The rental property business is booming. Anybody that has been in real estate knows of the truly passive lifestyle that the industry offers.
An increase in population and technological innovations has seen land appreciate at an unprecedented rate. As such, land developers stand to reap one of the biggest returns on their investments today. The industry is as ripe with opportunities now as it was 10 years ago, and anyone looking to start a property business couldn’t have made a sounder decision. The only catch is that you pursue this venture the right way. Real estate requires patience and can quickly become delicate if you have never done this before.
Fortunately for you, others have pursued this entrepreneurial endeavor and have laid out bread crumbs for you to follow and learn from. Here’s what you need to know about starting a property business in 2020 and becoming a successful property owner;
Conduct the necessary research
It pays to understand the fundamentals and the laws that surround the rental market before you pour your hard-earned money into it. Take a minute or two to think about the venture that you’re getting yourself into. Calculate the returns that you expect to receive from your investment. Will the time and efforts that you put into this business be worth these returns?
Note that starting a business from scratch requires continuous efforts. To grow a property portfolio is not for hobby entrepreneurs nor the faint-hearted. You’ve got to develop a property owner mindset.
Joining a real estate investor club is one of the best ways to network and connect with professionals that are most likely doing the same thing as you. You never know who among the people that you meet could help you advance your property business plan.
Draft a rental property business plan
The rental business is not a “get rich quick” scheme. It is no different than any other business. To steer it to the point that it becomes a property generating machine demands perseverance and a suitable business plan. Whatever your reasons for starting your property venture, determining your goal and setting your expectations will help you achieve them faster.
A proper business plan should constitute the following:
- Your vision and mission
- Clear cut passive income & business goals
- A team structure
- High-level overview/ expansion goals
Figure out financing
Property investors have a reason to smile following the springing up of private and hard money lenders that have risen to replace traditional banks in giving loans.
With these alternative lenders, you can receive the money that you need a lot faster than if you went to a bank. Of course, these fast processing times and lenient terms are accompanied by higher interest payments. A small price to pay for these perks.
Location, location, location
There isn’t a bigger determinant for the success of a property business than the location in which it has been set up in. The location determines everything from the property’s long-term potential to its demand and price. Therefore, a genuinely proper business plan will ensure it answers the following questions and many more like them:
- How distant a location am I willing to build in?
- How much is commuting and market research likely to cost me?
- What is the average market cost for property acquisition?
- What is the average rental price?
- How is the surrounding environment likely to support my investment?
- How secure is the location?
Understand that startups run best when you’re present. Hence it’s better to research the local housing market first before you consider other options.
Choose a market & acquire the property
At this point, you should decide who you’re going to serve. Only then can you figure out the type of property that will best serve their needs.
Never be in a rush to close a deal, especially when it is your first rental property. When you feel you’ve landed the right deal, run the numbers on the investment property before you purchase it. We’re talking cash flow and expenses. The cash flow consists of the rent that you will collect from your tenants. The expenses are mortgage payments, startup costs, insurance premium, taxes, vacancies, maintenance costs, and marketing.
If the numbers are straight, go on and purchase the property. Don’t shy away from negotiating. You never know how much of a discount that can get you on the deal.
Nowadays, leverage has made it possible for Landlords to acquire property if they don’t have enough cash at hand.
Remember to incorporate your rental as a Limited Liability Company as early as you can. Considering that you are just starting your business, don’t rule out the possibility of something going amiss with the tenants. Hence incorporation saves you from any personal liability.
Practice common property ownership practices
Rehab the place
A property is only as good as its capacity to continuously hold tenants. And tenants will only rent a home in amicable living conditions. If you purchase a property that needs refurbishing, you can begin by maintaining the landscape, working up the interiors, and solving the neighborhood issues. This makes the rentals more appealing to customers.
Self-manage or outsource the help
A property venture runs like any other business; with daily chores to perform. If this work becomes a lot to handle, it helps to enlist the services of a property manager. At the very minimum, a property manager will handle everything; from registering tenants to collecting rent. Meanwhile, you’re free to undertake more critical tasks such as adding more assets to your portfolio and managing the finances.
Determine the right rent
Now, you can’t afford to go wrong here. Price your rent too high, and you risk having a vacant property. Price it too low, and you’ll be losing out on valuable profits. To determine the appropriate rent for your property, you can always compare the rates of similar ownerships in the area. See if these numbers fall between the standard 0.8%-1.1% of the investment property value. Then set your rental price accordingly.
Market your rental property
A property is only useful to you if prospective tenants know about it. You can get the word out of your place through;
- Rental websites
- Social media
- Local bulletin boards
- Print media/ newspaper
- Direct mail campaigns
- Local realtors
Plan financial management
You’ve done all the heavy lifting and have finally started to receive monthly cash flow. Phew! That’s quite a feeling! You must systemize your operations in a way that lets you manage the finances of your property business effectively. Keep accounts of the monthly cash flow and expenditures, and future expenses too.
Also, the right financial management lets you scale up your property business to a much bigger portfolio.
When all’s said and done, the key to a successful rental business is dedication. Dedication to serving people, and to grow yourself.
Above is a workable approach to growing your property business from scratch in the coming years. Attend to each point with confidence, and you’ll find your wealth-building objectives more achievable than you thought possible.