You’ve probably been hemming and hawing about making your next career move and starting an independently owned and operated real estate investment business for some time now. There are lots of perks. You get to be your own boss, make a difference in your community, and you can place yourself in a good financial position for retirement. I’m not going to sugarcoat it, though: beginning a real estate investment company in New York takes a fair amount of knowledge and effort. But that’s precisely where you can benefit from a comprehensive step-by-step guide.
Laying the Foundation
Know your industry.
Real estate investing is a unique business and there’s no shortage of “gurus” who want to tell you how it works. I learned from the school of hard knocks when I first started investing. Believe me when I tell you to skip the best-selling books, overpriced seminars, and paid-by-the-hour “mentors.” I found that the best real estate investment training for beginners was available through HomeVestors®.
The HomeVestors curriculum is comprehensive, covering critical aspects of buying and selling investment houses, from contract to close. Over the course of the week-long training, new franchisees learn about marketing tools for investors and lead generation with the “We Buy Ugly Houses®” brand.
Identify insurance needs.
You may not have employees when you first start your investment journey, but you will still have insurance needs. We find many of the best deals in transitional neighborhoods around New York, so securing and insuring your investment property is particularly critical in this type of area. Even if you purchase an investment property in a more stable neighborhood, New York City real estate is still at risk of damage from natural disasters. Find a few reputable property insurance brokers and take the time to learn about what type of coverage is necessary to protect against the hazards we typically experience in the northeastern United States.
When you purchase your first investment house, you’ll want to hit the ground running with a rehab project. Only then can you get the property back on the market so you can sell—and hopefully, achieve your goal of turning a profit. This means it’s wise to spend some time researching local real estate agents, contractors, and vendors in an effort to determine who has the best reputation. Be sure to avoid the risky decision of hiring an uninsured contractor. While their prices may be a bit lower, the high risk of financial loss typically cannot offset any potential gain.
Building the Business Structure
First, you need to decide what type of property interests you as a buyer and investor. Buying distressed houses in New York provides the lowest business entrance barrier and can deliver the best returns; this makes distressed properties a favorite amongst new investors. If you decide to pursue this avenue, you’ll want to consult with a legal advisor to choose an appropriate business structure—sole proprietorship, LLC, S Corporation, etc.—that suits your objectives. This will have a major impact on ownership, liability, and taxability (as well as tax deductions!) for your business.
The New York City Department of Small Business Services can connect you with attorneys who will provide free one-on-one advice to guide you in the right direction. It’s precisely what you need to get your business off to a strong start. Once you have determined your business structure, an attorney can also help you file the correct forms with the Department of Corporations for New York state. Here are a few of the forms that you’ll need to get an idea of the current task scope.
Forming an Organized Business in New York
|Business Type||Required Form||Filing Cost||Additional Fees|
|Business Corporation||Certificate of Incorporation||$125||Minimum $10 for tax on authorized shares|
|Limited Partnership||Certificate of Limited Partnership||$200||$50 for a Certificate of Publication|
|Limited Liability Company||Articles of Organization||$200||$50 for a Certificate of Publication|
Register Your Business
The process of registering your business in New York will vary according to which legal structure you choose.
If your business is a sole proprietorship or general partnership operating with a fictitious name, you will need to file a Business Certificate, otherwise known as a Certificate of Assumed Name. You can find the required form on the New York Department of Corporations website or at your local county clerk’s office. Please note that some counties will require you to get the form notarized and submit multiple copies.
For corporations, limited partnerships, and limited liability companies that intend to do business under a name that is different than the one formed or incorporated under, you will also need to file a Certificate of Assumed Name with the New York Department of State.
Business Types and Where to Register
|Business Type||Required Form||Where to File||Filing Cost|
|Sole Proprietorship/ General Partnership||Certificate of Assumed Name||County Clerk’s office in the county your business is located in.||$100-120 depending on the County|
|Corporations/ Limited Partnerships/ Limited Liability Companies||Certificate of Assumed Name*||NY Department of State||County-specific fee of between $100-120 plus state filing fee of $25.|
* File only if specific criteria are met.
