In simple words, the rental property business is a business of acquiring property or real estate and then leasing out the property in exchange for monthly rents. You can rent out the whole property to one client. Or you can divide it into several separate units and rent out each part to different people. Therefore, it is a business of owning property and earning money in the form of renting the property.
You can start your Rental Property Business from scratch. Moreover, you can do this business from home also. However, before starting the business, you need a good idea about the business and follow certain important steps. You have to remember two important things: Do your research and homework thoroughly; give extra effort to provide quality service to attract more clients and subsequently more profit.
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.
12. Maintaining Your Property
It is very important to maintain the standard of your property in Rental Business. Make a move in and move out clause with the tenants and check everything properly before any tenant leaves. Apart from that, make a regular check of the condition of your property. If anything is damaged by the tenant, deduct the required amount from the security deposit.
Remember, the property is your investment and the capital. Therefore, you need to take very good care of it for the prospect of the business. Damaged property will not attract tenants and you have to incur further cost to rehab it.
These are the important points you should follow to start your Rental Property Business. It is a business with good income opportunities, as there are always demands the rented houses by different sections of the society from students to families.
According to IBISWorld, the Real Estate and Rental & Leasing Sector has done quite well in the last 5 years (2015-2020) and the expected growth in 2020 alone is 2.2%.
However, you have to remember that, you must consider this business seriously and leave no stones unturned to find new ways to improve the business and upscale it.
About the Author: 99businessideas.com led by Rupak Chakrabarty is committed to helping beginners, entrepreneurs, and small business owners in starting, managing, and growing their business. Our aim is to educate the entrepreneur on the various stages of entrepreneurship.