How To Start a Real Estate Business

Real estate is subject to the ups and downs of the market, but it has proven itself to be a dependable way to create wealth. There will always be a need amongst the populous for housing and commercial real estate, which makes it a great industry to become involved with and one that can continue to pay off year after year. There are many ways one can be involved in the real estate industry, including becoming a real estate agent, buying and flipping houses, purchasing a property and renting it, becoming a partner in a real estate investment, and more. Real estate can be passed down through families and is a key factor in building generational wealth. However, getting involved in real estate is not necessarily an easy or foolproof endeavor. In this article, we will cover some of the basics of getting started in real estate, which will include the following topics:

• What Skills are Useful in Real Estate?
• Define your Goal
• Formulate a Step-by-Step Business Plan
• Designate a Registered Agent
• Set up a Legally Recognized Business Entity
• Acquire any Necessary Licenses and Permits
• Obtain the Appropriate Business Insurance

• What Skills are Useful in Real Estate?

  There are many skill sets from other career backgrounds that can be transferable to the real estate industry and a multitude of different facets in the real estate industry where your experience could be of use. People skills, accounting, construction, and computer skills can all play a role in various aspects of the real estate industry. For example, if you have a background in finance, this could be useful in investing or purchasing properties. Suppose you have knowledge and skills in construction. In that case, this can be useful in evaluating the condition of a property you may be interested in purchasing in addition to making any necessary repairs or improvements to increase its value. If you have strong social skills, you can utilize them while working as a real estate agent.

  Additionally, working in one segment of the real estate industry or an industry related to the real estate industry is also an excellent way to gain a better understanding of how the real estate industry operates as a whole. This experience can be useful if you choose to get more involved in real estate, whether it be through investing, purchasing properties, etc.

• Define your Goal

  The first step to creating a successful real estate business is to define your goal. For example, are you interested in purchasing houses, renovating them, and reselling them for a profit? Do you want to become a silent investor in new real estate developments? Do you want to purchase a property and rent it out? Will you rent it out on a yearly lease, month to month, or as an Air BnB or vacation rental?

  You must first figure out how you want to jump into the real estate industry; then, you can further define the specifics of what you want to do. If you want to buy, fix, and flip houses, will you focus on a particular style of home or area of town? If you plan on becoming a silent investor in new real estate developments, what exactly do you want to invest in? Low-income housing? A new subdivision of two-story high-end homes? Or a new brewery in the latest trendy part of town? If you want to buy property to rent, will you focus on single-family homes, duplexes, or commercial spaces?

  By knowing what your personal interests and strengths are, you can then do research into the area of the real estate industry you are interested in. This research can help determine what options within that area would best suit your overall goal. Narrowing down your ideas to more clearly defined projects will help you in the next phase of creating step-by-step plans you can begin to take action on. A good example of a well-defined goal could be purchasing a two-bedroom and one-bath home with a full kitchen that can be rented out as a vacation rental in a popular and expensive ski-resort town. Your strategy could be that by purchasing a home with smaller square footage, you would have to spend less time and money on maintenance over the years. Due to the high demand for temporary housing in the area, the smaller home could meet the needs of vacationers while keeping maintenance costs down for you and securing profitable rental prices.

• Formulate a Step-by-Step Business Plan

  Next, you will need to create a realistic, step-by-step business plan to help you accomplish your goal. If you do not create a plan, your goal could remain just an idea indefinitely. With each task you accomplish within your plan, you will build confidence in your self-efficacy and be one step closer to reaching your goal. In addition, by researching and learning how others reach similar goals, you can gain ideas and inspiration for achieving your desired outcomes.

• Designate a Registered Agent

  When creating a real estate business, you will be required by law to have a registered agent within the state in which you form your business. If you plan to create businesses in multiple states, you will be required to have a registered agent in each state you start a business in. A registered agent is a designated person or entity that will receive official mail on behalf of your company. Registered agents receive important notifications from the state regarding your business and legal correspondence (service of process) if someone decides to file a lawsuit against your business. These responsibilities and obligations make a registered agent vital to your real estate company to ensure that you receive these communications.

  Registered agents must be physically available at all times within standard business hours to receive mail and will have their addresses publicly listed. You or someone within your company can serve as the designated registered agent. However, considering the above factors and out of general convenience and privacy concerns, many business owners choose to hire a registered agent service. Hiring a registered agent service will keep your business compliant with state laws and will ensure that you are notified of important mail received on your business's behalf. InCorp offers registered agent services in every state of the country as well as the US Virgin Islands and Puerto Rico. For this reason, InCorp has become a popular and reliable registered agent service amongst many real estate professionals, as many involved in the real estate industry operate within multiple states.

• Set up a Legally Recognized Business Entity

  You will need to choose and adopt a legally recognized business structure for your real estate business to operate legitimately. Some of the business structures you can choose from include the following:

• Limited Liability Company (LLC)
• C-Corporation
• S-Corporation
• Limited Partnership
• Limited Liability Limited Partnership
• Sole Proprietor

These various business structures have different tax considerations and legal aspects and protections that should be examined to determine which would best suit and benefit your real estate business. Please view our Compare Entity Types page to compare and contrast these various business structures.

InCorp also offers professional formation and incorporation services that can help you expedite the process. By working with InCorp, you can meet all legal requirements and form the correct business entity to ensure your real estate business has all of the legal protections you need while taking advantage of the most tax benefits. In addition to this, InCorp also provides assistance in managing your business entity with our entity management system as well as our iOS app. These tools can help you stay on top of important dates, documents, and reports.

• Acquire any Necessary Licenses and Permits

  To operate your real estate business legally, you will need to obtain all of the necessary licenses and permits required by your city, county, and state. These requirements will vary depending on the type of real estate business you operate and the jurisdiction in which you are located. You can contact your local government officials to see which licenses and permits you will be required to have and how to obtain them.

• Obtain Business Insurance

  The real estate industry can leave your company exposed to a wide variety of risks, and this is why it is vital to get the correct type of insurance policy to cover your real estate company. The coverage you get will depend upon your specific business structure and the type of real estate business you are involved in. You will need to meet with an insurance professional to go over all of the coverage you might need and the best policies for you. Real estate businesses frequently use some of the following insurance policies and coverage options within their industry:

• Liability Insurance
• Landlord Insurance
• Hazard and Fire Insurance
• Flood Insurance
• Sewer Backup and Sump Overflow Coverage
• Rent Guarantee Insurance
• Loss of Income Insurance
• General Contractor's Insurance
• Builder's Risk Insurance
• Partnership Insurance
• Worker's Compensation Insurance
• Umbrella Insurance

These are some of the initial steps you will need to take in order to start a legitimate and legally recognized business in the real estate industry. There can be significant amounts of information to absorb and work to be done while operating a real estate business. However, it is well worth the effort and can be one of the most substantial steps you take in creating and maintaining long-term wealth.

Disclaimer: Incorp.com is not a law or accounting firm, and Incorp.com should not be relied upon to provide legal or tax advice. If legal or other accounting assistance is needed, we recommend that you seek the services of a competent professional. The content on Incorp.com should not serve as a substitute for legal advice from an attorney or accountant familiar with the facts and circumstances of your specific situation. Contact your tax adviser or legal counsel before making any decisions.