How To Start A Rental Property Business Like A Pro

Key Takeaways

  • A rental property business involves the purchase and management of income-producing properties.
  • Investors interested in passive income properties should first start with a rental property business plan.
  • Learning how to launch a rental plan is similar to starting any type of business.

As Antoine de Saint-Exupery once said, “A goal without a plan is just a wish.” And as an investor, if you’re branching out into the rental property business side of things,  there may be no better way to make that wish more realistic and viable than creating a rental property business plan.

That’s because a business plan can help you lay out the systems and benchmarks you need to implement, as to help you find success with your passive income investing. That said, only one question remains: what does a rental property business plan look like?

Here’s a five-step strategy to developing a bullet-proof rental property business plan and help you take a much bigger step in your investing career.

What Is A Rental Property Business?

A rental property business is a venture through which an investor will purchase and manage one or more income-producing properties. These properties can have one or more units that are leased out to tenants in exchange for monthly rental fees. Investors can have an effective rental plan without having to directly manage these properties; property management companies can be hired to carry out the duties often associated with landlords, such as rent collection and maintenance.

[ Want to own rental real estate? Attend a FREE real estate class to learn how to invest in rental properties, as well as strategies to maximize your cash flow and achieve financial freedom. ]


How To Start A Rental Property Business

Learning how to rent out properties is just like learning how to start a business. You will need to identify sources for financing, network, conduct research, find resources, and identify your target market and niche. Below are some tips to starting a rental property business:

  1. Use your existing property for financing. Unless you have access to a private money lender, or one of the lucky few who can offer an all-cash payment, leveraging your existing property as a source of financing may be a good option. You can either use the equity of your current property as a down payment, or you can rent out your existing property while you relocate to a new one, such as a multi-family establishment
  2. Join your local real estate investing association. Joining your local real estate investing club or association provides networking opportunities, where you may encounter a business partner. Partnerships help to decrease your own out-of-pocket costs while splitting up risk. When networking, the worst that can happen to you is encountering other industry professionals who can give you insightful advice.
  3. Research common repair types and interview contractors.Becoming a landlord means you will be responsible for maintaining the appearance and function of the rental property for its tenants. Whether or not you are a handyman, it is helpful to be aware of common things that tend to go awry in a rental property. Start interviewing contractors, plumbers, electricians and the like to develop working relationships so that you are prepared.
  4. Set up a rental system. There are many rental plan options for landlords, such as specializing in low-income neighborhoods or university towns. Alternatively, they can choose to specialize in higher-income, urban neighborhoods. Different strategies require different skills sets, so landlords may find better success if they pick a niche in which they specialize. However, regardless of the niche, landlords will need to set up a system for running applications, credit and background checks. In addition, they will want to create rental agreements, and familiarize themselves with local landlord and tenant rights.

Am I A Rental Property Business Owner?

Renting a house is considered a business, depending on who you ask. This may seem like a controversial question, and there are two answers to this. From a financial standpoint, renting a residential property is considered as passive income. Investors do not have to pay self-employment taxes when reporting their rental properties. In this sense, renting properties is not considered a “business” specifically in the lens of tax filing. From a career standpoint, however, many individuals make a full-time living from passive income. As you may have gleaned in the section above, renting properties can be equated to a fully fledged business operation. In this lens, renting a house can be considered a business.


How To Write A Rental Property Business Plan

    1. Set your passive income investing goals
    2. Choose the right rental property market
    3. Determine your expenses and sources of financing
    4. Develop marketing strategies
    5. Manage your rental property business yourself or hire a property manager

Set Your Passive Income Goals

Investing in rental properties is about more than finding tenants; it’s about establishing, as early as you can, what your expectations are for your rental property business (and how much time and energy you have to devote to your passive income venture).

This means answering questions such as:

      • How much monthly passive income do you hope to earn?
      • How much time and money you can invest?

Remember, your goals should be realistic and directly related to the amount of time you can invest and cash you hope to earn. If you’re starting out on a part-time basis, it’s okay for your goals to be less ambitious than when you have vast reserves of time and financing at the ready.

Drawing a line in the sand will help you answer the most important question of all: what type of rental property will I focus on? Residential? Commercial? Multi-family? Start from the end result you want, first, and then work backwards. It’s the best, and most efficient, way to build a business.

Choose Your Market

Where to plant your rental property investing flag can often be more important than how much capital, or experience, you bring to the table. And while there are a variety of factors at play, generally you want to answer questions such as:

      • How distant a market am I willing to invest in?
      • Do I have a team in place to handle the day-to-day, or will I have to commute back-and-forth?
      • How much will commuting and market research cost me?
      • How stable and diverse is the economy in a market? Are there various business sectors that can help keep jobs and businesses? Or is there one main employer?
      • What’s the average market price for property acquisition?
      • What’s the average rental price?

You don’t have to live in a market to invest in a market. But it does mean you need to know a market, and ensure the numbers work for you.

Figure Out Your Financing

This is probably the number one hurdle rental property investors face, and a big form of investing stress. But by nailing down exactly how you’ll pay for all elements of your rental property business, you’ll bring some clarity and peace-of-mind to your venture.

Your business plan should lay out:

      • How much money you’ll need to get started
      • How you’ll raise financing, if you don’t already have it
      • How much rehab construction cost you should budget for
      • What you expect the monthly expenses to be

The good news: this part of your business plan will quickly point out any loose ends that need tending.

Determine Your Marketing Strategies

Buying a rental property is just the first step in your passive income investing journey. At some point you have to figure out how to find tenants to bring cash flow in. Though there are various ways to find tenants to rent your properties to, some of the most common ways include:

      • Rental websites
      • Social media
      • Print media/newspaper
      • Local bulletin boards
      • Local realtors
      • Word of mouth

Again, the specific marketing channels you use will depend on your market. But the more specific you can get with your marketing channel projection, the better able you can budget for marketing costs and prepare to hit the ground running.

Manage Your Rental Property

Managing a rental property is about far more than just hiring a property manager. It’s about figuring out exactly what systems you’ll put in place to keep your rental properties in good shape and the cash flow coming in.

This means answering queries like:

      • Are you going to be a landlord? (Or will you hire a property manager?)
      • Who will find and select tenants?
      • Will you perform repairs to maintain property? (Or hire a contractor?)
      • Who will perform yard maintenance and other duties?

Your answers will depend on your budget, and available time. The key is to use your business plan to map out all management systems beforehand and ensure there are no last-minute surprises.

Is A Rental Property Business A Good Investment?

You know if a rental property is a good investment, at a most basic level, if your net cash flow remains consistently positive. Seasoned real estate investors know that in order to have a solid rental plan and business, they must first mind their due diligence and ensure that a rental property is indeed a good investment. There are several measurements available to help investors get an idea of the profit-making potential for a property. Make use of 10 real estate calculators that are helpful for any type of real estate investor.

Confidence isn’t just some “positive” mood, based on affirmations and feel-good mantras. Confidence, according to Webster’s Dictionary, is the “state of feeling certain about something.”

And when it comes to progressing on your passive income investing goals, there may be no greater confidence-booster than a rental property business plan. 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.

Do you have experience setting up a rental property business? Share in the comments below:

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Real Estate Investing Strategies
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