Content of the material
- 10 Steps to Start Rental Property Business
- 1. Research & Homework
- 2. Setting Your Target & Niche
- 3. Getting the Finance
- 4. Legalizing the Business
- 5. Marketing Your Business
- 6. Buying the First Property
- 7. Joining Real Estate Investor Club
- 8. Renovating your Property
- 9. Fixing the Rent
- 10. Making Contracts & Collecting Rents
- 11. Managing Your Finance
- 7. Look for seller financing
- Step 9 Build a team
- Use Seller Financing
- 7. Founder Coffee
- Avoid a Fixer-Upper
- Secure a 20% (or Larger) Down Payment
- 7. Airbnb
- 2. Leverage home equity with a HELOC or cash-out refinance
- Cash-out refinance
- Features of Successful Rental Properties
10 Steps to Start Rental Property Business
Now let us see the steps you need to follow to set up and run your Rental Property Business successfully
1. Research & Homework
Before you start the business or spend money on it, do thorough research on the details and trends of Rental Property Business. Find out what kind of properties have the greatest demand for rent or lease, what is the prospect for new players like you. Think of the scale of your business to start with. Whether you want to start with one property or multiple properties, or you want to rent out your house or a part of it in the beginning.
Another important thing is deciding on the area or locality where you want to buy the rental property. Before deciding on the area, do good homework on the demand for rented properties and the standard rate in that area.
2. Setting Your Target & Niche
The first and foremost target of your business is always earning profits and scaling them up gradually. In your rental property business, you have to set a target on your expected income, since this business involves an investment of money. If you can set your target specifically, you can plan accordingly and then at later phases scale up your business.
Set a niche for your rental property business. You can go for apartments and rent out to families on a time-based lease. Or, you can opt for short-term rents like Airbnb, where your property will be rented to tourists or people on business or professional tours.
3. Getting the Finance
For any business, arranging finance is the most important aspect. In your rental property business, you need to buy property, so you need a good amount of money for that. If you have your savings and investment, you can buy the property paying in cash. A cash purchase will give you more profits no doubt, but it will leave you without any reserve fund.
You can opt for a mortgage loan, where you will get a loan against your existing property mortgage. The advantage of this form of finance is that you can repay the loan from the rents you will be getting. After the repayment, you will be able to earn more profits. There are different forms of mortgage loans offered by banks and financial institutions. You can choose any of them.
In this respect, it is best to seek the advice of a financial expert who will guide you properly regarding this matter.
4. Legalizing the Business
After you have decided on the Rental Property Business and going one step further by taking the financial decision, you must take another important step. That is, legalizing your business. Form an LLC in the name of your Rental Property Business. This will provide you with the necessary legal protection and tax benefits. Moreover, in times of any crisis, your personal property will be protected.
You have to buy Landlord Insurance, to insure the property you are investing on. This insurance will protect your property from natural calamities as well as accidents.
5. Marketing Your Business
Marketing your Rental Property Business is the most important stepping stone in establishing yourself and earn profits. You have to make the existence of your property known to the prospective customers. Digital advertising in various property/rent-related websites like Zillow or Rent.com is an effective tool.
You can also advertise in social media platforms like Facebook, Instagram, or Twitter. Create a page in the name of your company and give a lot of pictures of the interior as well as the exterior of the property. Try to give some promotional offers like a special discount or a festival discount to attract clients.
Few Must steps to market your rental property business are listed below:
- Create a Website – Upload your properties and add a easy-to-use contact page
- Create promotional materials like flyers and brochure
- Create a Logo of your rental property company – Fiverr is a great place to get these jobs done at cheap prices.
Advertisements in print media are also effective since many people search the classified ad section of newspapers to find out properties for rent.
6. Buying the First Property
Buying your first property is a significant step of your business and hence needs time, attention, and research. Consider these facts while buying:
- See several properties before deciding on anyone.
- Select a property that is conveniently located.
- Find out a property that is much sought after for rents.
- Find out a property in fairly good condition, so that you need not spend much on renovation.
- Choose an area that is closer to your home, as you have to monitor it regularly.
7. Joining Real Estate Investor Club
Joining a Real Estate Investor Club will help you in your Rental Property Business in many ways. These clubs have many experienced and senior members. You can get a lot of important information and guidance from them. They will be able to give you effective suggestions on different aspects like fixing the rent, drafting the contract with tenants, renovation of your property, etc.
8. Renovating your Property
After buying the property, it is very important to renovate or rehab it. You have to do it before putting up the property for rent. The main aim of the renovation is to attract the tenants so that they agree to the rent and other conditions. You can do interior decoration, add some attachments or furnish it according to popular or trendy taste.
