We’ll outline 14 steps for starting your own rental property company in this post.
As Antoine de Saint-Exupery once said, “Goals without a strategy are just wishes.” As a result, the best plans have earned a reputation for assisting people in every industry in achieving their own objectives, regardless of how high the bar may be. A well-designed strategy would be beneficial to every professional, and real estate investors are no exception. When learning how to start a rental property business, buy-and-hold investors in particular stand to improve their long-term outlook by establishing a rental property business plan.
A tried-and-true rental property business plan can aid in laying out the benchmarks and systems that investors need to succeed at a higher level. Thus, there is only one remaining query: what does a rental property business plan entail?
A number of insightful lessons can be learned from experience if you’re thinking about starting a rental property business. Here is a guide for creating a rental property business plan in the interim; it might be exactly what you’ve been looking for.
What is a Rental Property Business?
An investor may decide to buy and manage one or more properties that generate income through a venture called a rental property business. One or more of these properties may have apartments that are rented out to tenants on a monthly basis. Investors do not need to manage these properties themselves in order to have a successful rental strategy; instead, they can hire property management companies to handle the responsibilities typically associated with landlords, such as maintenance and rent collection.
A business or rental property?
Depending on who you ask, renting a home might be viewed as a business venture. There are at least two possible responses to this question, which may seem contentious. A residential rental property may generate passive income from a financial perspective. It is significant to note that when reporting their rental properties, investors are exempt from self-employment taxes. Therefore, many would argue that owning a rental property is not considered a “business,” specifically in the lens of tax filing. However, many people make their living from their rental property businesses; therefore, from a professional perspective, renting a house can be seen as a business. Managing a rental property portfolio as a business is entirely doable. Even so, those who own a single rental property might not require a business to generate passive income. Making the practice of renting into a business is only important once the portfolio begins to expand.
How to Start a Rental Property Business
To purchase and sell a rental property, no specific license is needed. Before you can confidently make decisions regarding both investments and property management, you will need to have a strong sense of business and a thorough understanding of real estate investing. You have two options for learning this information: enroll in a school that offers it, or work one-on-one with a mentor or other real estate-related professional who is willing to walk you through the steps and impart the knowledge you need.
1) Business Plan
You will require a written business plan now that you are certain you are prepared to launch your rental property business. A business plan for a rental property serves as both a road map for you to follow as you establish and expand your operation and a tangible justification for banks and investors to partner with you or lend to you.
A strong business plan will have the following components:
- Executive Summary: a broad summary of your entire business plan. What does success in this industry mean to you, and how do you intend to get there?
- Industry Analysis: What condition is the housing market in? How can local real estate research give you new perspectives? What potential investment areas do you see?
- Competitive Analysis: Are there any direct rivals for your company, and how will you set yourself apart?
- Marketing Plan: How will you find and keep good tenants for your properties?
- Management: What is your strategy for managing properties? Do you want to work with a property manager, or are you going to take care of all the upkeep and tenant issues on your own?
- Operations: In addition to the regular running of your business, how will you make sure that your properties are maintained? What about offices? Will you appoint staff members?
- Financial Plan: Do you know exactly how the rental properties you’ve proposed or are planning to rent out will help your business make money? Will the proceeds from your rental property cover your mortgage and then some? Do you have startup expenses? How do you intend to continue expanding and buying new properties over the coming years?
2) Business Structure
You must choose the best business model for you as part of your business plan. You can set up a variety of business structures for your rental property enterprise. These are:
- Sole proprietorship
- Limited liability Company (LLC)
Within some of these categories, there are additional options. Choose the business structure that will best serve your business objectives after carefully evaluating your options.
3) Business Name
On your website, brochures, business cards, and any other marketing materials you use, your company name will be visible. A solid business name is:
- Clear, simple, and memorable
- Easy to say and spell
- Relevant to your type of business (for example, you could include the word “rental property” in your business name)
- In line with your brand
To help you come up with names, use a name generator. Make sure the corresponding website domain and social media handles are accessible regardless of the name you decide on.
