Great forum and I want to say thanks for all the great information that has been shared and look forward to getting more and perhaps sharing some of my own once I get it.
Anyway I have started a real estate investing business with three friends and I thought I would post step by step how we plan on starting it so perhaps others could help us avoid pitfalls or see things we are missing and others could learn along the way.
In a nutshell we are three gainfully employed, educated folks who like the prospects of starting a business and so our first step was to have a meeting about it. Not one of us is familiar with the business and so as rookie’s we know we will hit obstacles we have not prepared for, so it is a must that we all do constant research and learn from the mistakes when they do come along. Two out of the three of us have bad credit, while one of us has superb credit, and two out of the three of us already own houses.
During the meeting we shard what our individual goals are and what are future “group” goals are and are ready to take the next step. the question we posed was What is the next step? After much discussion we came up with the following.
These should be the first four steps we take.
Assebmle a team: Lawyer, Accountant, etc…We figure to help avoid mistakes it would be best to get people around us in the know to help us avoid pitfalls and learn along the way.
Form an LLC. we researched business types and found that LLC’s were the way to go and most real instate investors that we found were also LLC’s.
Prepare to hire a property manager. We are currently putting together questions and narrowing down local property manager’s to interview and work with us. Although they will take 5-10% (we found in research this is about avg) it will help us learn to manage property’s while taking the dirty work out of our hands. If down the road we feel comfortable we could take over, but wanted to start off with as many saftey nets as possible.
Research Grants. Free money is good money and since only one of us as great credit for now as much help as we can get the better.
Credit Repair. The two that have bad credit should work on their credit to become more of an asset so years down the road our business will be more established with it’s own credit.
So that’s where we are now and I was just curious if anyone thought there was steps we are missing or some we should delete for now. Also a better look into the steps themselves would be nice.
1)Who else should we hire for our team? Should we wait on some and hire others later or all right now?
2)Although we have researched and feel comfortable with an LLC is that the best way to go?
Is a property manager the way to go even with just one house (to start)as a possiblity?
Are there good grants out there and any free way to find them?
Is it more impoirtant to work on credit repair right now or is that something taht we should also wait on?
Sorry for the lengthy first post and the barrage of questions but I sincerely appreciate the assistance and hopefully in the near future I will be able to do something else for others.
How much cash do you guys currently have to start this venture? Your doing a lot of hiring for not even having an asset yet. Once you buy the asset or are in contract get your team together. Why pay a lawyer now if you have nothing for him to do. Whats the accountant going to do for you now if you dont even have any profit. Excel works great to track expenses and profit!
Why give 5-10% of your money away for a property manager. You are 3 guys, split up the responsabilities. Hire a handyman on a need basis - much cheaper than giving 5-10% away every month.
What kind of properties are you going to invest in? Do you have a business plan?
My advice - slow down, dont be so by the book. Start researchig your properties and locations. That knowledge is much better that knowing a good lawyer or acountant.
thanks for the great advice. I know we tend to go by the book, but we are concerned with doing things right to start off with. The property manager is a must IF he takes care of the things we need him to we all work full time jobs and are not ready to part with them just yet and we figure 5-10% (right now) is a small price to pay to learn how to properly manage properties and keep what could be potential headaches out of our yard. However we are still doing research on property managers to make sure they handle everything for us. As far as the team goes we are hiring on a needed basis to start we actually have access to free leagl advice but once we buy our first house would like to have a lawyer to make sure everything is in order as we are “rookies” as mentioned.
Our business plan is very raw but we have discussed it, mainly we are looking to buy properties and rent them out. We also would like to keep the option to fix them up first etc… Do you have any ides or good plans to follow for starting abusiness plan?
We have discussed finding great areas to look for properties and what types of properties we would like but have yet to look at more than one.
As far as cash goes we are also a bit limited with about 3-6K to get started not exactly a pile, however we are also researching many angles to approach financing a new house.
Right now research is what drives us and we look at everything from forums, to books, to internet sites.
Thanks so much for your advice and for the first bit we have ever gotten it is right on point!! Thanks again and please don’t hesitate to add more input, I am especially intrigued about business plans.
I too agree with SDC. A good title company will help you when buying property and you do not really need to hire an attorney. They will make sure the title is clear and insure against unknown liens etc.
The earnest money contracts are standard contracts in most areas and on most residential sales and even most commercial deals. They can be a lot more complicated and I would hire a great lawyer then when you get to that point.
As far as a business plan goes all I think you need is to get a clear idea as to what type properties and the area you want to be in or even the areas you want to avoid. Also you want to buy and hold but do you want to rehab first or buy new or almost new stuff.