Create a Governing Document
While you don’t have to file the governing document with the Department of State, limited partnerships and limited liability companies will have to publish a weekly notice in a local newspaper that has been designated by the county clerk. This publication must currently appear weekly for a period of six weeks. Business corporations must create a governing document, but these companies are exempt from the publication requirement.
Required Governing Documents for Each Business Type
|Business Type||Governing Document||What it Covers|
|General Partnership||Partnership Agreement||
|Limited Liability Company||Operating Agreement||
Apply for a Federal Tax Identification Number
With almost all business structures—except sole proprietorships with no employees—the owner can use his or her social security number for tax purposes. You can fill out the “Application for Employer Identification Number,” or IRS Form SS4, online or print it out, then submit via fax or mail. Applying online currently provides the fastest turnaround, but faxing the form will get you a response in about four days. Expect to wait 30 days to hear back if you choose to submit via mail.
Understand Local Building and Renovation Policies
New York has a labyrinth of laws and policies governing local business activities. You’ll want to brush up on the rules about getting permits for rehabbing a house, the taxes and other costs involved in selling New York properties, and ordinances surrounding business activities.
Moving Toward Your Future
Access a mentor.
Many new investors turn to their local investing groups to establish mentor relationship and seek the guidance they need to succeed in this hyper competitive niche. These groups and clubs can offer a wonderful opportunity to swap local investing anecdotes, discuss news and make friends with others who enjoy the same career path. But it is often difficult to find a mentor who is willing to make time to take you under their wing. They’re busy running their own businesses after all!
This is where HomeVestors® franchisees have an advantage. Each new franchisee is paired with an experienced and dedicated Development Agent who is familiar with their market region. They can help you evaluate deals, strategize throughout the lead generation process, in addition to helping you refine your communications with prospective home sellers.
Find your first investment opportunity.
This is one of the most challenging aspects of real estate investing—and lead generation in New York City can be especially competitive. It’s possible to spin your tires for months buying lists, sending out mailers, or managing drip email campaigns. You can up your game significantly by aligning your business with HomeVestors’ nationally known and trusted brand, “We Buy Ugly Houses®”, that drives active marketing to create inbound leads.
Buy a house!
Of course, before you whip out your wallet, you’ll want to evaluate the property. Be aware that in New York, sellers may not always disclose known property defects. That’s why you’ll need a home inspection to save you from a money pit in disguise. Once you know what you’re dealing with, you can use property valuation tools for real estate investors such as HomeVestors proprietary software, ValueChek®. This system allows you to input regional and property data and based upon this and other data, the program will generate an estimate of renovation costs and a recommended target price.
1031 Property Exchange.
There are a number of investment strategies to defer the capital gains obligations that your real estate investments may incur. For instance, you may consider rolling over the taxes with a 1031 exchange and buying another investment property. The right investment strategy can result in significant savings both in terms of time and money.
Renovate and sell.
Some houses will need just a little cosmetic work, while others will require a top-to-bottom overhaul. HomeVestors Development Agents help mentor their franchisees to watch costs while managing their renovation projects to help them realize an optimal return-on-investment when they sell.
Diversifying Your NYC Real Estate Investment Portfolio for Growth
Each real estate investment poses a unique set of risks and returns. Savvy investors focus on the relationship between investments rather than just a single transaction. This helps to give you the insight you need to make business decisions that deliver the maximum expected return for the given level of risk. Since the real estate market is always in flux, you’ll want to have a variety of investment opportunities and available exit strategies at hand. HomeVestors can provide the right training and support to help you grow toward your goals. We invite you to reach out to HomeVestors today to learn more about how we can help you achieve your career goals as an independently owned and operated HomeVestors franchisee. Give HomeVestors a call today!
Each franchise office is independently owned and operated.