4) Ideal Clients
When it comes to buying real estate, it’s crucial to think about the types of clients you want to work with, but in this case, your ideal customers are your tenants. Who would you pick as your ideal tenant to have as a customer for life? Consider the following questions when determining your ideal tenant type:
- Do they represent residential or business clients?
- What is their annual revenue?
- What do they do for a living? What kind of business do they run?
- Are they only interested in renting, or do they hope to eventually own a home?
- Do they currently or previously own a home?
- What do they look for in a rental home?
- Are they a couple or a couple up? In a relationship?
- Have they got kids?
- Do they enjoy hosting parties or social gatherings in their rental property, apartment, or place of business? How often?
- Which social media sites do they utilize?
As you rent out your home and determine the kind of person who is actually the best fit, you’ll continue to define who your ideal tenant is. To target your ideal client, fine-tune your marketing strategy (which we’ll cover later in this guide).
5) Niche, Unique Value Proposition, and Branding
Are you looking to add only a certain kind of property to your portfolio? Then you’ve found your niche. Some niche examples include:
- Vacation rental properties (such as Airbnb)
- Luxury rental properties
- Multi-family rental units
- Single-family homes
- Short-term rentals
Although you are not required to have a niche, it can be helpful if you can spot a market opportunity or have in-depth knowledge of the particular property type you have chosen.
Unique Value Proposition (UVP)
In contrast to your niche, your UVP is more influenced by how you run your business than it is by the kind of property you own. What can you provide to prospective tenants that is so alluring that they feel compelled to get in touch with you to learn more about your properties?
When building a brand for your rental property company, you should describe who you are as a company and what your current and potential tenants can expect from your properties. Your branding should include:
- Color palette
- Mission statement
- Managing style
- Ideal tenant type
- Property type and style
- Design aesthetic
- Rental packages and special offers
Make sure your branding is consistent not only in your marketing but also throughout all of your rental properties.
Imagine that when a tenant chooses to rent from you, they are receiving your services. What are the advantages of renting from you as opposed to a rival’s property? What does the rent cover? The management staff is they receptive? Make sure these included services are prominently advertised in your marketing since they help to support your pricing.
When purchasing a rental property, location is crucial, as you are aware. But have you also given consideration to where your company is located? Or will you work from home? Do you need an office space? Work with a real estate agent if renting a space seems like the best option for you. Realtors can assist you in locating the ideal fit for your needs and financial situation.
In order to compete in the market, rental properties need to undergo a lot of maintenance and repairs. Your properties might require additional fixtures, equipment, and repairs before they are ready to be rented out. The cost of labor and materials must both be factored into your startup budget if you want to produce a high-quality product without breaking the bank.
To finance the entire cost of each of your properties, minus the down payment, which is paid out-of-pocket, you must be able to obtain a loan from a bank or other lender.
Prior to making a loan to you, your bank of choice will likely demand that you have certain insurance policies in place. They’ll also request a copy of your business plan so they can fully understand your repayment strategy for any loan you might receive.
In addition to the initial investment, ongoing expenses also play a role in your overall budget. These can include rent, property taxes, fees for accounting and law, among other things. Make sure your business plan takes all of this into consideration.
You need to have specific small business insurance plans in place as a new real estate business owner. All businesses must follow this. However, depending on the industry you are in, different insurance coverages may be required. You’ll need a specific set of regulations if you own a rental property business. Some of these policies may include:
- Workers’ Compensation: You must have workers’ compensation if you have one or more employees. If one of your employees gets hurt or ill at work, this type of insurance will protect you. Workers’ compensation used to be difficult to obtain, but nowadays you can do so online. With Huckleberry’s 60-second workers’ compensation calculator, you can quickly estimate your premium.
- General Liability Insurance: protects your company in the event that you’re ever held liable for personal injury or property damage.
