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Options for setting up your real estate company

When you begin investing in real estate, you may want to consider forming a corporation, partnership or LLC to separate yourself personally from that of the business dealings. There are many risks in real estate from debt to injuries to lawsuits. You will want to make sure the home and assets you have personally, are protected if something does happen. On the positive side of things, by setting up as a new entity, you begin to build business credit with the potential of eventually being able to buy and finance in the name of the entity.

Which business formation should someone use for their real estate business

This is more of a personal choice. Below are the descriptions of each type. Each have their own benefits. We suggest meeting with a professional company or lawyer to set up your entity. If you are in Michigan, we suggest New Venture Consulting, Inc. www.NewVentureInc.com – LLC, Partnerships and Corporations have both state and federal paperwork. This company can get you set up quick and right.

Limited Liability Companies (LLCs)

Independent     legal structures separate from their owners.

Help separate your personal assets from your business debts.

Taxed similarly to a sole proprietorship (if one owner) or a partnership (if     multiple owners).

No limit to the number of owners.

Not required to hold annual meetings or record minutes.

Governed by operating agreements.

C Corporations

Independent legal and tax structures separate from their owners.

Help separate your personal assets from your business debts.

No limit to the number of shareholders.

Taxed on corporate profits and shareholder dividends.

Must hold annual meetings and record meeting minutes.

S Corporations

Independent legal and tax structures separate from their owners.

Help separate your personal assets from your business debts.

Owners report their share of profit and loss in the company on their personal tax returns.

Limits on number of shareholders, who must be U.S. citizens or residents.

Must hold annual meetings and record meeting minutes.

Partnerships

Partners remain personally liable for lawsuits filed against the business.

Usually no state filing required to form a partnership.

Easy to form and operate.

Owners report their share of profit and loss in the company on their personal tax     returns.

Sole Proprietorships

Owner remains personally liable for lawsuits filed against the business.

No state filing required to form a sole proprietorship.

Easy to form and operate.

Owner reports business profit and loss on their personal tax return.

 By setting up your business properly from the start, you will be able to track income and expenses, so you know when to make changes in real time and not after you see problems. A good bookkeeper can be useful. The same company we suggested above is familiar with real estate and bookkeeping.

For more information, please visit www.MichiganInvestorTeam.com or e-mail us at info@michiganinvestorteam.com

Keep real estate investing fun by planning and preparing.

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Preparing to Invest in Real Estate

When you are thinking of investing in real estate, the excitement builds. You have seen the infomercials, read the books and seen what life can be if you invest like they do. Before you get there, you do need to do a little planning, maybe even going as far as building a business plan. Each investor does planning differently, but there are some basics to start with a solid foundation.

Cash or Financing?

One of the first decisions are how are you going to fund the investment. Do you have cash or access to cash or will you be using some sort of financing? Let’s start by looking at cash.

How much extra cash do you have beyond what you need for your current personal expenses and emergencies. You never want to put yourself in a position where your monthly bills are affected. This could ruin your credit if at some point you need to secure financing.

The best way to start is to write down all your expenses. This way to see exactly what it costs to live. Many people when budgeting write down mortgages, utilities, credit card payments, car note, phone, but fail to include food, gas, entertainment, clothing, insurance and other expenses that people spend money on each month. These need to be included, though they are not reported on credit, can also disrupt how you live if there is money to pay for them.

Once all the numbers are written down, you can see what you need to live and what you can use to invest. Some of the same planning needed for cash, will also be helpful regarding planning to use financing. You still may need cash to close on financing in the real estate investing world.

You will still need to have a budget of what you pay each month personally, but before you go and apply for financing, you will want to also look at your credit report. It is a waste of time if you apply for financing and then find out that that there are issues with your credit. There are many places online that you can pull your credit report. Find one or go directly to each main credit agency and pull from each – Experian, Equifax and Transunion.

If there are any issues when you pull your credit, handle them before moving forward with financing. Some of the issues that are common on credit reports are medical bills or past due school loans. You will need to pay off anything on the credit report or dispute it. A dispute can take around 30 days. If you pay off items, get them to email, fax or mail the paid in full statement so you can mail it off to each bureau it is reporting to. This too will take 30 days typically to get updated.

Once you have your budget, know what extra cash is available and your credit where you want/need it, there will be some paperwork needed (the amount and type will vary on the lender). Paperwork that is common are 2 to 6 months bank statements for personal and/or business, 2 years personal and/or business tax returns, and other asset statements (retirement, stocks, life insurance).

The financing companies will want to know about the property you will be financing. They will want to know purchase price, rehab costs, after repair value, and your exit plan. Most of this kind of financing will be short term, typically under 2 years. They will want to know if you are going to flip or refinance into permanent financing. All this is based on doing purchase and rehab properties. If you are buying a completed project you may just be getting permanent financing right from the start.

Depending on the financing company they may or may not want some of your cash involved in the deal. This can range from 0 to 30%. You will need to ask this upfront so you are not surprised at closing that you are coming to table with money to close.

Conclusion

This is the basic first steps to getting ready for becoming a real estate investor. Once you know what cash or financing you have available, you can then go after real estate that fits into your budget. We will cover more topics on preparing to invest in real estate in our blogs to come.

For more information, please visit www.MichiganInvestorTeam.com or e-mail us at info@michiganinvestorteam.com

Keep real estate investing fun by planning and preparing.

[michiganinvestorteam-blog]

Where are you investing in real estate? Know your property, numbers and goal.

Where are you investing in real estate?

 For most real estate investors, you invest in your backyard. A city close enough that you can see where your money and time is tied up. But some deals are not where you live, and may be hundreds if not thousands of miles away. Where you invest will be what you are comfortable with. Worst thing you can do is have the added stress of wondering about your project or money and not being able to check on it as you see fit. Real estate investing can be both fun and profitable if done right.

