A complete guide for starting a rental property business
What business does one start when they don't have any professional skills to cash on? Well, it depends? Are you good with managing logistics? A rental property business can be a great idea. This is especially a great way of earning if you're retired or have extra properties in desirable locations.
However, it is not necessary to own property to be able to start a rental business. You can start a rental business without owning real estate as well. But, it's not like starting a rental property business is child's play if you figure out the property aspect. Here are some crucial factors that go into the making of a rental property business.
Key Factors for your Rental Property Business
These are some key factors that can guide you through how to start a rental property business from square one:
1. Identify your Asset Criteria
As an investor, if you are willing to invest in some properties and want to start a rental business, then firstly set criteria that will help in identifying your asset. These criteria consist of critical aspects about how you will operate your business. Let's consider an activity; this activity contains a set of questions. You need to ask these questions yourself and answer them honestly. With these, you can finalize your assets and proceed to work on how you want to use them. To set up any rental property business like townhouse rental properties or apartment rental properties, answer the questions listed below:
- What asset should you own, like an apartment or townhouse?
- How many blocks or units do you want to own?
- In which location are you willing to buy the property?
- What's the current market situation for your rental properties?
- What's your budget for purchasing these rental properties?
2. Shortlist Properties
As of now, you have considered finalizing assets based on the above-described asset criteria. Let's proceed further by shortlisting properties and their specific suitable locations. It is recommended to start shortlisting multifamily properties. Shortlist a few multifamily properties to understand which properties have more potential and are profitable for your rental business. If you cannot find your desired space, you can approach skilled professionals who will analyze your asset criteria in depth.
As per your requirement, they will start looking for potential properties at suitable locations that are feasible from a business perspective. Additionally, if you don't have that much time to spare, professional help can be great to stay on track about the potential impact of starting your rental townhouse or apartment business. You can even search for some potential properties at specific locations yourself, but it's risky if you miss out on some critical aspects or details about the paperwork of those properties. It's better to opt for brokerage firms/professionals that will guide you throughout to finalize your rental properties.
3. What’s your Business Plan?
Having a business plan is crucial! Your business plan becomes all the more essential for a rental property business. There are several legal aspects involved. Thus, having everything on paper is a great option.
Your business plan must include particulars about your properties, clauses of rent agreements, prior formalities that need to be discussed, and much more. This will be not only a blueprint for your business operations but also a reference document for communications with clients. Check out this Rental Property Business Template to make an efficient business plan.
4. Designing and construction of layouts
After finalizing the location and property, the next factor is how your property will actually be in terms of layout and design. A lot of people extend rentals as they are and miss out on a great business aspect. Most tenants look for fully furnished homes. Hence, considering interior design, decor and furniture can make all the difference. If you're looking at property that needs construction from scratch, there are even more factors to consider.
Think of what all facilities can be provided to the tenants to source a potential monthly rent? You can check for amenities and accordingly plan to facilitate a variety of services. Think of tenants as families or without families. If it's a family tenant, then you can consider a yoga or meditation space and lounges for a quick chit-chat for an extended property space. For single or independent tenants, you can consider facilities for home office space, a small gym, etc.
5. Accomplish Renovations
If you purchase an existing property, you must renovate and upgrade it a bit for better impact. If you invest a bit in renovating the apartment house or townhouse complex, you can hike monthly rent, and for a good reason! While it might seem manageable, good renovations for large spaces are best left to professionals. How about approaching construction and renovation management professionals?
Renovate the existing space, design new furniture, and creating innovative upgrades that will attract tenants to sign up on a monthly rental basis. Often, there are possibilities of last-minute changes in construction and renovation projects. Hence, you should prepare yourself accordingly, so it doesn't delay your work and also doesn't affect your budget.
6. Find a Contractor
While the design and amenities are one aspect of rentals, larger properties have extended requirements. If your rental business expands across an entire building or a community-type space, external construction can make a huge difference. You can approach an experienced contractor to visit the property location. Contractors with cutting-edge ideas and due experience can handle the intricacies of adding new amenities and an improved look to enhance your property.
Get experienced architects on board to plan the look of your rental property. You need a general contractor so that you can hand over the contract for planning creative aspects. You also need to consider designing flooring, estimating the number of units of particulars, etc. Utility providers, landscapers, maintenance and repair teams, and complex managers are needed to build full-fledged rental apartments or townhouses. Early on, collaborate with the best contractors and vendors to turn your imagination of a rental property business into reality.
7. Rental Property Management
Once your property is all set to put out on rent, different management issues take center stage. Rental Property Management involves hiring someone who will manage the rental property, keep it in good condition and keep track of timely payments. If you're going to be too bust to manage the rental property, hiring a manager is a stress-free option. To ensure an appropriate workflow, get a system in place before handing over duties. You can form your system by answering these questions:
- Who will interact with tenants and explain the details?
- Who will be responsible for performing maintenance and repairs in case of urgency?
- Will you be able to handle all the responsibilities beginning from contacting tenants to water supply, maintenance, etc.?
A lot depends on your budget and time. If you have time and your budget is less, then keep the major responsibilities to yourself. For a townhouse-type rental, this is not always possible. In this case, you can hire a manager or even an extended team for robust rental property management.
8. Handle Troubleshooting and Loopholes
After setting up your new townhouse or apartment(s) to lead a successful rental business, you need to look into future plans and covering all loopholes. With rentals as a service, a lot can go wrong with an ambiguous clause or the lack of one. Plan to protect tenants from threats and yourself from unclarified situations on paper. Do you have any backup plans ready for emergencies? What happens in the case of a natural disaster? What happens when a tenant gets into legal trouble with housing?
Water and electricity supply issues, financial losses, property damage, and several other aspects need to be a part of your rental agreement before tenants can begin their stay. Planning for troubleshooting is a must to handle such circumstances. It ensures that you continue to provide prompt services to your tenants while also covering security grounds for your business.
Thus, a rental property business has more factors that you need to take care of than you'd think. It is always better to stay on top of your plan to ensure no loopholes are left out. Managing your property, addressing grievances, and ensuring your business stays afloat needs you to be prompt with all aspects from the beginning.
A full-fledged rental property business is quite different from simply renting or selling out your existing apartment for some profits. If you want to go all out, then property design, construction aspects, amenities, and other provisions will count to help your business prosper. A larger property with multiple tenants or multiple properties is also an option. At Upmetrics, you can find a variety of business plan templates to track each aspect minutely and start out being fully prepared for your rental business.