- Business Property Insurance: safeguards your structure from significant damage. This policy also covers any fixed elements of your building, such as equipment that has been installed permanently. It excludes things that can be taken out.
- Business Owner’s Policy: A Business Owner’s Policy combines multiple insurance policies. Discover your anticipated business insurance costs with a quick and free quote from Huckleberry. Your Business Owner’s Policy might cover general liability and business property insurance, among other things.
11) Paperwork, Licenses, Permits, and Accounts
Your property is almost ready to be rented out, but you must first complete some significant administrative tasks.
- Register your business name: To find out how to register your business name, visit the Small Business Association (SBA) website.
- Get your Employer Identification Number (EIN): For your company, your EIN serves as the equivalent of a Social Security Number (SSN). Get your EIN as soon as possible because it has many advantages.
- Secure your business license: Check with your state to find out how to obtain a business license since each state has different requirements. Read your state’s regulations carefully as each property you rent out might require its own business license.
- Open a business credit card and business bank account: A business bank account helps you keep your personal and professional finances apart, which is crucial for tax purposes. A business credit card also guarantees that, in the event of an IRS audit, you can readily demonstrate your business expenses.
For any additional unique licensing requirements you need to satisfy, check with your local government.
Whether it’s a full-time, part-time, or contracted employee, you’ll probably need to hire someone. You will need the necessary documentation when that time comes. Online, you can quickly download important hiring documents like the W-4 and W-9. Never forget that your staff represents your brand just as much as any other aspect of your company. Make wise hiring decisions to make sure that your collaboration with them benefits everyone.
13) Marketing Strategy
You can ensure that all of your rental properties are always occupied by high-quality tenants by developing a solid marketing plan. Your prospective tenants can be contacted in a variety of ways. Let’s look at a few of the most common and successful marketing strategies.
When deciding whether or not to contact you to arrange a tour or even rent the property right away, potential tenants frequently start their search for your rental property on your website. Ensure that your website is responsive, quick, and designed with the user experience in mind. Visitors will only become discouraged by your site’s slow load times, out-of-date content, and confusing search functionality.
Work with a web designer, a copywriter, and an SEO strategist to create a website that presents your rental properties in the best possible way.
Email marketing is a fantastic way to stay in touch with prospective tenants who might have provided their information to learn more about a property but haven’t yet signed a lease with you. Create a series of newsletters or promotional emails with the goal of educating and gaining trust. As soon as you have any new rentals, you can advertise them. Your readers are more likely to want to collaborate with you in the future if your email marketing content is more beneficial to them.
Social Media Marketing
You can advertise your job openings on social media in addition to your business. With outstanding photography and illuminating captions, you can increase brand authority. Additionally, you can include ways for people who are considering a property to contact you.
Some major social media platforms to consider for your marketing strategy are:
You guessed it: Google My Business makes it easier for customers to find your business online. This is most relevant to Google local search, but when combined with an effective SEO strategy, it might also help you rank higher overall. Create a free account and fill out your company information to get started.
Word-of-mouth and Referrals
It makes sense to keep a good tenant once you find one. Moreover, you probably want to locate more tenants who are similar to them. Word-of-mouth and referrals are useful in this situation.
If current tenants recommend more prospective tenants to you, reward them with a perk. The month following a tenant is referred and signs a lease, a common incentive is to offer them a certain amount off their rent. Remember that you can harness social media for word-of-mouth as well, so encourage the circulation of your “available for rent” posts on all your platforms.
14) Additional Resources
The life of a landlord is hectic and full of arduous work. That occasionally makes life a little stressful. Check out these and other resources for real estate investing to keep you grounded, focused, and growth-oriented as you navigate the world of real estate.
- Small Business Monthly Checklist
- Investopedia’s List of 9 Essential Books for Rental Property Investors
- BiggerPockets: A popular networking site for real estate investors
- Property search engines such as Trulia and Zillow
Since you’ve reached the end of our detailed instructions, you’re one step closer to launching your rental property business. At this pace, it won’t be long before your first rental property is ready for tenants.