Below we will discuss the investors currently working in Detroit, Michigan.

Detroit and real estate investing

When you think of Detroit, for some they think of the automotive business, sports teams, and crime. It is a city that has been historic in many ways and has a stigma that is can’t shake loose. Like all major cities, it does have a fair share of good, bad and even ugly with people, business, and real estate. This does not mean that opportunities are not waiting for you. In fact, there are more opportunities than there are people to grab them, opening the doors for YOU, a real estate investor.

Currently real estate investors are coming from all over the world. It is not just local, or regional investors grabbing up anything from 1 to a couple hundred properties at a time to get their piece of this once again investors market. Overseas investors are beginning to be a daily part of those selling or representing real estate in the city of Detroit. It is a warm welcome that people see value in the city locally and now globally.

As a real estate investor, you have the eye for the ugly. You can see the gems hidden behind the broken glass, falling drywall, overgrown lawns, and possibly fire damage. Detroit has so many of these gems that people drive by each day and ignore. People want easy projects to invest in, but they are not always easy to come by for the right price to rehab and flip or even purchase and rent. Finding the right Detroit property that needs some TLC can help you acquire it cheap, put some money into it to bring it up to current market conditions and then flip or hold it, depending on your real estate investment goals.

Know your numbers, property and goals

Detroit is a gold mine with real estate, but you should do your homework. Let me show you what happened to someone who failed to do their due diligence:

An investor recently discussed with me a great deal they purchased for $1500. They showed me the pictures and I could see the potential of the property since I have invested in the same area. I asked what they were going to do to the property. To my shock, they said “I have not costed it out”. Based on the pictures, the house needed a full kitchen, both bathrooms, all new drywall and paint, flooring fixed, a furnace, hot water tank, partial roof and siding. I will assume that it also needed all new fixtures, electric outlets and many other miscellaneous items which add up. I said you need to invest around $35,000 in this house to get it ready. They did not like my answer and said, “I can do it for $15,000”.

I did not want to argue, but I moved on to the next issue I saw. A cash closing between two people without title company. I noticed this based on the purchase agreement and personal check copy on top of his notebook. I addressed this to ask if he checked taxes, water and title chain to make sure when they were done they could sell it without issues. Again, to my shock, the investor stated the house had $5000 in taxes owed and $1000 in water, but the seller said they would pay it once their check cleared (you only paid $1500). STOP RIGHT THERE….. that is a RED LIGHT that the seller will pay after they closed deal with a promise to do so. THE PROPERTY IS CLOSED AND THEY HAVE NO REASON TO KEEP PROMISE SO YOU JUST ADDED $6000 to your costs. So even if you can do it for $15,000 you are now at $21,000. Next issue was title chain. How did they get property to sell it to you? How do you know they had right to sell property?

Fast forward two weeks and I get a call about who I can use for quiet title. The property was purchased on a quick claim deed and there are issues with title (and water and taxes are still owed). Now the costs just went up $2500 to $3500 for a lawyer to handle this process and it could be up to 6 months before everything is complete if there are no claims against property. Now back to my main point…..

My main point is to DO YOUR HOMEWORK and do not be the person above and get a bad taste in real estate investing. You need to know your property and numbers (this includes knowing its future value, costs of rehab, taxes owed, water owed, and is the title clean). You should also check with local agencies to see what will be needed to start the rehab. Are there pre-inspection guidelines and fees? When doing your numbers, you want to try to get everything into your projections. Putting in a 10% buffer would also make sure you budget enough for anything that comes up along the way. If nothing comes up, great, but always plan.

Also, never close on a property without a title company. You want to make your that investment is yours and there are no liens, taxes, water or other items owed. When you get the property, you want clean title to ensure you can sell it or if you hold it and put money into it, your investment is 100% safe.

Taking a few extra steps or days to do your homework is never a bad thing. If the seller is pressuring you, you may want to move on. If they have another buyer lines up, let them sell. Most of the time this is just a statement to get you to feel obligated to sign and close so they get their money quicker. NEVER FEEL RUSHED INTO A DEAL. Know your property, numbers and goals before you get locked in.

Goals

As you look at your property and run the numbers, you will want to also know what your end goal for the property is. Are you flipping or are you holding for rental? Each have additional costs associated with them.

If you are flipping, you will have holding costs until sale, which is water, electricity, taxes, insurance and if you borrowed money, a payment. Include these in your budget costs. You will also have closing costs when you sell. You can ask your title company what these will be.

If you are holding for rental, you will have costs until it is rented. If you paid cash for everything, look at the going rental rates for the area and make sure you will be able to cover monthly costs of taxes and insurance, along with begin to recoup the money you put in. You do not want to be in a rental area that is getting $350 rent a month and put in $30,000 to find out taxes are $300 and insurance is $75 a month. You will not be able to recoup and make money that direction.  A real estate professional may be able to tell you going rates from the MLS.

Conclusion

Mitten Investor Group wants you to have FUN with real estate investing. Yes, we provided a scenario that was negative, but it was to show you to do your homework so this is fun and profitable. If you are like us, we get excited each day we wake up to e-mails from people wanting to buy or sell their properties. We also love the questions from investors looking for advice. Our team has been part of the real estate investing world in Metro Detroit for over 20 years as investors, Realtors, mortgage professional, and consultants. We see the good, bad and ugly, but know how profitable the real estate investing business can be if done right, with the right people and with homework and planning.

If you have any questions, you can reach us at info@michiganinvestorteam.com or visit www.MichiganInvestorTeam.com

We also offer property management so you can concentrate on your deals which we manage your properties.