How Long Does It Take To Start A Real Estate Business?

By Than Merrill

How long does it take to startup and kick off a new real estate business?

Is starting a real estate business something that should take just a few hours, or do you need to patiently invest years of hard work? What are the critical steps in getting to where you want to be? What barriers should more real estate entrepreneurs be breaking down?

Some never take the next step towards formalizing a real estate business. They just get into the game and start doing deals. Some add a few helpers, but don’t start an actual business. Others keep going at it solo. Then there are those that have no desire to engage in hands on real estate, but want to own businesses and start at the top, and work down instead. So do you really need a company?

For the select few that just want to do their own thing, running a company can become a distraction, and add to expenses. However, this doesn’t mean the benefits and protections of LLCs and other legal entities can be overlooked.

Many are missing out, big time. They are not focusing on building a business. This is especially true for those that want scale, and who want to just see the profits from real estate and being an owner versus having a job. That’s true, no matter how much better and higher paying that new job is.

Basic Steps in Starting a Real Estate Business

Technically, ‘starting a business’ is easy. Its maintaining a successful business that can be tricky. These simple steps should help:

• Research
• Business plan
• Choose a name
• Incorporate
• Get a tax ID number
• Open a business bank account

With the exception of comprehensive market research, most of the above can’t be done in a day. Some will take months to get there. While thorough planning is wise, many let the process drag on too long, while continually rethinking and second guessing themselves. Don’t fall into that trap.

Raising Capital

Some real estate entrepreneurs will also be keen on raising funds for their startups. Some will find it unnecessary, thanks to mortgage finances and other working capital options that this industry is privy to. Others just feel they need a big war chest to strike out and get going. There is nothing wrong with that, but there are two things to watch out for. The first is realizing that more money doesn’t always help. Normally a good business model can work with or without extra capital. More money just speeds up the pace and scale. If it isn’t working, $10M is just going to be burn money, and extend the decline. The second lesson is not to spend forever in fundraising mode without getting started. It can take anywhere between 0 to 40 weeks for startups to secure seed capital, according to research by DocuSend. But that doesn’t mean you just sit there and put life and business plans on hold in the hope of getting it.

Ensuring a Profitable Business Start

How can you ensure a profitable business start? This is crucial, especially for those taking a little longer to get going. Once the clock starts ticking, you’ve got expenses. That could simply be renewing your LLC, insurance or business checking account fees. No matter how small, you want income coming in as fast as possible. In reality, while it is entirely possible to generate income in real estate within 30 days, some closings can take 90 days to happen. Even if you hit the ground hard on day one, you might not see any cash coming back in for a couple months.

Don’t wait to start lining up deals and income. Most will find that they can begin lining up revenue and deals in advance. This may depend on your exact type of business and your organization, and maybe even the season, but most should be able to set up closings to happen in their first and second month of being in operation. Kicking off with six figures in income your first month will make a world of difference.

The earlier you get started, the better. The earlier you organize yourself as a business, the more tax breaks and legal protection you’ll have. If you can act faster than the competition, you’ll have the advantage. It can take anywhere from a few hours, to a year to get a real estate business going, but that doesn’t mean you have to put off activating revenue producing activities.

8 Steps to Establish Small Business Credit

Establishing business credit is an important step for any new small business and helps you to: (1) maintain a credit history separate from your personal credit history and experience the business benefits of having good business credit, and (2) demonstrate separation between owners and the business.

Why separate credit histories?

By having a business credit history separate from your personal one, you can minimize the effect negative events on one might have on the other. For example, if you have some financial missteps that impact your personal credit history and score, they shouldn’t impact your small business credit if you have established a clear separation and vice versa.

Why separate business and owners?

Unless you’re operating your small business as a sole proprietorship or general partnership, you need to demonstrate that the business is separate from the owners. One of the key benefits that corporations and limited liability companies (LLCs) provide the owners is protection of their personal assets. Keep this protection in place by consistently showing clear separation between the owners and the business.