Sounds like you need 100% financed deals too. Work on how to accomplish this. Seller financed percentage or what other options.
I started a small partnership with a dude from NY. He was a jerk and had read many books on REI. We bought a 4 plex together for $20,000 and rehabbed it and rented it out. Next thing you know we had over 150 units . Great things can happen from small beginnings,
Hope this helps some. Post more questions. We all love to help as much as possible.
Grants: In the early 90’s grants were easy to get to rehab low income property. Very few today and all the ones I know about are for non profit organizations.
I agree with the management company idea. Since you have jobs it would be costly to take off to spend the day in court to do evictions and other management functions. Management is the part of this business that I like the least. I currently do not own any rentals.
Thanks for the reply tedjr, the advice was great!
I understand the wait for certain members of the team and as I mentioned we have free legal advice (limited but still free) so talking with them about our business will be an early move but the actual hiring will be sometime down the road, when we have gottem much bigger, same with an accountant.
Today we made a move with the business acquiring our license, and tax number so that is moving in the right direction.
Although we have nothing in writing we have discussed the “business plan” among ourselves somewhat. We do not want a house more expensive than 120K and are willing o rehab places for a better profit down the road. Again nothing in writing but a start.
Managment company is something we decided that should be done for at least now, some of the others are considering leaving the job and if they do it may be a different story, but for now it is a must in our eyes. A couple questions on property managers. i know they take care of the property and collect the rent, etc…but do they also look for renters? And do any property managers actually pay some or all the rent if the place is unoccupied? These are some of the rumpours I am hearinga nd it would be nice to confirm them or put them to bed.
Also when looking into areas for purchase to rent what are some important things to consider? I would think schools, crime, and affordability are things that jump right out, but how many things are there to look at? and what are some of the things that some of you use to when looking at buying a house as far as Location is concerned?
Again I appreciate the info and it is working wonders for me and the new business!! Thanks again!!
Never heard of a management company paying any rent. I have seen where major corps may rent a unit for a year and may not use it but part of the time or on vacation property.
Each management company is different. Some will lease the unit when vacant at no extra fee and some will charge 50% to 100% of a months rent to fill a vacancy. I am sure you will find a range there somewhere that you like.
I have owned property in all parts of town and even the “good” areas have crime and tenants that will not pay the rent. In hard times landlors can not be as picky. Rents are down too in a lot of areas but so are interest rates. It is a great time to buy at low prices with low rates and wait for rents to rise again.
Good luck. Sounds like you guys are on the right track. Do not over kill and plan for 6 months and never do a deal like my x partner. Without me he would still be reading and trying to get the owners to warranty everything for 5 years. He was such a nurd.
sometimes just a mission statement is all you need for a business plan. Thats all I have - straight and to the point. When people ask me what my business plan is I usually just tell them my mission statement and show them my cell phone (meaning ill look at everything and take it from there). I don’t like being a structured investor - in this market and starting off you should not be forced to look at only one type of property.
Get the right balance of structure and doing stuff on the fly and you will be a successful re investor.
Some property management folks do actually pay the rent, search for tenants,etc.
Not many, I agree but some.
In fact, early in my career, I made it a point to work burnt-out landlords pretty hard. My standard offer was to pre-pay a year’s rental in advance, minus my profit margin of course. The primary attraction for the property owner was the fact that it was now my responsibilty to fill the unit and to maintain it.
You have to understand that cash in hand was difficul to turn down; few ever did.
Soon, I had more landlord’s (and other disillusioned property owners) calling me than I could handle.
Wow I really appreciate all of the input I have found it very helpful in our meager start, what I have come to realize is that you have to e prepared but at that same time get started and don’t look for the perfect deal while taking some risks along the way, am I getting closer?
I do have more questions, however (of course) when you buy your first property and you plan to rent it what is the best course of action to getting a tenant? Obviously the quicker the better and we live near many colleges and university’s as well as a military ase but don’t know if we want to go down that route I remember when I was in college and I was not the best tenant at someof the places I rented. We assume newspapers, the internet, are a must but is there anything I am missing or any other ways to get a tenant?
I took this to heart: Get the right balance of structure and doing stuff on the fly and you will be a successful re investor I think it is a great quote and I am going to put in use. Also as far as the mission statemnet goes I have seen more than one exmaple or shell and some or short and to the point while others are lengthy, what again is the excat purpose of such a mission statement?
If not extremely important I would think that my efforts would be better concentrated on other things.
Thanks for the reply and the info, because with all of us working very fulltime jobs property manager is a must and finding out all the information on them is very helpful to us.
Thanks again for all of your help and keep it coming!!