Why Write a Business Plan
As you learn to navigate the real estate industry, a well-written business plan will be beneficial in a variety of ways. Writing a business plan will help you define your objectives and overall mission in detail. It ought to state your motivation for beginning to invest. This will guarantee that you don’t lose focus as you choose your investments and eventually expand your company. Consider a business plan as a road map for the future.
When interviewing potential lenders, creating marketing strategies, and hiring new staff, a business plan is also very helpful. If you have a detailed description of what your company does (and how it does it), these tasks will be simpler. For instance, you’ll probably need to outline your business objectives to prospective investors when you start raising money for your first deal. The pressure can be reduced by using a business plan because the data will already be in writing. Learning how to write a business plan is a great first step if you are even considering starting a rental real estate company.
How to Write a Rental Property Business Plan
It’s one thing to launch a rental property business; quite another to master the art of business plan creation. Although they have a similar sound, the latter is essential to strengthening the former. Knowing how to start a rental property business should come before actually starting one, at the very least. As a result, investors will need to familiarize themselves with the most important steps first:
- Determine a vision and write a mission statement
- Set passive income and business goals
- Build a team structure that is conducive to success
- Gain a high-level overview perspective of the company as a whole
- Develop marketing systems and funnels tailored to a specific audience
1. Vision & Mission
The investor’s vision or mission must be emphasized more than anything else in a truly outstanding rental property business plan. When circumstances are less than ideal, the goals that an investor has for their real estate investments may act as both inspiration and a map. As a result, investors need to stop and consider why they are investing. Is it to enjoy retirement? Is it to spend more time with loved ones and friends? Is it either or both of these? Knowing their “why” will help investors build out a sound business strategy, one that gets them closer to their goals with every investment. As a result, those without a mission won’t know where to go, which is bad news for any business that manages rental properties.
2. Passive Income Goals
Goals for passive income are closely related to one’s own vision or mission and specify the amount of cash flow required to satisfy investors. Nevertheless, investors’ objectives for passive income ought to support their personal mission statement. Similar to this, if an investor wants to retire comfortably, they must set their passive income goals high enough to support their desired retirement. Although everyone will have different passive income objectives, a general guideline considers how much cash flow is required to uphold their preferred standard of living.
Goals should, as always, be reasonable and directly related to the reason an investor wants to invest. Overly ambitious goals may deter many investors, so they must be realistic. A powerful motivator is frequently the sense of achievement that comes from achieving a goal.
The most crucial of all questions—what kind of rental property will I concentrate on—can be answered with the help of your goals for passive income. What type of property? The best and most effective way to build a business is with multi-family; for better results, start at the end and work backward.
Many investors might assemble a staff when they begin a rental property business. After all, the adage “many hands make light work” is true. Investors are more likely to succeed if a larger group of highly qualified people have collaborated on a common objective. A competent real estate team can also help investors remove themselves from the equation and increase their passive income. Having said that, it’s not enough to hire any old person; the staff members must contribute something fresh. Investors should assemble a team that enhances rather than duplicates their skills. The team structure is more diverse and able to complete more tasks as a result.
4. High-Level Overview
Investors must consider a portfolio’s potential rather than just the prospects of a single investment property. While a single residence may generate enticing cash flow levels, a complete portfolio can enable investors to achieve financial freedom. Therefore, it’s important not to forget the “bigger picture.” Yes, start with one house, but your plans should naturally be expandable. Make sure that everything can be expanded to account for future growth when writing a rental property business plan.
A passive income investing journey does not begin with the purchase of a rental property. Investors eventually need to learn how to locate tenants in order to generate a profit. Investors will frequently depend on their property managers to fill vacancies. However, in the event an investor neglects to hire a property manager, there are various ways to find tenants, not the least of which include:
- Rental websites
- Social media
- Print media/newspaper
- Local bulletin boards
- Local Realtors
- Word-of-mouth marketing
- Direct mail campaigns
- Previous renters
Is a Rental Property Business a Good Investment?
