Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on March 14, 2023 Updated on March 13, 2024
Fast Facts
Investment range
$25,500 - $76,800
Revenue potential
$1,500,000 - $3,000,000 p.a.
Time to build
1 – 3 months
Profit potential
$150,000 - $300,000p.a.
Industry trend
Growing
Commitment
Flexible
Real estate investment can be hugely lucrative. Owning rental properties has long-term income potential while flipping houses delivers big short-term gains. In fact, the average profit on flipped homes in late 2022 was more than $70,000.
Whatever your real estate goals, you could make quite a nice living. But you will need a thorough understanding of the market and some real business savvy.
Luckily we’ve got you covered, as this step-by-step guide provides all the insight you need to become a real estate investment pro.
Looking to register your business? A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple.
In the third quarter of 2022, the average return on investment of a home flip was 25%, down 31.8% from the previous year.
This means that more people are flipping homes, but profits are down.
Trends and challenges
Trends
Most real estate flippers focus on lower-end homes, meaning there is a big opportunity in flipping pricier homes, for which returns tend to be higher.
Design and staging has become increasingly important in real estate flipping due to increased competition. This presents an opportunity for investors with a keen eye for style and home design.
Challenges
Home prices are still high, making it difficult to find deals that can produce a good return on investment.
Many professional investors are buying homes to flip with cash, which gives them negotiating leverage over investors who need financing.
Average level of education –The average real estate investor has a bachelor’s degree.
How much does it cost to start a real estate investment business?
Startup costs for a real estate investment company range from $25,000 to $75,000 if you start with one home. The largest expenses are a down payment on the property and the cost of renovations.
Thus, costs depend on the price of the home you buy and the extent of renovations needed. If you’re able to do the renovations yourself, you could sharply reduce the costs.
Start-up Costs
Ballpark Range
Average
Setting up a business name and corporation
$100 - $500
$300
Business licenses and permits
$100 - $300
$200
Insurance
$100-$500
$300
Initial Marketing Budget
$200 - $500
$350
First home purchase - down payment
$20,000 - $50,000
$35.000
First home renovations
$5,000 - $25,000
$15,000
Total
$25,500 - $76,800
$51,150
If you’re going to do your own renovations, you’ll likely need to invest in the proper tools.
How much can you earn from a real estate investment business?
Your earnings are hard to predict since it will depend on how many properties you flip and the prices you command. On average, your net margin after the cost of renovations should be about 10%. These calculations will assume an average sale price of $150,000.
In your first year or two, you could flip 10 homes per year, bringing in $1,500,000 in revenue. This would mean $150,000 in profit, assuming that 10% margin.
As you gain traction, you might flip 20 homes per year. With annual revenue of $3,000,000, you’d make a tidy profit of $300,000.
What barriers to entry are there?
There are a few barriers to entry for a real estate investment company. Your biggest challenges will be:
Obtaining capital to purchase homes and renovate them
Competing with many other home flippers, particularly cash buyers
Related Business Ideas
If you’re still not sure whether this business idea is the right choice for you, here are some related business opportunities to help you on your path to entrepreneurial success.
Step by Step Business values real-life experience above all. Through our Entrepreneur Spotlight Series, we interview business leaders from diverse industries, providing readers with firsthand insights.
Here you can read our interview with Jason Yarusi, where you’ll discover key strategies for success in real estate investment from a seasoned expert.
Step 2: Hone Your Idea
Now that you know what’s involved in starting a real estate investment company, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research could give you the upper hand even if you’ve got the perfect product. Conducting robust market research is crucial, as it will help you better understand your customers, your competitors, and the broader business landscape.
Analyze your competitors
Research real estate investors in your area to examine where they buy homes and at what price points.
Make a list of other real estate investors in your area.
Review their strategies and the quality of the renovations they do, as well as their marketing strategies.
Identify your competitors’ strengths and weaknesses.
This should identify areas where you can improve your business and gain a competitive edge and help you make better business decisions.
Why? Identify an opportunity
You’re looking for a market gap to fill. For instance, maybe the local market is missing a real estate investor in a certain part of town, or an investor who flips higher end properties.