Eight steps to establishing your business credit

1. Incorporate your business. Even though you may be incorporated when you’re reading this, it deserves a mention. With sole proprietorships and general partnerships, the business is legally the same as the owner; therefore, there can be no separation of business credit history from personal. Incorporating a business or forming an LLC creates a business that is legally separate from the owner(s).
2. Obtain a federal tax identification number (EIN). The EIN is basically a social security number for a business. It is required on federal tax filings, and is also required to open a business bank account in the name of the corporation or LLC. In order to comply with IRS requirements, many larger businesses also require an EIN from their vendors in order to pay them for services provided.
3. Open a business bank account. Open a business checking account in the legal business name. Once open, be sure to pay the financial transactions of the business from that account. If you use a business credit card (see below) for many financial transactions, be sure to pay the credit card bill from your business checking account.
4. Establish a business phone number. Whether you use a landline, cell phone or you use VoIP, have a separate number for your business and in your business’s legal name. List that number in the directory so it can be found.
5. Open a business credit file. Open a business credit file with all three business reporting agencies: Experian, Equifax and TransUnion.
6. Obtain business credit card(s). Obtain at least one business credit card that is not linked to you or any other owners personally. Pick a business credit card from a company that reports to the credit reporting agencies.
7. Establish a line of credit with vendors or suppliers. Work with at least five vendors and/or suppliers to create credit for your company to use when purchasing with them. Ask them to report your payment history to the credit reporting agencies.
8. Pay your bills on time. Perhaps it should go unsaid, but be sure to pay your bills on time. Like with your personal credit, late payments will negatively impact your business credit.

Benefits of having good business credit

Having good business credit can provide a number of benefits, including:

• Positioning your company for more favorable payment terms with new vendors and suppliers.
• Reducing the number of times you will need to prepay for products or services purchased.
• Allowing you to obtain better interest rates and credit terms from lenders and banks.

Once you have established and built good business credit, be sure to monitor and protect it, just as you do with your personal credit.

6 Strategies To Keep You From Asking What’s Next

Posted by JD Esajian

“Now What” syndrome is one of the biggest challenges facing newer real estate investors. So how can it become overcome?

What Do I Do Now?

One of the biggest issues plaguing new real estate investors is having to figure out what to do next. Surf any online real estate forum for a few minutes and you’ll find plenty of “now what?” or “what do I do next?” scenarios.

Investors find a property they like, and aren’t sure what to do next. They get an offer accepted, and then don’t know what to do next. They close on a home, and then aren’t sure what they should do. They finish rehabbing, and then don’t know what to do. Or later on; the market changes and they don’t know what to do with their business. Each time these questions have to be asked means the process is stalling, income is stalling, holding costs are piling on, opportunities are lost, and profit potential plunges.

So how can these stumbling blocks be minimized? How can real estate investors get on the fast track? How can they streamline the process and maximize profit?

• Real Estate Training & Coaching: Those that lack a grasp of the basic mechanics of buying, selling, and renting real estate haven’t invested in their education. If you don’t own a home yet, buying one can be a great starting point. It can provide great insight and experience into the process. It isn’t necessary, but it is helpful. There are plenty of real estate education resources. There are books, CDs, videos, classes, local workshops, university degrees, online courses, and home study courses. The lineup can be confusing. What is most important is finding a comprehensive resource that will take you from start to finish. While some courses are certainly better than others, every penny invested in education will pay off many times over. Real estate and business coaching is a great option too.

• Have a System: There are many stages between starting and ending a deal in the real estate industry. This can get tricky, even for the experienced investor. The chances of error or overlooking important items only increases with volume. The only way to beat this, and to maximize efficiency, is to have a system in place. Clear checklists help ensure everything runs smoothly. A system ensures nothing is missed, deals don’t stall, and income keeps coming in. There are many ways to create systems. Microsoft Excel, paper checklists, project management software, automation software, and proprietary systems from various real estate courses. Don’t dive in without one.

