating your real estate investing like a business you will begin to find more opportunities, meet more influential people in your field and earn more money.
When you are just getting started in real estate investing, you have to take on the mindset that every action you take and every deal you pursue will be done with the intention of growing your business.
You need to be thinking about what you do, who your company is and how you do it. Establishing this mindset will allow you to enhance your education, grind harder and think about how you will create systems for your business.
Before we even begin marketing for our first deal, we need to set up a business infrastructure, create a plan and begin developing certain areas of our business, so that when we do get that first deal we will know what to do with it.
10 Initial Steps To Get Started in Real Estate Investing
1) Developing A Business Plan / Business Model - The first step we will take is creating a business plan. This plan will help us establish a direction and vision for our company. This will help us get a better understand of what kind of investor we want to be, what niche we will invest in and how we will serve our market place. In this business plan we want to portray
our buying philosophy
discounts we look to negotiate
our niche
our exit strategy for each deal
purpose business will serve
how money will be used to reach our goals
business strategy
demographics & psychographics
financial projections (ROI & ROE)
We will create this business plan with the intention of educating lenders, shareholders, other investors and employees on exactly who are and our business vision.
2) Completion Plan - The next step we will take in starting our real estate business will be to create a completion plan. This plan will consist of how we plan on implementing our business strategy. This is essentially the operations manual for our business. This will be our textbook to explain to new employees their roles, the systems we have in place for each step of the process and the step by step details of how our business operates. This will allow to develop a footprint for how our business will actually run. We will continue to add to this document as we implement new systems and scale. Some of the main systems that you will want to focus on developing within this plan will be:
Marketing/Lead Generation
Acquisition Strategy
Financing/Funding
Construction Department
Sales Strategy
Property Management
Business Management
Business Development/Business Expansion
Depending on the specific niche(s) that you choose to invest with, will determine which systems you will need to implement to make your business work more efficient and allow your business to grow.
3) Setting Up a Business Phone Line - After you have completed the planning phase of your business, we now want you to begin setting up the infrastructure for which your business will work off of. In this business, you will or want to be receiving several phone calls a day from motivated seller leads, other investors, partners, employees and such. So it is a good idea to separate your primary phone line from your business line. This will allow you to screen and control the calls in and out of your real estate business. When we first started off, we used a free and simple automation phone line. This phone can set up through google voice.
Once you set up your google voice number, you will want to create a voice mail to direct your leads or acquaintances in a specific direction. When it comes to motivated sellers, you will tell them what you do and what information you need from them to further evaluate their property. From this information that you receive you will be able to determine where they are in the selling process, how motivated they are, there property information and how urgent it is for you to follow up immediately.
Bonus Tip) Once you get the business up and running, consider setting up separate phone lines for all of your marketing strategies, so that you can easily track and evaluate which strategies are working and which ones are not.
4) Setting Up An Alternative Mailing Address From Your Primary Residence - Once you get starting in this business, you will typically be working from home. Initially it will be smart to set up a mailing address that is different from your primary residence. The reason for this is that you do not want people showing up to your home with complaints, questions or advice.
When you begin marketing for distressed home sellers, you will inevitably reach out to angry homeowners who are not interested in your services. You do not want these folks having access to your primary residence. You never know what these homeowners will do or how they will act.
So how can you set up alternative mailing address:
Rent a local mailbox from a local store such as UPS or the Post Office
You can also call this mailbox an apt or suite as long as you are using the mailbox number
5) Establishing An LLC or Business Entity - The first thing that an LLC will do this early in the process is build credibility for you and your company. When dealing with legitimate business sellers, lenders, investors and employees are more likely to work with you.
Depending on your niche, an LLC may not be needed initially. However, with that being said, you should still set a business entity up because some direct money lenders, private money lenders or hard money lenders will only lend into and out of an LLC.
Some of the benefits of establishing an LLC are:
Simple to form and maintain
Pass through tax treatment
Personal liability protection
Management Flexibility
Tax advantages
6) Creating Business Card - This is another step in the process that will help you gain credibility when you begin your real estate investing business. Your business card can be used for several different purposes once you get your real estate infrastructure in place.