However, remember to do detailed budgeting of renovation, as you have to recover the cost incurred from the rents you charge. Don’t go for anything which is highly expensive and cannot be recovered through rent, as that will be a loss for you. If you are not sure of rehab ideas, you can consult an expert.
9. Fixing the Rent
The rent of a property depends on several factors like the city, location, size, and amenities offered by the property. Collect detailed information on the trending rent structure of the particular area, and fix the rent. To get more rent, you can elevate the standard of your property by adding different facilities while renovating it. In the case of short-term rentals like Airbnb, you can add some value to your property for higher rents.
10. Making Contracts & Collecting Rents
Remember to make a specific contract before renting out your property. Put the important clauses like tenure, security deposit amount, payment of rent on or within a fixed date, taking care of the property, restrictions, and many other things. Take the help of a property lawyer to draft a suitable contract covering the important points.
Make an organized system of collecting rents every month. You can physically go and collect it. For multiple properties, you can employ staff to collect the rent. In this digital age, online transactions are hassle-free and easy. You can go for online rent payment terms with your tenants. Give a reminder message before the specific time of payment and once it is made, send an acknowledgement-cum-thank-you message.
11. Managing Your Finance
Managing finance is the key to the success of your business. The Rental Property Business involves regular cash transactions and also regular expenses on various heads. Keep a thorough and detailed statement of both cash inflow as well as expenses. Make provisions for an emergency fund. Set aside a portion of your profit every month and invest it, so that you can scale up your business in a short span.
You can take the help of an accountant for keeping the accounts. You can also use any of the different accounting software available.
7. Look for seller financing
Another way to acquire property with no money down is with help from the seller.
The borrower repays the loan as specified in its repayment terms that are detailed in the formal agreement.
This works especially well with sellers who have no mortgage.
For example, this can happen when someone inherits a property and does not want to keep it.
For sellers that are willing to take on the role of financier, owner financing can help sellers move a home faster with sizable returns on their investment.
Step 9 Build a team
Employing employees and a support system to run your car rental business is an important step. You’ll need people to answer the phones, track your numbers, and maintain your car fleet. In addition, you’ll need to obtain certain types of insurance (like workers’ compensation and unemployment) in order to protect yourself from potential liability.
Your team can include :
- An accountant
- A mechanic
- A receptionist
- Management team
Building an advisory board can help you if your team is lacking. This group of people would be like mentors and act to answer questions or provide strategic guidance. They could also have experience in the car rental industry, or just running small businesses successfully for that matter- so look for them when needed!
Use Seller Financing
Seller financing is an excellent option for those who cannot pay cash upfront for their purchase. It is often used by buyers who cannot afford to purchase a property in cash but have the necessary funds to make monthly payments.
In this type of financing, the buyer and seller agree on an amount of money that needs to be repaid every month. The total purchase cost is paid off over a set period, such as one or two years.
If offering cash upfront is an obstacle for you, consider offering the seller some concessions. An example of a possible concession could be delivering larger monthly payments for a certain period to finance the transaction.
Seller financing can benefit those who want to become landlords but don't have enough money for a down payment or need time to fix credit issues before going through with a traditional mortgage.
- Pros – A future landlord might find seller financing advantageous because they do not have to worry about getting funding from a bank or other lending institution. This type of financing also offers landlords the opportunity to have more time to get their finances in order before taking over ownership of the property.
- Cons – While this seems like a huge opportunity for novice landlords, only a tiny fraction of all sellers are willing to take on the role of financier, typically under 10%. That's because the deal requires legal, financial, and logistical obstacles.
7. Founder Coffee
Every week, Founder Coffee hosts a different company founder, allowing you to meet the people behind the companies you work for. Jeroen, the Co-Founder of Salesflare, has sponsored Founder Coffee, which has included several guest speakers and entrepreneurs, featuring Intercom’s Co-Founder and Planable’s Co-Founder.
Jeroen takes us on a 52-episode trip into the life of a business entrepreneur (and counting). In the meantime, the podcast’s focus is on business lessons and advice for aspiring entrepreneurs; Jeroen also gives insight into the individuals behind what may appear to be a faceless corporation.
Guests discuss their own business experiences, what they’ve learned along the way, and their best advice. They will, however, have a broad conversation about life.
You can expect to cover a wide range of topics with Founder Coffee. The podcast is both motivating and approachable and ideal for anyone who has ever considered starting their own business or wants to learn more about their favorite companies. You might learn about a product, customer service, or even some of the most challenging difficulties business owners encounter daily. And it’s Founder Coffee’s ability to convey the other side that makes it so unique.
Avoid a Fixer-Upper
It’s tempting to look for the house that you can get at a bargain and flip into a rental property. However, if this is your first property, that’s probably a bad idea. Unless you have a contractor who does quality work on the cheap—or you’re skilled at large-scale home improvements—you likely would pay too much to renovate. Instead, look for a home that is priced below the market and needs only minor repairs.