• Have a Bigger Plan: Don’t get stuck figuring out what to do next year, or in five years from now. Have annual plans, a five year plan, a ten year plan, and a hundred year vision. Think big and long.

• Have a Backup Plan:  Markets change, financing changes, the players change, and consumer behavior changes. You can’t control all of these factors. However, you can be prepared for them. You can control how much they can impact you, your real estate business, and your income. Have a plan B, and a plan C. Create multiple income streams, and know how you will navigate certain challenges before they come up. Don’t wait until interest rates go up 7% to figure out how you’ll still make money then.

• Use Partners: Leveraging partners is a great way to forge ahead in real estate investing. If you don’t have time to study as much as you know you need to, or scale slowly, then use partners. Perhaps you have cash to invest, but aren’t sure about all the mechanics. Maybe you have access to deals, but aren’t sure how to finance and close them. An experienced partner could lend their knowledge and time, or whatever you are missing. This will keep things moving, and reduce risk. You can always do your own deals once you’ve done a few together with a partner.

• Turnkey Real Estate Investing: Turnkey real estate investing is a great way to leverage systems and the experience of others. It’s all done for you. Just invest and collect the rewards.

The Secret to Building an Innovative Real Estate Company

Posted by JD Esajian

Shark Tank investor Barbara Corcoran says one of the most important factors in building an innovative real estate company is a ‘failure budget.’ So why would you need one of those? How much should it be? What should it be spent on? Perhaps even more importantly, what is it?

Why Your Real Estate Company Needs a ‘Failure Budget’

There are many ways to spur innovation within real estate companies. Via the American Express Open Forum and Inc., Corcoran suggests that it is important to plan to fail. Specifically to; accept failure and “build it into your budget.” Corcoran says she implemented this by giving all of her managers 5% of their operating budget to use for whatever they wanted, with no accountability. She claims this is where all the best ideas and changes came from in her businesses. Not from conference room meetings, or behind the desk. But from “playing outside,” and spending money.

While the concept of planning to fail might be a brain twister for many. it has its obvious perks. We always want to be positive, and to plan for success. Yet, one of the biggest business killers is simply disappointment. That’s if they make it past the fear of failure to get started. If you tear down those barriers and throw them out the window, it’s game changing. Plan to succeed. Learn, strategize and plan for success.

you need to accept that not everything will go according to plan. There will be many challenges along the path of the average investor. Money won’t come in when it is supposed to. Things will cost more than you expect (always). And you’ll have to switch up directions. Provided you have a budget to accommodate these things and don’t let them get you down, they won’t be a stumbling block, but rather an inconvenience. This is what a ‘failure budget’ can do for your real estate company.

It also provides liquidity to pursue new projects, test new ideas, and engage in innovation boosting activities.

What to Spend Your Failure Budget On

The cautious real estate business owner may wish to hold their failure budget as reserves for tough times. Note that 5% alone probably won’t cover most overages on home renovation projects. And probably not the short falls and unexpected costs associated with buying and selling property every day. Some may plow this slush fund into extra insurance to cover operational disasters.

Most probably don’t think they have 5% of their operating budget to give their employees free control over. Most CEOs would fear it would be blown at happy hour, on personal items, and on vacations. There’s a good chance they would be right, but trust the employees you hire. Remember, you hired them for a reason.

In some cases, spending on these ‘frivolous’ items might actually help boost innovation. Casual networking and team get-togethers can be great for brainstorming, exploring new ideas, and finding new ideas. Many leading companies have been extending their vacation allowances. Some have even gone to the lengths of paying staff to go on vacation. If your real estate company isn’t in a position where this seems feasible, it may be something to aspire to and plan for.