They are:
Ability to use with your marketing pieces
A networking tool
Informational tool for buyers and sellers
Contact information with tenants & clients
All you have to do is create a very simple business card and hand them out to every person you make contact with in the business.
7) Setting Up A Basic CRM System To Track Information - Once you begin to market and network within your market, you will begin creating contact lists for each aspect of your business. This means that you will need a place to store this material. This is the purpose of a CRM.
A CRM (Customer Relationship Management)"refers to practices, strategies and technologies that companies use to manage and analyze customer interactions and data throughout the customer lifecycle, with the goal of improving business relationships with customers, assisting in customer retention and driving sales growth. CRM systems are designed to compile information on customers across different channels -- or points of contact between the customer and the company -- which could include the company's website, telephone, live chat, direct mail, marketing materials and social media".
Basically this will be software where you track all of your business contacts, associates, marketing leads, cash buyers, funding partners, sub-contractors and other people in the industry. This will be invaluable to your business as begin to build your network and business.
8) Setting Up File Sharing Folders On Cloud - At this point we have chosen the niche that we will pursue and invest in, now it is time to set up a file sharing system for this specific niche. Depending on the specific niche that you chose, whether wholesaling, rehabbing and selling, buying and holding or another creative strategy, you will need to have a file sharing system to help keep your jobs organized and on schedule.
Each job that you take on will require the effort of different team members and some of these team members may need access to certain files. Once you begin investing in real estate you may have no employees, but you will have third party team members that will work as part of your team.
Even if you do not intend to share files you will need to have an online folder system to document and store all of your information for your specific jobs.
A sample files folder system for a rehab and sell niche may look like this:
1) Subcontractor Information
Contracts
Estimates
Contact Information
2) Rehab / Costs
Scope of Work
Material Lists
Schedule
Total Expense Sheet
3) Profit Breakdown
Profit Projections
Flip Evaluator
4) Project Invoice & Receipts
Project Receipts
Contractor invoices
5) Pre Purchase Property Information
Comparable Market Analysis
Property Evaluation
Contract to Purchase
Lead Paint Disclosure
Property Disclosure
6) Holding Costs
Utility Bills
Tax Information
Insurance Information
7) Closing Information
Hud - 1 Statement
Contract to Sell
Inspection
Punch list
8) Photos/Video
Before and After Photos
Before and After Videos
9) Market Research / Farm Area - From your business plan, you should already have a good idea of the locations you will be focusing your investing in. This step requires some time, so if you did not do a thorough analysis of your farm area, you should take the time now to do it. This farm area is where you focus all of your marketing, inform your acquaintances and expand your network. One of the first steps in our analysis will be to run the current market supply of the homes in specific zip codes.
To run the the current market supply for our specific target market, we will:
find the total number of homes of sale in this zip code / avg number of homes sold per month.
This will let you know how months it will take to sell the remaining inventory and also give you a good idea of the current market conditions for your targeted area.
10) Begin Developing A Real Estate Team - The good thing about real estate is that you do not need to actually hire W-1 employees in order to develop a team. Most of your team initially will be built around third party businesses such as:
Contractors
Attorney's
Title & Closing Companies
Accountants
Private Money Lenders
Hard Money Lenders
Wholesalers
Bird dogs
Banks/Lenders
So begin doing some research on which exactly you will need on your team in order to successful run through a deal. Each person on your team will play an integral role on how efficient and smooth your business will run. It will take time to find the right team members, but once you do, your job will become much easier.
If you decide to start your business with a partner, we recommend that your partner can bring value to your business in areas that you are deficient in. So take a look at all of the systems that we spoke about above and work with a partner who has experience in categories, that you do not.
Wrapping Up The Necessary Steps To Start A Real Estate Business
We hope that this information will help put you in a good initial position to succeed in the game of real estate. The more you treat investing like a business and the more planning that you do for this business, the better off you, your family and your business will be. So make sure you take the time upfront to begin implementing these steps to establish a solid infrastructure for your real estate business. This planning will also help you develop a deeper knowledge of the business and a clearer vision for where you want your company to be in 10 years.
In the comment section below, let us know any other important steps you believe are needed to successfully set up the infrastructure of your business.
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