Secure a 20% (or Larger) Down Payment
Investment properties generally require a larger down payment than owner-occupied properties do; they have more stringent approval requirements. The 3% you may have put down on the home where you currently live isn’t going to work for an investment property. You will need at least a 20% down payment, given that mortgage insurance isn’t available on rental properties. You may, however, be able to obtain the down payment through bank financing, such as a personal loan.
Airbnb is the mega-online marketplace that lets you rent out your home (or part of your home) for short periods of time. And you can use it as a low-cost way to get into real estate investing.
My wife and I regularly stay in Airbnb apartments when we travel because we love having our own kitchen and space. And we also recently decided to become a host by turning our basement apartment into a short-term rental that generates extra income.
For most of you, this strategy could be a specialized form of house hacking where you generate income from your home or part of your home. But you could also grow it into a real business that generates a part-time or full-time income.
>> Want to become an AirBnb real estate investor? Listen to this BiggerPockets Podcast episode with Zeona McIntyre, who uses short-term rentals to retire early. <<
2. Leverage home equity with a HELOC or cash-out refinance
Using a home equity line of credit (HELOC) or cash-out refinance to buy property is another financing option for existing homeowners.
If you own a home, you may be able to use your home’s equity for a down payment on your next place.
One way to do that is by borrowing cash secured against your home equity. Homeowners may be able to obtain a standard home equity loan, or a HELOC, to fund a down payment.
Using a HELOC, you secure a line of credit against your home, and then draw on it whenever you need cash flow. And you can begin paying the loan back with rental income.
The other type of loan that leverages your home equity is cash-out refinancing.
A cash-out refinance lets you refinance your mortgage for a higher amount than you actually owe. Then, you take that extra loan amount out as a lump sum of cash.
In this scenario, the money advanced to you by a cash-out refinance can be used to make the down payment on an investment property.
In other words: If you have enough equity in your current home, you may be able to start investing with no money out-of-pocket.
Features of Successful Rental Properties
You don’t have to reinvent the wheel to be successful. Many successful rental properties can serve as a model for your business. Here are some distinct features of profitable rental properties:
Location: Real estate is always about location. The location of your rental property will be a major determinant of the type of tenants you will attract. For example, if you purchase a rental property at the edge of a university, you’ll naturally get applications from many college students. Consider the neighborhood and how it could influence your tenant profile, behavior, income, and vacancies.
Taxes: The location will also influence the property taxes that you end up paying. High property taxes may be well-worth it if your property is located in a great area that attracts high-paying tenants. However, property taxes could be a burden if your financials don’t make sense. Find out your property tax rate by contacting the local assessor’s office.
Schools: The ratings of local schools will help indicate what type of tenants you’ll attract. Rental properties near distinguished school systems will help draw in families willing to pay higher rental rates.
Safety: No one wants to walk home while constantly checking over their shoulder, or living in fear that their car will get broken into. Check local crime statistics and pay attention to trends. A reg flag could be a stead increase in criminal activity, even if it’s in a neighborhood that was known to be safe in the past.
Employment: A hot job market can help draw in larger groups of tenants, thus creating a healthy demand for your property. This could bring in benefits such as higher rental rates and lower vacancy rates. Growing employment opportunities can also boost your local economy and local amenities.
Local amenities: Tenants are constantly looking to balance rental rates with quality and easy of life. If your rental property is located near public transit systems, shopping, restaurants, gyms, and entertainment, you may find yourself having to field competitive offers from many tenants.
Economy: The local economy and horizon of industrial developments can also be a good indicator of rental property performance in a given area. The resulting improvement of local infrastructure could vastly improve the neighborhood and tenant pool. However, watch out for noisy construction that could hurt rental rates temporarily, plus new housing developments that could put a strain in competition.
Rental rates: Be sure to research a local neighborhoods average rental rate. This number can help you conduct a financial analysis to determine whether owning a rental property in the area would be feasible. Be sure to factor in costs such as property taxes, maintenance, repairs, and mortgage payments.
Vacancy rates: If you notice that the neighborhood has an abnormally high number of listings, it could signal that demand is low and vacancy rates are up. You may not want to invest in an area that is on the decline.
Confidence isn’t simply a positive mood based on affirmations and “feel-good” mantras. Confidence, according to Webster’s Dictionary, is the “state of feeling certain about something.” Meanwhile, there may be no greater confidence-booster than a rental property business plan that comes to fruition. By mapping out your precise goals—and the systems you’ll employ to achieve them—you’ll find wealth-building objectives more attainable than you ever thought possible.
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