There are plenty of other staff perks to consider – many of which can be useful for sparking innovative thinking among team members. They can be as simple as putting better snacks in the office or providing gym memberships. It could be as grand as throwing corporate retreats, or offering great bonuses in hope of sparking an innovative solution for achieving better results.

One of the best ways to put a ‘failure budget’ to work and ensure innovation is constantly in action in your company is to fund pet projects. Allow team members to spend a few hours a week working on ideas of their own and testing them out. you could even fund them to implement new ideas and tests. This won’t just spur innovation, it will build team loyalty and productivity.

8 More Ways to Spur Innovation in Your Real Estate Company

1. Plan to launch into at least one new niche per year
2. Set higher goals
3. Commit to testing a new marketing campaign, or tweak each quarter
4. Sponsor external competitions to come up with new ideas
5. Create better workspaces
6. Invest in boosting your personal innovation as the CEO
7. Offer awards and rewards to team members for bringing new ideas
8. Empower staff to use their creative talents and frontline experience to make improvements to processes all the time. Let them think, try, and fail

Summary

Innovation is critical to success as a real estate firm. Freeing your organization of the threat of failure is a great way to ensure more innovation and success. Having a budget for this can help. Calling it an ‘innovation budget’ or success budget’ might be the most positive approach. Use this fund and planning to consistently push ahead.

Finding Funding For Your Real Estate Startup

Where are the best places to find funding for real estate startups in 2015, and how can founders increase their chances of getting successfully funded? 

Capital markets have been extremely active, and 2015 promises to be a great year for new real estate startups. The dust is settling, and as the U.S. property market continues to march on. So where are the funds?

Bloomberg’s round up of venture capital investments in 2014 showed dollar volume growing 60% over the previous year, and the number of deals being funded by VCs rising too. Over $100 billion was put into startups over the last year, with expectations of another strong year in 2015.

Foreign investment capital in the U.S. is expected to run into the hundreds of billions, with Asia, Europe, and other destinations in the Americas seeking real estate and investment opportunities over the next nine months.

While traditional banks may appear to have fallen by the wayside, private investments and private money lending have increased. Then there is crowdfunding, which, according to Entrepreneur.com, is now responsible for financing more than triple the startups venture capital firms have. These can all be viable sources for financing the launch of a new real estate related business, and can even be combined together.

Creating a Real Estate Business Plan

No matter which path to funding is chosen, it all starts with building a business plan. In fact, even those real estate entrepreneurs that are considering sticking with self-funding need to have a well-researched and organized business plan. Without one, there is no compass for staying on track and nothing for potential investors to evaluate. This doesn’t have to take endless months to put together, but should be done well, have realistic numbers, and be well written, with the right balance of sales and fact.

Compiling a Pitch Deck

A ‘pitch deck’ has become a more common introductory pitching tool for fundraising than a full business plan in recent years. This is often in the form of a Power Point that highlights the most notable key facts about the venture and investment opportunity. Consider this a marketing piece that will make or break your chances of getting funded.

Testing

Business ‘ideas’ are great. However, before getting too far in, and before most serious angel investors and venture capitalists will take you seriously, you’ll want to do some testing.

When it comes to real estate investing or sales, there are proven models and systems to adopt. They can remove uncertainty and lend significant credibility versus trying to reinvent the wheel. However, when it comes to disrupting with new technology, products and services, potential investors really want to see what consumers or B2B users are saying about testing.

Decide Your Terms in Advance

Some might say it is better to keep 2% of something, than 100% of nothing, but it’s about more than shares. How much profit and control are you willing to give up, and for what amount of capital? Remember that beyond seed capital, there may be rounds of funding for officially starting up, Series A, and B funding, and even taking on loans. All of these mean giving up some percentage of income or ownership, or both.

There is a lot of money out there. Savvy startups look for what an investor can bring to the table – beyond money. What about connections, mentoring, credibility, and sales?

