Are you looking for advice on how to start a rental property business? Congratulations are in order, as this is one of the best business ideas in today’s market circumstances. According to Statista, from college students to retirees, most Americans find renting preferable to buying a home. Catering to their needs is a smart move, and several stats support this conclusion. Let’s review some of the most important ones below.
U.S. Rental Market Stats or Why You Should Invest in Rental Property
- The demand for house and apartment rentals has been rising throughout the last few years.
- The monthly median asking rent has been increasing as well, by approximately 50% from 2007 to 2017.
- Rental vacancy rates have been decreasing consistently, from 40% in 2009 to only 26% in 2017
- Developers have shifted their attention from affordable rental units to more expensive ones, thus creating a gap in the market
- Most American renters prefer single-family homes and apartment buildings with a minimum of five units.
- In 2017, approximately 50% of renters were under 30 years old.
- Nearly half (48%) of millennial parents expect to cover their children’s rent expenses.
Now that you know you have a great investment idea, it is time to see how you can put it into practice. To make sure you receive all the information and advice you need, I will assume you start from scratch, with no previous experience in real estate and little to no funding.
11 Beginner’s Tips on How to Start a Rental Property Business
1. Know the market, the details of your plan, and the implications of putting your plan into practice
It is one thing to have a great idea and a completely different thing to put it into practice. That is why, before you invest time, effort, and money into your idea, you need to make sure it is realistic and worth pursuing.
Pro Tip: Answering the following questions will help you come up with an answer.
Q: Would you like to invest in rental property as a business opportunity, or do you dream of owning a rental property?
If you’re only interested in investing and do not care much about the rest, you could get started right away and with quite small investments.
Good to Know: One way of doing that is with Fundrise, an app that allows you to invest in various real estate projects, from apartment buildings and family homes to retail and office buildings. You can get started with as little as $500, choose your projects, and monitor the progress of your investments from your Fundrise account. The returns are considerable and, judging by the evolution of the investments they have managed so far, this is one of the safest and most profitable investment opportunities.
Q: Do you already own a property you can transform or do your plans involve buying a rental property?
If you already own some property, you can use it to start your rental business. Sure, you may have to invest in remodeling, furnishing, etc., but it will surely be cheaper than buying a rental property and starting from scratch. If your plans involve buying a rental property, you need to do your research on property prices, value, location, etc., and compare the amounts you come up with your savings. Perhaps you have enough money to purchase the building but not enough to invest in rental property modernization.
Good to Know: If you need more money than you have, you’ll need to put a number on the difference and find ways to come up with it. Don’t worry, though, as we’ll cover this aspect as well in the following lines.
Q: Are you after short term-guests or do you want long-term renters?
Before you answer this question, you should take into account the area your property is located in. If you live in a beautiful area, with many tourists visiting regularly, a short-term hosting business could be quite profitable. If, on the contrary, your area is of no interest to tourists but has good employment or schooling opportunities, long-term rentals may work better.
Good to Know: With short-term guests, you could earn more money but there are no guarantees and you will have to invest more time and effort. Long-term guests will bring you less money but fewer hassles and more financial security, as you know from the beginning on how much money you can count and when you should receive it.
Q: How much time and effort can you invest in your rental business?
In theory, everyone knows how to make money renting houses or apartments. In practice, many of those who invest in rental property do not take into account the time and effort they need to put in. If you’re renting your property by the day, you will need to clean the rooms every day or for every guest you receive. Are you ready to change beddings and wash floors and toilets every day? Do you have someone ready to do this for you and the money to pay for their service? If you’re renting your property long-term, you will need to check and review potential tenants, negotiate with them, and provide regular building maintenance services. You will have to collect rent, pay bills, and handle many other responsibilities or find and pay others to do it for you.
Q: What permits do you need and what formalities do you have to fulfill?
These can go from basic accounting and tax paying to heavy paperwork meant to get you the licenses and authorizations that will allow you to conduct rental business legally. Before you invest in rental property, it is best to find out exactly what your investment will involve and make sure you’re ready to keep up. Sure, there are professionals who can help you with everything but are you ready to entrust your business to them and can you afford the expenses?