If the net cash flow is consistently positive, investors will be able to determine whether a rental property is a good investment. Real estate investors with years of experience understand that in order to have a strong rental plan and business, they must first do their research and make sure that a rental property is actually a good investment. Investors can use a variety of measurements to get a sense of a property’s potential for profit. Use these 10 useful real estate calculators to help you as a real estate investor of any kind.
Features of Successful Rental Properties
To succeed, you don’t need to invent the wheel from scratch. Your business can be modeled after many prosperous rental properties. Here are some distinct features of profitable rental properties:
- Location: Real estate is always about location. A key factor in determining the kind of tenants you will draw will be the location of your rental property. For instance, you will inevitably receive applications from many college students if you buy a rental property near a university. Take into account the neighborhood and how it may affect the characteristics, actions, income, and vacancies of your tenants.
- Taxes: The property taxes you ultimately pay will depend on the location as well. If your property is situated in a desirable area that draws in high-paying tenants, paying high property taxes might be well worth it. However, if your finances aren’t sound, property taxes might become a burden. Contact the local assessor’s office to learn your property tax rate.
- Schools: You can get a better idea of the kind of tenants you’ll draw by looking at the ratings of the nearby schools. Rental homes close to prestigious school systems will help entice families willing to pay more for housing.
- Safety: Nobody wants to drive home in constant fear of their car being broken into or to walk home while looking over their shoulder. Search for trends in the local crime statistics. Even if it’s in a neighborhood that was previously known to be safe, a regular red flag could be an increase in criminal activity.
- Employment: Greater numbers of potential tenants can be attracted by a strong job market, which will help maintain a healthy demand for your rental property. Benefits like higher rental rates and lower vacancy rates could result from this. The local economy and amenities can benefit from expanding employment opportunities.
- Local amenities: Tenants are constantly attempting to strike a balance between cost of living and quality of life. You may have to deal with numerous competitive offers from tenants if your rental property is close to public transportation, shopping, dining, gyms, and entertainment.
- Economy: A good predictor of the performance of rental properties in a specific area can also be the local economy and future industrial developments. The neighborhood and tenant pool may both significantly improve as a result of the local infrastructure improvement. However, keep an eye out for obtrusive construction that might temporarily lower rental rates as well as brand-new housing developments that might increase competition.
- Rental rates: Make sure to look up the typical rental rate in the area. In order to determine whether owning a rental property in the area would be financially feasible, you can use this number to assist in your analysis. Don’t forget to account for expenses like mortgage payments, maintenance, repairs, and property taxes.
- Vacancy rates: If you observe that there are unusually many listings in the area, this may indicate that there is little demand and that the vacancy rate is rising. If an area is declining, you might not want to invest there.
How to Determine Rent
Typically, the best way to estimate rent is to look at nearby properties. Before looking at comparable units to see what they rent for, start by reviewing the typical rental rates. Pay attention to homes that have an equal number of bedrooms, bathrooms, and amenities. The best indication of what you can charge will come from this.
Another strategy is to use your loan repayment as a baseline and increase the rate to account for upkeep and repairs. Again, pay attention to the typical market as maintenance costs can vary greatly. In a college town, you might need additional space for maintenance on your rental property. However, if you already know who you are renting to, you may be able to leave less room for repairs.
The final price should remain within the price range of comparable nearby properties. The exact location of your property’s landing may, however, be up for debate. Just keep in mind: if you charge too little, you lose out on important income; if you charge too much, you risk vacancies. Please read our guide if you want more information about calculating rent.
Summary: Start a Rental Property Business
There are many reasons why people invest in rental property, including recurring rental income, property value growth, investment diversification, and tax advantages.
Real estate ownership has a lot of potential advantages, but in order to increase your chances of success, you should have a plan.