How Much Investment is Needed to Start a Real Estate Business?

How Much Investment is Needed to Start a Real Estate Business

APR 21, 2023 by PAUL MARVEL  

The idea of launching a business in the field of real estate appeals to you for more than one reason. While there are a lot of questions right now, determining how much capital you need up front is at the top of the list. That's understandable, since you want to have enough cash on hand to keep the business afloat as you work toward making the venture profitable. 

The thing to remember is there's more than one type of real estate investment business to consider. The course that you set for your venture will go a long way toward determining what sort of financial resources you need during the early stages. The following will help you understand a bit about what to expect in terms of start-up and maintenance expenses. 

While the amount you need to invest up front will depend on the sort of deals chosen, it's safe to say that you would want around $10,000 USD at your disposal. That money will be needed to set up basic operations, launch a modest marketing campaign, and obtain any licensing that the local municipality requires. 

Keep in mind that you may be able to launch the business with less. This is especially true if the plan is to launch the operation as a sideline, then gradually build it into something that will become your full-time effort. Whatever your plan, it's important to have a source of revenue that will not impose undue financial hardship, or undermine your ability to maintain a reasonable lifestyle. While you're confident that the business will be successful, ensure that it would still be possible to get by if things didn't work out as hoped.

Starting a real estate business does involve deciding what sort of real estate deals would be a good fit for your purposes. As you look into different options, there may be one or two that you never thought about in the past. All options are worthy of consideration before settling on the model for your business. 

The most common option focuses on acquiring and maintaining properties. This approach provides a recurring stream of revenue that continues for as long as you own the properties. Go with rental homes, apartment complexes, retail structures, or even manufacturing facilities. With leases and higher quality tenants in place, you stand to earn a tidy profit. 

Another approach is setting up your business as a wholesaler. If you like the idea of short-term investments with a minimum of effort, consider this strategy. Essentially, you agree to represent an owner who wants to sell a property. Once there's a contract in place, you match the property with buyers who are a good fit. Mark up the sale price enough to make a little money of your own. This does involve identifying properties that buyers in your orbit are likely to be interested in purchasing. 

You may also find that flipping appeals to you. Similar to wholesaling, a key difference is that you buy the property. There may or may not be a buyer in mind at the time of purchase. Instead, you're buying a property that needs updating or renovating, doing the work, then placing the property on the market. If you chose well and did the proper updates, that property is not likely to languish on the market for long. 

Remember, there's no rule that says you can only pursue one of these strategies. For example, feel free to acquire rental properties and use them as a revenue stream to support your efforts at flipping real estate. The diversification can provide more protection when the economy shifts, as well as add some variety to your business activities. 

There are those who believe only seasoned professionals should consider starting a real estate business. Without a doubt, prior experience in the field can be helpful. That experience may be in the form of working as a property manager, or even being an administrative assistant in a real estate firm. 

However, don't allow a lack of prior experience to hold you back. There are people who choose to launch a business involving real estate deals without ever being associated with the field in the past. Many of them do well, and sometimes find that skills and experience in other fields serves them well in their new ventures. 

Take stock of your past experience and identify ways it would help with this new business model. You may find that your carpentry or landscaping skills are great when it comes to flipping properties. Maybe the fact you've worked in some form of finance in the past makes it easier to know where to seek funding.  Even skills like the ability to organize tasks efficiently will serve you well. 

So what sort of real estate would work for your investment strategy? In order to know which direction to take, spend some time getting to know the local market. Particularly, you want to identify which kind of properties are in demand now, and are likely to remain in demand for the long term. 

Perhaps you find that residential properties are a good fit for what you have in mind. This could mean you find owners who want to sell as quickly as possible, enter into an agreement with them, then aggressively market those properties to buyers. It could also mean you buy low, make some improvements, then flip the properties for a profit. 

Maybe commercial property should be your focus. This is true when it's obvious the community is expanding in a certain direction. You may be able to buy property that is about to be zoned for commercial use, hold it until the zoning is approved, then offer it for business development into shopping centers, big box stores, and other ventures. 

The same holds true if your plan involves acquiring properties to lease or rent. Homes or apartment buildings in areas that are considered desirable can provide a steady source of income. In like manner, an older shopping center located near an area that is enjoying a resurgence could mean investing money in the purchase and updating, making it easier to secure long-term leases from commercial business owners. 

There are benefits and possible drawbacks associated with any type of investment. That includes real estate. It's a good idea to know more about both before settling on the direction for your real estate investment venture. In order to illustrate that point, consider the option of owning properties as opposed to working as a real estate wholesaler. 

The upside of owning rental properties is that you can have a steady flow of income for as long as you own the property. That's great, since it does mean being able to pay the bills each month, and possibly having money to tuck away for the future. Keep in mind that this only works if there are people willing to rent the properties. If you end up with properties that are not in demand, finding tenants may not be the easiest task. 

Wholesaling is great if you love the idea of making money, then moving on to the next project. That's because most wholesale deals involve entering into a covenant with a property owner; you agree to find a buyer within a specified time frame, and the seller agrees to accept the price that is contained within the contract terms. This works well when you do find a buyer, and manage to make some profit for yourself. The risk is that you don't find a buyer within the time frame allotted, or you have to settle for a price that leaves you with less profit than projected. 

This is another reason to build your real estate investment so that more than one strategy is employed. Using this same model, owning rental properties can provide income that keeps you afloat as you seek buyers for properties under contract. At the same time, the money from your wholesale effort can buoy up the business if one or more rental properties remain vacant for a time. 

Another myth about real estate investment is that you must have a real estate license. While it doesn't hurt, having a license is usually not necessary. It's true that you may need a business license from the local municipality, but that would be true with most types of business ventures. 

Do keep in mind that it helps to have access to a real estate lawyer who can help with any contracts that apply to your particular business interests. That will help protect your interests, and also provide some degree of peace of mind to your clientele.

Unless you have deep pockets, the need for financing will be present. In fact, it's a good idea to make use of financing even if you do have considerable personal assets. Along with keeping those assets for emergencies, establishing good relations with lenders will make it all the easier to get money when it's needed. 

Ideally, you want to work with a lender who offers the most favorable terms, including no hidden fees and competitive interest rates. Pay close attention to the lender's reputation within the business community, and finding the best financing option will be a little easier. 

There's also the decision of whether to start a real estate investment business from the ground up, or look into franchise opportunities. Why buy into a franchise for real estate investing rather than starting from scratch? Consider the following:

1. Franchisors often offer training. That helps to fill in the gaps in your knowledge base, and increases the odds for success.
2. It's not unusual for franchisors to have listings of vetted lenders in the area. That can save you a lot of time, especially if those lenders think highly of the franchisor. 
3. You can tap into a support network composed of other franchisees. Sharing ideas can help everyone become more successful. 
4. There may be a list of approved vendors for all sorts of business services and supplies. Thanks to any volume-purchase agreements the franchisor has in place, you could be able to get what's needed for lower pricing. 

It's worth the time and effort to look into a real estate investment franchise or two before making a decision. You will also find that the best franchisors provide detailed information about what sort of up-front costs are involved, the type of financial commitment you make going forward, and how you can benefit from being able to make use of the franchisor's brand, marketing materials, and other elements. 

The direction that you take for your real estate investment venture is up to you. Before making any final decisions, make it a point to identify reputable property franchise opportunities, and explore each one carefully. What you are likely to find is that opting for a franchise works well for you, provides a support network to draw upon when needed, and will increase the potential for owning a successful business that thrives for a decade.