Good to Know: If you knew all there is to know on how to start a rental property business, you wouldn’t be reading this post. Under the circumstances, I suggest you start with the basics and with minimum to no-risks and low initial investment. This way, you can learn everything as you go, pace your investment, and avoid wasting money, time, and effort on a business that doesn’t drive the profit and satisfaction you were hoping for.
Q: Are you still interested in learning how to start a rental property business?
If after considering all the above aspects and answering all questions you still want to invest in rental property, knowing where you stand from the financial point of view and how much money you still need, it is time to review the other steps you’ll have to follow.
2. Get Your First Rental Property Ready
As mentioned above, my proposal is that you start safe, from scratch, and there’s no better starting point than a room in your own home or, if you have any, a house or apartment you own and do not use. Get them ready to receive guests. Consider a paint job, some small repairs, a thorough cleaning, anything else that could make the place more welcoming and comfortable.
Pro Tip: If you’re starting with a room in your home, put yourself in your renters’ shoes and try to provide everything you would want when renting a room. Think private bathroom, kitchen access, air conditioning or heating (depending on the climate in your area), TV, internet access, parking spot, clean towels, and beddings, etc.
3. Get Ready to Become a Host or a Landlord
Renting a room by the day involves answering numerous calls from potential guests, not all at convenient hours. Some people prefer to know why people call them before answering, so you should decide if you want a separate phone number for accommodation requests. If you do, you can use a phone with two SIM cards or get another smartphone. If you have continuous Wi-Fi access, you’ll want to look into Wireless Republic as an alternative to lower your phone bills.
Pro Tip: You’ll also need a planner or a calendar app, a way to track reservations and vacancies. And don’t forget to choose and ensure the desired payment methods.
For example, with Airbnb, you’ll need a bank account that will allow guests to pay with their credit and debit card. It helps to have it tied to a mobile banking app or find some other way to check its balance and receive transaction notifications.
Good to Know: You should also consider setting up accounts with PayPal and Google Pay if you don’t already have them. You can use existing accounts or set up new ones to use for your rental business exclusively.
4. Become an Airbnb Host
Airbnb is the best platform to market your property to short-term guests. It puts you in contact with potential guests from all over the world and lets you set your own rental terms. It is also a great source of information on your competition. If you want to learn how to start a rental property business, Airbnb lets you see how others around you are doing it.
Pro Tip: You can find out who your main competitors are, how much they charge, what they offer, and how you can stand out among them to draw more guests. I’m not going to get into the details of becoming an Airbnb host because we’ve already covered this topic in a previous post.
Good to Know: We’ve even put together a list of 13 tips on how to make money renting houses or apartments on Airbnb.
Becoming an Airbnb host will help you test the market and also earn the money you need for buying a rental property. It will also help you get used to dealing with guests, discover their needs, and earn their appreciation, but we’ll get into more details on the subject in the following lines.
5. Market Your Property Locally
Airbnb may not get you too many clients in the beginning, especially if your area does not receive many tourists, and you should not close the door on long term opportunities. Therefore, this part of my advice on how to start a rental property business refers to marketing your property on multiple channels, targeting all categories of potential clients.
Pro Tip: You can post ads in the local media, share your vacancy on Facebook, or advertise your property at the premises of major employers, around schools and in shopping centers. This will let you see what type of rental business will be more profitable (long- or short-term) and get your first clients.
Good to Know: If you don’t get the responses you’re hoping for, re-evaluate your offer. Perhaps the conditions you’re offering are not enough, the description of your property needs improvement, or your asking price is too high. Look at the ads of your competitors and use them as a starting point to create your own.
6. Be Nice to Your Clients
Simply owning a rental property, be it a room in your home, a condo, or an apartment building is not enough to guarantee you’ll make a profit. How you treat your clients makes the difference. Therefore, from the moment you answer the phone to the moment your clients leave your property, you should be extremely polite, kind, and helpful.