Most importantly, and why so many startups fail within 20 months of getting funding, is that they build their models on spending and injections of cash. Even some of the largest online real estate portals have made this mistake, and yet still continue to lose money every quarter – despite having raised billions and having close to that in revenues. If you don’t ensure a profitable business model that can operate without constant saving, it will inevitably fail when the charity stops.

Tips For Building Your Personal Real Estate Brand

Real estate investors need to be paying more attention to their personal brands. For those that haven’t invested in their personal brands yet, or enough, it’s not too late. However, now is the time to start building up a brand that consumers can trust. Having said that, what are the best moves in building and protecting one’s company name?

The Importance of Developing a Personal Brand for Real Estate Professionals

Sadly, far too many real estate investors fail to appreciate just how important and valuable building a personal brand is.

A recent episode of ABC’s reality TV show “Shark Tank” really drove this home for many real estate professionals, and new entrants to the business. In reviewing the pitch of a real estate entrepreneur, the sharks were adamant about the extreme importance of owning a personal brand. Even though the sharks may have come across a little egotistical, they had a point. Adding their name to virtually any product or business can add value and create sales, even if it is a terrible product. As the entrepreneur walked off stage, one shark even jested that he had already forgotten the individual’s name. The entire panel was firm on the fact that when it comes to investing and real estate consumers prize working with names they know and trust – brand names they recognize.

Success Magazine took a different angle on this at the beginning of 2015. In particular, it mentions the value of having a trusted personal brand. The featured author pointed to data from the hotel industry. Subsequently, integrity and a name brand provided a hard 2.5% bump to income; or at least $250,000 to at least one brand.

The bottom line is that success in the real estate world isn’t “what you know, or just who you know, but who knows you.” It is unlikely many will ‘know’ or remember you, unless you have a strong personal brand.

Choosing a Personal Brand Identity

So how do you go about selecting, honing, and building a personal brand?

A personal brand can certainly be developed. However, there are specific considerations to be made in the process.

Start by digging into your personal and professional identity. What are your strengths, and weaknesses? What are your passions? Most importantly; how are you unique, and unique in your space of the market? It’s about time many kicked the crusty old copycat approach to real estate branding to the curb. Just putting the same old profile picture in the same suit, with the same background as everyone else isn’t owning a personal brand. The same even might go for sitting on the hood of a silver Mercedes Benz in your print magazine ads, or the classic sunset background. What can you bring that is fresh?

There is also wisdom in ensuring synergy when brainstorming your personal brand. It has to work for business, and it has to be sustainable. If it isn’t in sync with your real personality and isn’t authentic, it won’t stick. There is a need for synergy with your target market. It doesn’t need to mirror your ideal clients, but should resonate with them. Will the homeowners, buyers, investors, and other professionals you need and want to work with be drawn to and connect with your personal brand?

Crafting and Claiming Your Brand Name

A part of staking claim to your brand identity as a real estate professional is naming and claiming associated name real estate. That may include taglines and slogan, website domain names, social media URLs, and sometimes names of trusts. A little Google research might also suggest the best and worst choices of your name to use in your branding. While there’s no need to change your name, are there good or bad associations with different variations of it online? For example; if your name is Bernie Madoff, you might want to think about that.

Naming research should be a part of your initial research. Claiming ownership of related websites and social media accounts should be done as soon as possible. Shortly after, start building up those presences as you see fit.

It is smart for real estate personalities and executives to take the time to put together a guide to both guide themselves and their team members and contractors to protect the personal brand. The most advanced will include images, logos, profile pics, verbal branding, typography choices, colors, and verbal branding guides, and more.

What’s Next?

Just coming up with a strong personal brand identity isn’t going to do much. The next step should be proactively working to gain visibility. This might include; articles, podcasts, press, or entering award ceremonies.

It is also essential to build a business brand for those that organize themselves legally. These can have slightly different branding, but they need synergy too.

Finally, don’t forget to protect it. This means being careful with what you invest in, who with, and proactively preserving and building your online reputation too.