You might consider targeting a niche, such as properties being sold by estates. This could jumpstart your word-of-mouth marketing and attract clients right away.
When searching for a market gap to fill in the real estate sector, it’s also worth considering multi-family real estate investing. This can include investing in apartment buildings, duplexes, triplexes, and other types of residential buildings that house multiple families or units. These investments often provide a steady income stream from multiple tenants and can be a lucrative niche if the local market has a demand for such housing.
What? Determine your services
You’ll probably want to focus on a specific area and a certain price range of homes. Research your market to find areas of opportunity. Your renovations will also be a part of your products, so if you’re not going to do the work yourself, you’ll need a reliable contractor. Check design trends in your area as well so that you can meet market demand.
How much should you charge for real estate investment property?
Your prices will be market driven, but you’ll also have to factor in the costs of the purchase and the renovations.
Once you know your costs, use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Who? Identify your target market
Your target market will depend on the area the homes are in, and the price range. If you flip homes in a trendy but lower priced area, you’ll likely attract younger buyers, who you may be able to find on TikTok or Instagram. If you’re flipping in family-oriented areas, you may have better luck on Facebook.
Where? Choose your business premises
In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you may need to rent out an office. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
Central location accessible via public transport
Ventilated and spacious, with good natural light
Flexible lease that can be extended as your business grows
Ready-to-use space with no major renovations or repairs needed
Step 3: Brainstorm a Real Estate Investing Company Name
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Here are some ideas for brainstorming your business name:
Short, unique, and catchy names tend to stand out
Names that are easy to say and spell tend to do better
Name should be relevant to your product or service offerings
Ask around — family, friends, colleagues, social media — for suggestions
Including keywords, such as “homes” or “properties”, boosts SEO
Name should allow for expansion, for ex: “Horizon Property Ventures” over “MetroLoft Capital”
Avoid location-based names that might hinder future expansion
Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead and reserve your business name with your state, start the trademark registration process, and complete your domain registration and social media account creation.
Your business name is one of the key differentiators that sets your business apart. Once you pick a name, reserve it and start with the branding, it’s hard to switch to a new name. So be sure to carefully consider your choice before moving forward.
Step 4: Create a Real Estate Investing Business Plan
Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:
Executive Summary: Summarize the real estate investing business plan, including your investment goals and strategies.
Business Overview: Provide an overview of your real estate investing business, including the types of properties you plan to invest in (e.g., residential, commercial) and your geographic focus.
Product and Services: Describe the real estate investment products and services you offer, such as rental properties, fix-and-flip projects, or real estate consulting.
Market Analysis: Analyze the local and national real estate market, considering factors like property demand, pricing trends, and economic conditions.
Competitive Analysis: Identify competitors in the real estate investing industry and highlight what differentiates your approach, such as unique investment strategies or local expertise.
Sales and Marketing: Describe your strategies for finding and acquiring investment properties, including networking, real estate agents, and online platforms.
Management Team: Introduce the team members responsible for real estate investment decisions, emphasizing their experience and qualifications in real estate.
Operations Plan: Outline your day-to-day operations, including property management, renovation processes, and tenant relations.
Financial Plan: Present financial projections, including startup capital, expected returns on investments, expenses, and long-term financial goals.
Appendix: Include any additional information, such as property listings, market research data, or legal documents related to your real estate investments.
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Step 5: Register Your Business
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Choose where to register your company
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to real estate investment companies.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Choose your business structure
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your real estate investment company will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts. Here’s how to form an LLC.
C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation. Read how to start a corporation here.
S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Step 7: Fund your Business
Securing financing is your next step and there are plenty of ways to raise capital:
Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
Partners: Real estate investors often partner with someone to invest in properties together. You’d both put up capital and share in the profits.
Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
Personal: Self-fund your business via your savings or the sale of property or other assets.
Bank loans are probably the best option to purchase properties, other than friends and family. Real estate crowdfunding may also be an option.
