How to Start a Commercial Real Estate Investment Company

 

Starting a commercial real estate investment company could help you achieve financial independence. Successful investors, however, plan and act carefully. Few people can rely on luck to succeed in real estate. Instead, you need to know how to take a calculated, informed approach to start a company and moving toward your goals.

Get Insurance for Your Company

As a real estate investment company, you might need to get securities and investment insurance that covers general liability (e.g., someone getting hurt on your company’s property), commercial property that pays for any damage caused to your workplace, and business income that will help you recover some money after an incident that prevents your company from functioning.

You might need other types of insurance, too. An insurance specialist can help you understand the various policies available and which apply to your company.

Once you purchase investment properties, you’ll likely need additional policies. Your options depend on factors such as whether you plan on selling the investment property or leasing it for ongoing income.

Choose a Business Structure That Suits Your Needs

More likely than not, you should establish your real estate investment company as a limited liability company (LLC) or a limited partnership (LC). If you choose to form an LC, you must have business partners. If you choose an LLC, you can operate the business independently or with partners.

You can start a sole proprietorship without filling out any paperwork. Taking that route, however, doesn’t offer you any liability protection.

As an LLC or LC, you are not personally liable for your company’s debts. If your real estate investment company goes bankrupt, no one can touch your personal assets, such as your vehicles, homes, or stocks.

The benefits of starting an LLC or LC vary depending on your state. Typically, you can expect:

  • A flexible management structure.
  • Privacy protection.
  • Flow-through taxation that lowers your personal tax burden.

There are some downsides to creating an LLC, though. You will probably have to pay a fee to incorporate. You can also lose some of your personal control by dividing interest among your partners.

Talk to a lawyer or accountant who specializes in business structures. They should know how to review your specific needs and recommend the best option.

Create Financial Accounts for Your Commercial Real Estate Investment Company

It’s best to keep your company’s money separate from your personal finances. You should establish a bank account and credit card in your company’s name. Following this advice helps you track your business expenses and revenues.

Separate accounts also show that you and your business are different entities. If someone ever tries to hold you liable for your company’s debts, you can use your separate accounts as evidence that no one can take your property as payment.

Secure Funding for Your Company

Unless you have enough cash on hand to purchase real estate, you will need to find a funding source for your real estate investment company. You have several options to consider. For example, you could find partners willing to contribute to your funding pool. You can also borrow money from a lender.

Keep in mind that all lenders charge interest. The interest will cut into your profit, which means a lower return on your investment.

If you must borrow money, compare multiple options and choose a low interest rate. Even a few percentage points can make a big difference. If you borrow $100,000 with 8 percent interest, you’ll pay $12,811 in interest over three years. At 5 percent, you pay $7,895 in interest over three years.

You could also find investors willing to give you money with the understanding that they will receive a percentage of your profit. Getting investors helps you avoid interest payments and protects you from losing money. You will, however, have to give up some of your money once you start seeing returns on your real estate investments.

Weigh the pros and cons of these approaches to decide which one works best for your commercial real estate investment company.

Put Together a Team of Professionals

Whether you choose to hire employees or outsource services to professionals, you will need to make sure you have people who know how to fill important roles. The specific professionals you choose will vary depending on the size and focus of your investment group. Typically, you should consider hiring or consulting with:

  • A real estate inspector with experience working with large electrical systems, plumbing, elevators, and other features commonly found in commercial properties.
  • A bookkeeper or accountant that can keep track of your money and create financial documents.
  • An attorney that has experience with commercial real estate sales and leases.

Additionally, you should connect with local companies that provide cleaning, construction, and marketing services. You may not need to use them often, but you will want their help when the time comes.

Identify and Evaluate Commercial Real Estate Investment Opportunities

Commercial real estate trends can change quickly according to local, national, and international factors. The 2020 market offers an excellent example of how wildly prices can swing. Deloitte reports that between 2Q19 and 2Q20:

  • Datacenter values grew 18.1 percent.
  • Industrial real estate increased 11.2 percent.
  • Office space values grew 3.1 percent.
  • Health care properties fell by 13.5 percent.
  • Retail space values dropped 26.8 percent.
  • Lodging and resort properties plummeted 173.9 percent.

If your real estate investment company bought data centers in 2019, you earned a significant return on your investment over the year. If you invested in hotels, though, you lost so much that you might have to regroup and create a new plan for your business.

You must stay ahead of commercial real estate trends to benefit from your investments. If you fall behind, other investors will make it even more difficult for you to recuperate your investment money and pursue new opportunities.

Stay Ahead of Your Competitors With ProspectNow

Identifying opportunities is one of the biggest challenges of managing a successful commercial real estate investment company. The more time you spend pursuing opportunities that don’t lead to returns, the less time you can spend buying, selling, and investing in properties that earn money.

ProspectNow has several features that can help you work more efficiently and earn more money from your real estate investments. ProspectNow uses predictive analytics to identify commercial properties that will likely get sold or repossessed within the next 12 months. A proprietary algorithm considers several features, such as whether a property has entered preforeclosure or whether the owner has a difficult time finding tenants, to point you toward investment opportunities.

You can talk to the current owners because ProspectNow has a database that includes over 40 million commercial properties, 30 million businesses, and 15 million corporations. Since you have the contact information of corporate decision-makers, you can approach them about deals before your competitors make a move.

See the benefits of using ProspectNow and you’ll find more leads, close more deals, and make more money. We’ve been helping agents and brokers just like you since 2008 – are you ready to see what ProspectNow can do for your real estate investment business?