Real estate investing offers entrepreneurs a way to grow their cash through quick sales, as well as a long-term investment that can provide rental income and asset appreciation over the course of several years.
It doesn’t matter if you want to take on more of a landlord-style role, flip homes, or deal in commercial real estate — knowing how to start your real estate investing business is the first big step toward success in this dynamic field of opportunity.
Real Estate Investing Opportunites
Before you form an LLC or get your business plan all squared away, you first need to learn what options are available when starting a real estate investing business (or just making money in real estate in general). Below are a few options to consider:
- Invest in rental properties.
- Buy real estate investment trusts.
- Join a real estate investment group or limited partnership.
- Buy fixer-uppers and flip them for profit.
- Rent out spare rooms in your current property.
How to Start a Real Estate Investing Company in 5 Steps
Starting a real estate investment company doesn't need to be complicated. Learn how to do it all in just five steps below.
1. Draft Your Business Plan
Creating a real estate investing business plan is a complex process. From establishing your vision and outlining goals to conducting market research and setting up long-term goals, your business plan can make or break your business's success. Luckily, we've put together a guide that will walk you through every step.
2. Form Separate LLCs for Each Real Estate Investment
One LLC might not be enough if you want to own multiple properties — consider creating a separate LLC for every property you own.
This will further separate the liability for each property (including your personal assets) from lawsuits, foreclosure, and other unfortunate circumstances.
Aside from the tangible benefits that come with forming an LLC, the simple process of setting one up makes this decision appealing to most investors. Here are the steps to setting up a real estate investment LLC:
- File Articles of Incorporation with the state in which you will purchase an investment property.
- Keep the LLC in good standing by having a Registered Agent in each state where you form an LLC.
- Pay the appropriate business formation fees — these vary by state but are typically minimal compared to the benefits of forming your LLC.
Before naming your LLC business, make sure to research your business name and make sure it's available in your state. Use our Business Name Search Tool for guidance:
For future investors who are ready to form one or more LLCs for their real estate investment company right now, Incfile can help — no matter what state you want to do business in. Even if you think you have the process under control, consider the long list of benefits we offer business owners at minimal costs, such as the Incfile Gold Package.
Working with a trusted LLC formation service to start your business can be like having an administrative assistant, business consultant, and a wealth of informative resources all in one place!
3. Consider an Umbrella Series LLC
Throughout the course of your research, you may have heard the term series LLC and wondered if it applies to your investing strategy. A series LLC is a single business entity that essentially owns or oversees multiple others. The series LLC allows a real estate investor to keep all of their properties legally separate but continue managing them under one umbrella LLC.
The benefit of this structure is the separation of risk, with the ability to have sole or multiple members managing the different property investments. For example, you may want to be the sole owner of several properties but invite other members into other deals for a variety of reasons. The series LLC is only available in certain states, so do your research first to see if this is a viable option for your business.
4. Hire a Certified Public Accountant (CPA) Or Get Incfile's Free Hour of Tax Consulting
The right CPA can make your life as a business owner a lot easier, whether you own one property or 20. LLC formation comes with several tax-related benefits for business owners, and there are unique ways real estate investors can maximize their deductions and business expenses when tax time comes each year (or quarter, depending on your filing needs).
At Incfile, we think this step is so crucial that we include one free hour of tax consulting for all our customers — no matter what size entity formation package you choose.
However, you also have to do your own homework and research to develop the knowledge and instincts to be successful in real estate investing. Those who are naturally curious and passionate will be best positioned to maximize the ROI on their investments. Make it a habit to research local, national, and global real estate trends — you never know what new opportunities you'll discover.
5. Develop an Investment Strategy
Once you form the right legal entity to fit your business goals, you must apply a smart investment strategy as you move forward. There are many potential pitfalls for real estate investors, no matter how experienced or knowledgeable you are.
For instance, you could invest in too many properties at once and over-extend your finances. What would happen if all those properties experienced a drop in value due to unexpected market conditions? You could lose your ability to finance new properties altogether. What would you do if you placed too much debt on a particular property right before a downturn in the market? What if you have a problem finding tenants for an extended period of time?
Make sure you have a plan for keeping enough capital to cover your investments while minimizing risks. As an investor, you can’t predict every twist and turn in market conditions. But you can plan for worst-case scenarios to figure out your best strategies for financing — whether you use your own cash, pitch to investors, or apply for small business loans.
Common Questions About Real Estate Investing
Is $5,000 Enough to Invest in Real Estate?
Investing in real estate with as little as $5,000 is possible if you take careful, planned steps when beginning your real estate journey. From house hacking to becoming a real estate agent, there are plenty of ways to bring in cash with a low upfront investment.
What Is the 50% Rule in Real Estate Investing?
The 50% rule in real estate investing is a way for investors to estimate the operating costs of their properties ahead of time by multiplying their gross rent by 50%. Though not always 100% accurate, this calculation can help investors plan for the future and ensure they have enough capital on hand to keep their properties thriving.
What Is the Biggest Benefit of Forming an LLC for Real Estate Investments?
Two words: limited liability. It’s right there in the name for a reason! The number one reason to form an LLC is to provide legal separation and protection between your real estate property and your personal property. This could help you protect your personal assets in the unfortunate event of a lawsuit from a tenant or other events that could lead to litigation. Separate LLCs for each property will also protect each holding from the liability of another.
Can Real Estate LLCs Also Include Multiple-Member Entities?
Yes. In fact, you may want to create multiple-member LLCs for some of your properties while maintaining your single-owner status on others. You might decide to go in on an investment with a partner while pursuing another property completely on your own. LLCs offer unlimited flexibility for owners who take both approaches to investing.
Should I Set up Multiple LLCs for Multiple Properties?
If you’re like most real estate investors, you likely have your eye on multiple properties. Many investors do choose to set up an LLC for each property they own or manage as a way to reduce the overall liability of any single business. If you live in a state that allows series LLCs, you can even set up multiple LLCs under the umbrella of a single business entity.
In this case, using a cost-efficient LLC formation service can save you hours of time. This can net you the time you need to evaluate your next deal or focus on other areas of your investment business. The cost for these filing services can range from $50 to $300 per business entity, plus the appropriate state filing fees.
While we can’t speak for other services, Incfile includes lifetime customer support, online access to incorporation documents, and many other benefits as part of our business formation packages.
Should I Use an Online Service to Form My Real Estate LLC?
Chances are, you found this article because you're interested in forming an LLC for real estate investments, but you aren’t sure about the best next steps. There are many simple-to-use services like ours that make forming LLCs in any of the 50 states quick and easy. You'll also have extra peace of mind knowing that you didn’t overlook a detail or deadline that would have been caught by a trusted incorporation service.
Incfile's service starts at $0 — just pay your state fee, and we'll handle all the paperwork for you. It's an easy way to get your real estate investing plans started.
Ben Gran
Ben Gran is a freelance writer from Des Moines, Iowa. Ben has written for Fortune 500 companies, the Governor of Iowa (who now serves as U.S. Secretary of Agriculture), the U.S. Secretary of the Navy, and many corporate clients. He writes about entrepreneurship, technology, food and other areas of great personal interest.
