Good morning!
Today, I want to talk about something that may seem super simple, but is honestly super critical to our success, and that is setting up your business. The way we set up our business could lose or save us big $$$ so it is important that we do so correctly.
SO, as we do, let’s talk real estate, let’s talk SETTING UP OUR BUSINESS…
STEP 1: SOUL SEARCHING – I AM SERIOUS YOU GUYS!
- What are your strengths? Weaknesses? Lifestyle goals? – Document these, seriously, this will help you when it comes time to build your team, and decide which investment strategy is best for you.
- For me personally, my biggest weakness was that I had no prior real estate experience, so lucky for me, I was able to join a team that had previous investment experience – hey Justin & Kevin!
STEP 2: PICK YOUR INVESTMENT STRATEGY
- Flipping, rental properties, wholesaling, money lending
- Want super passive income? If so, you might want to consider private money lending (if you have extra cash to spare), or pursuing buy & hold rental properties.
- Are you looking for a quick buck? Try wholesaling!
- Maybe, you are looking for an active investment and you want to be a part of a project from start to end? Consider, house flipping!
- Whatever route you may choose, make sure it aligns with your lifestyle and goals.
STEP 3: DECIDE WHERE YOU ARE GOING TO INVEST
- More often than not, it is smart to invest in an area you know best; perhaps right in your backyard?
- For our team, living in Manhattan, we did not have enough capital to compete in our neighborhood – so for now, we are focusing our time and energy a few hours away in Binghamton, NY!
STEP 4: BUILD YOUR MARKETING PLAN
- Okay so you picked your strategy, and you know where you want to invest, so now HOW are you going to find deals?
- If you don’t have leads, you don’t have deals, without deals your business is failing already!
- Put together a small budget and determine how much you are willing to spend on marketing.
- To start, my personal marketing plan was to literally just tell everyone I knew that I wanted to get into real estate investments (hello that’s free!). It has brought me so many random connections I could have never dreamed of having. I think you will come to find that there are so many people out there who are also interested in real estate. It’s all a matter of just saying it out loud. Now, our team is actually considering getting into direct mail marketing- will let you know how that turns out!
- Here are a couple of ways to consider marketing;
- If you don’t have a lot of money to start;
- Word of mouth- networking can be such a powerful tool,
- Social media,
- Cold call “motivated” sellers- For Sale by Owner properties, divorcees, probate properties, criminal lawyers, etc.
- If you can afford a small budget;
- Direct mail marketing- you can target a specific area & send your information out via certified mail to ensure people open it! OR,
- try EDDM (Every Door Direct Mail) – I have included the link to the USPS site here. This is a cheaper alternative to Direct Mail Marketing – you can design your mailer, pick the zip codes you want to target, and it goes to every home in that territory! (https://eddm.usps.com/eddm/customer/routeSearch.action)
- If you don’t have a lot of money to start;
STEP 5: CHOOSE YOUR FINANCING
- Without money to fund your deal, there is no deal. I have included a financing overview table here from J.Scott’s “The Book on Flipping Houses” to help us all review our financing options…
STEP 6: BUILD YOUR DREAM TEAM
- Business Partners, Buyer’s Agent, Seller’s Agent, Attorney, Accountant, Contractors (if needed), Property Manager, etc. Make sure you build a team that best compliments your strengths & weaknesses. You know that saying “if you want something done right, do it yourself”? While that can be true a lot of the time, I absolutely do not believe in it when it comes to real estate investing. I believe it is always important to work with a professional when it comes to legal, tax and construction matters. Think about it, you wouldn’t step into an operating room and perform surgery on someone if you are not a surgeon, would you? Hiring a professional to do the job may cost more $$$ up front, but it is more efficient, and will most likely save you money down the road when matters are handled correctly. Plus, it frees up YOUR time to keep the wheels turning and find that next deal!
STEP 7: EXECUTE
- Deal analysis: Build REPEATABLE SYSTEMS to quickly run return scenarios using your purchase price, taxes, rental income, and costs assumptions to help you quickly analyze deals.
- Once you have analyzed a deal & feel comfortable – put in an offer! Do NOT expect to win the majority of the offers you submit – if you are winning them all, then you’re probably not submitting the best offers.
- Quick story time, our team thought we had found the DREAM RENTAL PROPERTY up in Binghamton. We were so pumped about it and even put in an offer over asking price just to ensure we got it. Unfortunately, we were beat when someone put in an offer and waived the inspection contingency. While this house was amazing, we were OK with losing the deal, because to us, without an inspection, the deal was no longer a good deal. Without an inspection, the risks seemed to far outweigh the reward. The point here is, make sure your offers make sense for you, and don’t settle for anything less than your comfortable with just to say you did a deal.
- Anyways, let’s say you put in a million offers, I am obviously exaggerating, but you submit a ton of offers and finally one is accepted-yay! You can put the home under contract in your personal name, you’ll transfer the home over to your business in the next step (NOTE this is only true if you are creating a new LLC for the property, if not, the laws are a bit different and you can easily get yourself into trouble – this is where your awesome team comes in handy to help you successfully navigate these laws 😉).
STEP 8: PROTECT YOURSELF
- Incorporate your company to protect yourself and your assets. Whether it be an LLC , S-Corp, C-Corp, etc, asset protection is key. Here is a little more info on the advantages & disadvantages of each corporate structure: https://fitsmallbusiness.com/llc-vs-s-corp-vs-c-corp/
- LLCs tend to be the most common among real estate investors, however with the new tax code I have heard that C-Corps may actually make more sense for those who plan to leave their cash invested in the business- ask your accountant which structure makes the most sense for your business goals!
- If you do decide to form an LLC… NOTE that you do NOT have to incorporate your business in the state your property sits. As of now, Nevada is known for protecting their LLC holders most. Perks of forming your LLC in Nevada include but are not limited to;
- No corporate income tax
- No personal income tax
- No franchise tax on income
- No unitary tax
- No estate tax or gift tax
- Highest level of privacy for owners: LLC owners can remain anonymous
- Does not require a firm to file a list of company assets
- Corporate veil only pierced in the event of “extraordinary” fraud
- If you do decide Nevada is the best place to incorporate your LLC, AND your assets do NOT sit in Nevada, do not forget to talk to your accountant and attorney about foreign filing your taxes!
- Finally, now that you have incorporated your business, transfer the title over to the company name via a Quitclaim Deed.
STEP 9: RINSE & REPEAT
- Once you have completed this process, you can “rinse & repeat” Steps 7&8 as you grow your portfolio.
Now, I want to state that the above is absolutely not a one size fits all prescribed approach. There are plenty of ways to start your business. Please feel free to comment on the blog post on http://www.lets-talk-re.com if there is anything else we should consider when setting up our companies!
Happy Wednesday!
- Erin
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Data Sources for today’s content:
https://www.thebalance.com/the-benefits-of-forming-a-nevada-llc-357533
https://www.thanmerrill.com/structure-real-estate-investing-company-faqs/