“What would you do if you were to get started in Real Estate today?…with a limited budget?”  This is a question I hear a LOT, and with the current state of the economy I’m not totally surprised.  This is often followed up with questions about where should I advertise, is Facebook advertising effective in Real Estate, and how do I find leads?

Well, I decided to put together an article that should help the newest investors launch their businesses on a limited budget.  I won’t focus on the questions concerning advertising and getting leads in this article, but may come back to address that issue.

So the answer to the great question of how to get your business started is simple:  treat it like a business.  Far to often I see folks who are swept up in the emotion of running a Real Estate Investing business, without understanding that it IS a business.  To be successful every business needs to have it’s foundation:  A Business Plan.

1. The Business Plan

Not sure where/how to create a Business Plan?   The Business Plan is simply a written plan of action for your business so that you can measure your success or failure.  It should contain your mission statement (why you are doing what you do), a yearly projection/targets/goals (aka In the first quarter we will have done 3 wholesale deals.  Second quarter 5 wholesale deals. etc.), and finally it needs to have a budget (aka the financials).   These three points are key to the success of your business.  You can expand the plan to include five and ten year projections, but it’s not actually a requirement when you are just starting out (unless you are attempting to get money from a loan/angel investor/etc…but that’s a different article!)

If you are overwhelmed by the idea of writing a plan, I often recommend getting a consultant to help you with this process, someone who has done business planning and strategy.  Unfortunately, to hire a consultant to do that can be expensive, so I won’t cover that here…due to the the limited budget aspect.  But the links at the bottom should help give you a guide line to get started.

So recap:

Business Plan Basics:

  1. Mission Statement (why are you doing this business)
  2. Targets/Goals  (3 wholesale deals in the first quarter, etc)
  3. Financials/Budget (You need to know if you are making or losing money!)

Links:

Small Business Administration

Also see the SBA’s  starting a business basics

About.com’s Business Plan Writing Guides

And finally, and possibly one of the most helpful: Online training from My Own Business which has video and step by step documentation for those who feel the need for more info.

One thing of note, do not get paralyzed by your business plan.  It should be a foundation to get started, but more importantly realize that it can be modified in the future to adapt to your business.

2. The LLC

So you have your business plan, now am I business?  Well yes and no.  I highly recommend forming your company into a LLC (Limited Liability Company) to start out.  This is so that you as an individual have some protections as well as several other benefits:

From Incorporate.com

Regardless of their size, all businesses can benefit from incorporating. Advantages of forming a corporation or Limited Liability Company (LLC) include:

  • Personal asset protection. Both corporations and LLCs allow owners to separate and protect their personal assets. In a properly structured and managed company, owners should have limited liability for business debts and obligations.
  • Additional credibility. Adding “Inc.” or “LLC” after your business name can add instant authority. Consumers, vendors, and partners may prefer to do business with an incorporated company.
  • Name protection. In most states, other businesses may not file your exact corporate or LLC name in the same state.
  • Perpetual existence. Corporations and LLCs continue to exist, even if ownership or management changes. Sole proprietorships and partnerships just end if an owner dies or leaves the business.
  • Deductible expenses. Both corporations and LLCs may deduct normal business expenses, like salaries, before they allocate income to owners.

The process is often not very difficult and not very expensive (in Maryland it is about $150 to form and about $300/yr after the first year).  So be sure to plan for those expenses!

3. The Business Bank Account

Once you have formed your company, go and open a business account.  The bank will ask for specific information concerning your business  (some may ask for your Business Plan, but most will only ask for your Employer Identification Number (EIN is also known as a Federal Tax Identification Number, and is used to identify a business entity) and/or your Articles of Incorporation).

I am often asked if a business really needs to have a Business Bank account and my instant response is always YES!  You need to keep separate records of the finances of your personal accounts and your business.  I often tell people to think of it this way, if you were working for say IBM or Microsoft would you have separate bank accounts right?  Well your business is no different.  While you can use your personal account to pay for business expenses, be sure to always submit an expense report and pay yourself back out of the business account.  If you do this, your accountant will love you…YES, get a business accountant who can help you get the most out of your business. A good business accountant will save you a lot more than the cost of their services!!!!

In my next article, we will discuss how to bring a level of authenticity and credibility to your new real estate business that will set you apart from your competition!  I will be covering the following topics:

  1. Website
  2. Business Phone number
  3. Virtual Assistant and/or Virtual Receptionist
  4. Business Cards
  5. Email/Auto-responder System
  6. Business Paypal Account

See you next time;

Dan

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