How to Start a Real Estate Investment Company

Real estate investment companies have long offered a pathway to steady growth, with average returns of about 5.4% annually over the past six decades. These businesses play a central role in property development, urban revitalization and overall market liquidity. That said, launching a real estate investment company can be challenging if you don’t have prior experience. Getting professional guidance early on can help you navigate key decisions around business structure, financing and investment strategy.

A financial advisor can also help you evaluate alternative approaches to real estate investing based on your goals and resources.

Understanding Real Estate Investment Companies

At their core, real estate investment companies are businesses that buy, lease or sell property to generate profit. They act as an engine within the broader real estate market, fueling activity, driving development and helping maintain a healthy flow of transactions. Depending on the company’s strategy, investments might include rental properties, fix-and-flip projects, large-scale developments or participation in real estate funds that diversify across multiple projects.

These companies not only support economic growth, but also offer meaningful opportunities for long-term financial planning. They can provide steady income through rental revenue, the potential for property appreciation and valuable portfolio diversification. With sufficient capital and a well-structured plan, real estate investment can create both immediate cash flow and significant long-term growth.

Types of Real Estate Investment Companies

There are two things to consider when researching the types of real estate investment companies. The first is what types of investments the company makes and the other is how the company is legally structured.

When looking at the types of investments, these can vary quite widely but each real estate investment company typically has one main type of investment that it focuses on. The company might invest in short-term rentals, long-term rentals, fix and flip projects, commercial real estate or even debt notes in regular family mortgages.

When structuring the business, the world of real estate investing presents various choices, each with unique benefits. Let’s explore three of the most common structures: Real Estate Investment Trusts (REITs), Limited Liability Companies (LLCs) and Partnerships:

Real estate investment trust (REIT): REITs are essentially companies that own or finance income-generating real estate. In simpler terms, they let you invest in real estate without buying a property directly. They’re publicly traded and offer the convenience of liquid assets.
Limited liability companies: LLCs are a popular choice for real estate investors as they separate personal assets from business debts, providing a safeguard for owners’ personal assets against possible business liabilities.
Partnerships: Partnership firms, formed by two or more people who jointly own and profit, pool resources and share risks. They are an attractive choice for investors who prefer shared financial responsibility and accountability in owning real estate.

The right type of formation strategies will depend on your unique needs, which is why you may want to consult with a lawyer or real estate expert.

What You Need to Start a Real Estate Investment Company

A couple celebrating after closing a deal with a real estate investing company.

An operational plan is a critical component of launching a real estate investment company. This document lays out your business structure, strategic direction and financial projections, helping guide day-to-day activities while also demonstrating credibility to potential investors or lenders. A strong operational plan typically includes your mission statement, organizational chart, staffing needs and a clear overview of your core business processes.

Before drafting this plan, however, you’ll need a solid investment strategy and sufficient capital to pursue your target opportunities. Once those pieces are in place, you can focus on developing a detailed approach for finding, evaluating, negotiating and closing real estate deals. Building a broad network of industry contacts including agents, contractors, lenders and other investors can also play an essential role in sourcing and executing profitable investments.

Benefits of Starting a Real Estate Investment Company

Along with the potential for profit from property appreciation, consistent rental income offers another attractive aspect to real estate investments. These earnings serve as a reliable cash flow and can be particularly beneficial during economic downturns when other investments may be underperforming.

Diversification, a cornerstone of investing that reduces risk through spreading investments over various assets, is another key advantage of investing in real estate. Real estate often exhibits negligible correlation with stock and bond markets, making it an ideal contender for investors keen on safeguarding against market volatility.

Many invest in real estate, as well, because of the physical assets that help protect the investment dollars flowing into projects. Even if the investment goes sideways there are plenty of avenues to recoup a large amount of the original invested capital.

Alternatives to a Real Estate Investment Company

For those balking at the significant commitment required to start an investment company, the good news is that there are other alternatives. Here are four of the most popular:

Invest in REITs: REITs provide an avenue for investing in real estate without having to deal with property purchasing, management, or financing nuances. They can be traded like stocks and offer potential for income and growth.
Invest in Crowdfunding: Real Estate Crowdfunding allows the pooling of resources with other investors to fund real estate projects. It’s accessible to individuals and can offer high returns, along with associated risks.
Invest in Stocks: Real Estate Related Stocks extend exposure to the real estate market without the need to manage properties. They are shares in companies involved in real estate such as property developers, or real estate services firms.
Invest in Debt: Private Notes are loans anchored by real estate. They can provide a steady income stream and often attract investors in search of fixed returns with lower risk.

Remember, a financial advisor can play a critical role in helping you navigate through these alternative investment options and make informed decisions. Everyone’s investment portfolio should be unique to their individual circumstances and goals.

Bottom Line

A homebuyer posing in front of a house after closing a deal.

The benefits of real estate investment companies, ranging from potential financial growth and portfolio diversification to tax benefits, are undisputed. However, starting one requires careful planning, a substantial investment and acceptance of a certain level of risk. It could be a rewarding venture for those deeply interested in real estate, willing to take risks and patient enough for potential long-term returns.

Tips for Investing in Real Estate

Whenever you’re considering investing a large amount of money you may want to first consult a financial advisor. They can help you manage your money and effectively grow your wealth. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Make sure you are well-versed in the process of buying investment properties before you take the leap into buying your first real estate investment property.