How To Launch And Grow A Rental Property Business

Individual investors account for nearly half of all rental properties. If you’re considering joining their ranks, here’s everything you need to know to start your rental property business.

Step 1: Do Your Research

To give yourself the best opportunities for success, you’ll want to research what goes into owning and operating a rental property.

Landlord/Tenant Laws

Every state has specific laws that govern the relationship between a landlord and tenant. These laws dictate the responsibilities of both parties, including specific maintenance requirements, upkeep provisions, and lease guidance. Before you decide about your rental property business, you need to be aware of what the law requires of you as a landlord.

The laws vary from state to state, but most states have laws regarding:

• When you can enter the property
• When you can raise the rent
• When you can evict tenants
• Reasons you can/cannot reject a rental applicant

Insurance

You’re probably already familiar with renter’s and homeowner’s insurance, but did you know that there’s landlord insurance, too? Talk with your homeowner’s insurance provider about your insurance options. Landlord insurance protects you against liability if your tenants or visitors are injured on the property and lost rental income and property damage. 

Real Estate Market

The real estate market can be volatile. Talk to a realtor about the rental market in your area, and ask which neighborhoods are most stable over time. Developing neighborhoods can be tempting, but there’s no way to know which ones will thrive and which ones won’t. Choosing the right neighborhood to invest in gives your business a solid foundation to grow on.

Step 2: Make a Plan

Now that you know what you’re getting yourself into plan for every detail you possibly can. 

Decide On Financing

There are two main ways rental property investors finance their properties:

Cash

If you have a large amount of money saved, you can buy your new rental property outright. Many sellers will give you a better price this way, and if you go without tenants for a while, you don’t have to worry about keeping up the mortgage.

Financing

If you don’t have the cash to buy a home outright or just don’t want to pay cash, you can obtain financing through a bank. Interest rates on rental property mortgages are often higher than residential mortgages. If you can’t find tenants right away, you have to find a way to pay the mortgage anyway.

On the other hand, your return on investment can be much higher if your only investment is a down payment rather than a whole house. A mortgage allows you to recoup your initial investment much faster than paying in cash.

Write a Lease

Don’t wait until you have a tenant ready to move in to prepare a lease agreement. Leases are complex legal documents that pack a lot of information into a few short pages. Save yourself some hassle and frustration by consulting with a lawyer or preparing a lease yourself long before you start looking for tenants.

Step 3: Start Small

Running a rental property business has a steep learning curve, so don’t overload yourself upfront. Starting small gives you the best chances for success.

Buy Your First Property

Choose a relatively inexpensive property to invest in at first, but watch out for fixer-uppers. Unless you’re experienced with running a rental property and very handy, run-down properties can cost you more money than they save you. Find something move-in ready so that you don’t have to go months without tenants (and therefore without income) while you make repairs.

Make Mistakes

No matter how much planning you’ve done, there will still be unexpected expenses and unpleasant surprises. These errors are easily manageable when you only have one rental property. As your business grows, the surprises become more costly, so making mistakes early saves you money in the long run.

Step 4: Grow

Before you know it, running a rental property will start to feel like second nature. Here’s what to consider when you’re ready to expand.

Acquire Additional Properties

Once your first rental property starts generating a profit, you’re ready to expand. Take the lessons you’ve learned (and the money you’ve earned) from managing your first property and choose an even better investment next time. Over time, buying new properties will get easier and easier.

Delegate Responsibilities

Managing one property and dealing with one set of tenants is fine, but what happens when you acquire more properties? Your responsibilities multiply, and suddenly it feels like you’re always dealing with something. Hiring a property manager allows you to stop worrying about what’s going on in your properties and focus on growing your business.

As with most things in business, you have to spend money to make money. Property managers can be expensive, but they save you a lot of time and frustration so you can get back to enjoying your life.