A real estate agent or broker’s license is not required to be a real estate investor, but it could save you money, as you could represent yourself in transactions rather than paying a realtor a commission. If you do decide to get a real estate license, check with your state for education and licensing requirements.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your real estate investment business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Step 10: Get Business Insurance
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
Business Property: Provides coverage for your equipment and supplies.
Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
Worker’s compensation: Provides compensation to employees injured on the job.
Property: Covers your physical space, whether it is a cart, storefront, or office.
Commercial auto: Protection for your company-owned vehicle.
Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Essential software and tools
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software, such as MRI, Syndication Pro, or AppFolio, to manage your strategic planning, data, reporting, and portfolio.
Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.
Create a website
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
Your customers are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales.
Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Contact Us”. This can sharply increase purchases.
Marketing
Here are some powerful marketing strategies for your future business:
Content Marketing with Expert Insights: Leverage your industry knowledge by creating valuable content such as blog posts, e-books, or webinars that provide insights into the real estate market, investment trends, and tips for potential investors.
Targeted Social Media Advertising: Utilize social media platforms to run targeted advertising campaigns, reaching potential investors based on demographics, interests, and online behavior, thereby increasing your company’s visibility.
Localized SEO Optimization: Optimize your online content for local search engine optimization (SEO) to ensure that your company appears in local searches, enhancing your visibility within your target geographic area.
Strategic Partnerships with Local Businesses: Forge partnerships with local businesses, such as mortgage brokers, real estate agencies, or financial advisors, to tap into their existing client base and gain referrals.
Host Educational Seminars and Workshops: Organize seminars or workshops on real estate investment, covering topics like market trends, financial planning, and risk management to position your company as an authority in the field.
Community Sponsorships and Events: Sponsor local events or sports teams, allowing your company to build a positive image within the community while gaining exposure to potential investors.
Referral Programs for Existing Investors: Implement referral programs that reward existing investors for bringing in new clients, creating a network effect and encouraging word-of-mouth marketing.
Interactive Virtual Tours: Enhance your property marketing by offering interactive virtual tours, providing potential investors with an immersive and convenient way to explore properties from the comfort of their homes.
Email Marketing Campaigns: Build and maintain a mailing list of potential investors and use targeted email campaigns to keep them informed about new investment opportunities, industry updates, and success stories.
Data-Driven Decision Making: Utilize data analytics to understand market trends, investor behavior, and the performance of your marketing efforts, allowing you to make informed decisions and optimize your strategies for better results.
Focus on USPs
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your real estate investment company meets their needs or wishes.
It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.”
Signature USPs for your real estate investment business could be:
We’ll take away the burden of your home, regardless of condition
Dream homes, restored to their original glory
Get cash in your pocket by selling your home today
Networking
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a real estate investment business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in real estate investments for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in real estate investing. You’ll probably generate new customers or find companies with which you could establish a partnership.
Step 12: Build Your Team
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a real estate investment business include:
In-House Contractor – complete home renovations and repairs
General Manager – scheduling, accounting
Home Scout – search for real estate deals
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Real estate flipping is a competitive business that requires real skills and knowledge, but it can be incredibly lucrative. It’s also a business you can expand over time, even venturing into rentals to get the benefits of passive income and long-term appreciation.
Additionally, you’ll be bringing homes back to life and turning them into someone else’s dream. Not a bad win-win! Now that you’ve got the business savvy, you’re ready to become a serious real estate entrepreneur.
Real Estate Investment Business FAQs
Is a real estate investment company profitable?
Yes, a real estate investment company can be very profitable, although it’s a competitive business. You need to be knowledgeable about your real estate market to find good deals.
What is the growth potential of a real estate investment business?
Real estate investment companies have unlimited growth potential. You can start small and eventually become a real estate mogul.
Can you start a real estate investment business on the side?
Many people start a real estate investment company on the side. You just have to find deals, a contractor, and a real estate professional to sell homes for you, and your work is essentially done.
How do I start real estate investing with little money?
Many people invest in real estate with partners, which reduces the investment burden of each individual. You can also start with lower-priced homes and work your way up.
Comments