Is Real Estate Investing a business?

We spoke about mindsets in our last blog, and you must retain a business mind when trading in real estate as it saves you a lot of hassle, time and money, and let’s face it, we are all investing for financial gain. In today’s blog, I would like to talk about the business end of real estate investment and how to set it up professionally. I will also give you a few tips on how best to manage your business as a real estate investor, whether its a part-time or full-time business, flipping properties or holding on to them long term. The first thing I would advise is always keeping records, logs, and receipts when making any transactions associated with your property, especially when dealing with tenants. Log and record all your interactions with your tenants in case there are any disputes or legal actions down the line. Keep a file on each property and tenant you have in your portfolio, which protects you from any false claims or litigation. 

When I show a new tenant around a property, I make a video with my smartphone to record the condition of all fixtures and fittings at the start of the rental. This allows me protection if a tenant comes back and claims a fixture was damaged before they signed the lease. List out all the utility payments that the tenant is liable for and give a copy, so you have documentation to fall back on. Also, have warning letters drafted so that there is a transparent process in place in case you need to evict them for any reason. The same applies to any inspections that you do. Also, log when you talk to them and hand all papers to them, so they have no excuse that they did not receive them.

Housekeeping is another vital role to record. You will have expenses and don’t forget that your time is money, and this can all be deducted from your taxes at the end of the year. So keep all invoices of work you paid for with professional tradespeople who can certify and warranty the work they carried out, so a tenant can’t claim that repairs were not done correctly. This can save you a lot of trouble in disputes. I also track the visits I make to the property, hotel stays and all expenses, including transport incurred with the visit. These are all essential elements of running a real estate investing business. Prevention is always better than cure.

As you know, I own property in the US, and before the pandemic, I used to go there quite often. One question that I am asked all the time, especially from my Canadian investors wanting to invest in the US, is what taxes they are liable for. Well, that is probably the last thing you will have to worry about. But the tax process works the same as any business, so you must keep track of that. The second question that I get asked is, do I have to create a company? If you are Canadian and buying in the US, there are two ways to buy. One way is to set up in your name, and the other way is to set up as an LLC. If you are resident in the US, it is probably best to register as an LLC, but you can start as a personal trader and later, when you expand, set up as an LLC. 

The most crucial factor is to have a business strategy, like how you will raise money and what contingency plans you have, as there is always something to pay for at the start. You need to start earning money as soon as possible so have a business plan, follow it, move forward and think like a business. Keep track of everything you do, costs that you pay, and at the end year tax returns, you will not worry about receipts or deductions. This process will become apparent as soon as the year ends, depending on the transactions you have made. I hope these tips will help you get started on the right road, and I look forward to talking to you again next time on the blog. 

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