What is a real estate investment company?
A real estate investment company buys, rents or sells real estate to make a profit. They could own rental properties, fix up homes for resale or invest in large property developments.
Some benefits to starting a real estate investment company include:
- A reliable monthly income from rental properties.
- A diversified investment portfolio.
- A scalable investment that you can build over time.
Many people begin their real estate investment career by “house hacking,” meaning renting out part of their home.
But Schmidt has observed two types of real estate investors: “flippers” — meaning people who buy a property, fix it up and sell it at a profit — or “buy-and-hold” investors who maintain rental property and collect passive income.
How much money do you need to start a real estate investment company?
There are infinite ways to fund your business. But Schmidt has observed that, “Owner-occupied loan programs require between 3.5% – 5% down, so you may not need a lot of capital to buy a house hack property.”
To help mitigate the risk of real estate investing, it’s best to separate your personal and professional finances to help protect your personal finances if you make a bad investment. A limited liability company (LLC) can help to protect your business and personal assets.
License and insurance requirements for a real estate investment business
While you don’t need a license to invest in real estate, some tasks that can help you build your business and lower your investment risk do require a license. Some examples include:
- General contract work: In most states, you need a license to become a general contractor. This license may be helpful to renovate, maintain or flip the properties you invest in.
- Buying or selling real estate yourself: You will need licensing and certification if you decide to become your own agent and buy and sell real estate yourself.
- Property management: If you plan to rent and manage your properties yourself, you may need a property management license.
Real estate investor insurance can help to protect your business investment from a number of risks to property, workers and contractors, and the general public. Some policies to consider include:
- General liability insurance. This could help protect your real estate investment business from property damage to other people’s property, slip-and-fall incidents and some legal fees.
- Workers’ compensation insurance. Seek out this coverage to help ensure that workers are taken care of if they’re hurt or fall ill from a work-related event.
- Commercial property insurance. This policy could help protect the physical space and gear you need to run your business.
- Commercial umbrella insurance. Schmidt advises new real estate investors to look into umbrella insurance because as you invest in more properties, you will want more protection. An umbrella policy can extend your general liability limits up to $4 million.
Collaborating with partners to mitigate your risk
Schmidt was able to grow her real estate portfolio through a vast network of professional partnerships.
She also sometimes invests in properties with other investors. “You have to really define your relationship in those situations. Who contributes to capital, who runs the business and how are payouts done? All of that is managed through your operating agreement under your LLC.”
She’s also had some success collaborating with tradespeople and construction professionals. Network with your local real estate community to find partners who complement your business and investment skills.
Schmidt also advises that you seek investor-focused legal advice and financial service providers. “There’s investor-focused CPAs, realtors and insurance providers in every market.”