Pro Tip: You want your clients, be they short-term guests or long-term renters to feel at their best, so that they may return or recommend you to their acquaintances. Welcoming them with a cup of coffee or tea next to some cookies and a small chocolate bar on their pillow will get you a long way. So will offering them discounts for longer stays and referrals.
Good to Know: Make sure your property is always clean and neat and be ready to accommodate your clients’ needs and do everything in your power to make them feel at your best.
7. Don’t Neglect to Ask and Act on Feedback
Knowing how to start a rental property business is just one piece of the puzzle. In order to make a profit, you need to stay in business, and this often depends on the feedback you receive from your guests or renters. I travel a lot, so I’ve tested numerous rental properties over the years. This has taught me that not all rental offers out there are what they appear to be.
Pro Tip: To know what to expect, I always read reviews, and I’m pretty sure most of your potential clients will do the same. Therefore, you need positive reviews, and the best way to get them is to ask them from your clients. During their stay, make sure they feel comfortable and ask for their opinion on what you could improve. They will appreciate your interests and, maybe, provide some helpful suggestions. They will also feel more motivated to leave a positive review. Ultimately, positive reviews mean more clients, so it pays to make some effort to obtain them, especially since negative reviews could kill your rental property business.
Good to Know: If you do receive negative reviews, answer them politely and use them as a starting point to improve your rental offer. If people see that you care and you learn from your mistakes, they may give you a second chance. Even if they don’t, you need to make sure you won’t get other bad reviews and determine other potential clients to avoid you.
8. Keep Monitoring the Market as You Save Money for Buying a Rental Property
Whether you dream of owning a rental property for the first time or of adding more properties to your portfolio, the best way to stay motivated and find great deals is to monitor offers and prices. When you first started researching how to start a rental property business, you probably had some money set aside, but not enough. Renting your place to tourists or people coming to live and work or study in the area will help you gather the rest of the money.
Pro Tip: As you come close to the amount you need, it helps to keep an eye on available properties, as you can never know when a great offer comes along. While local ad newspapers and websites are great, I prefer more targeted options like Roofstock. Once you create an account and set your search parameters, you receive notifications on the best deals.
Good to Know: When you see something you like, making an offer is easy. From property assessments and certifications to 3D virtual tours, you’ll get everything you need t make a smart decision.
9. Buy Your Dream Property, Set It Up, and Rent It!
When you monitor prices and offers and you receive notifications on the best deals in your area of interest, buying a rental property is easy. Once it’s yours, you know what to do: set it up and rent it out! Do it at your own rhythm: room by room, one apartment at a time, by the day, by the month or by the year, etc.
Pro Tip: When it has made you enough money, you can think of expanding your rental properties portfolio even more and, if you get tired, you can always use Roofstock to sell and continue to invest in rental property through Fundrise.
10. Never Neglect Maintenance, Investment Safety, and Client Satisfaction
Owning a rental property comes with responsibilities referring to maintenance, repairs, management, and more. Unless you take these responsibilities seriously, you risk losing serious money. I’ve already explained how unsatisfied clients can cost you money.
Pro Tip: Poor building maintenance can be costly as well. Just think of the damage a bursting pipe, mold, or fires could cause. It is better to prevent them with timely maintenance work. To protect your investment, you should take the time to find and acquire the best insurance coverage. If you have clients renting your property over longer periods, you should encourage them to get renters’ insurance.
11. Don’t Forget about Your Legal Obligations
I already mentioned the importance of informing yourself and obtaining any necessary licenses, permits, and authorizations above. Well, your legal obligations do not stop here. You also have the obligation to pay taxes for the money you make on American ground. This means anticipating income and expenses, paying taxes, comparing estimates against the real deal, filing taxes, claiming deductions, and, hopefully, getting a large tax refund.
Good to Know: Depending on how big your business is and how experienced in tax filing you are, you could benefit from working with a CPA or using some smart tax software like Hurdlr.
Final Advice on How to Start a Rental Property Business
Now you know how to start a rental property business and how to make money renting houses and apartments. As you put your knowledge into practice, remember that success comes with time and hard work and lasts only as long as you remain committed to your business and the satisfaction of your clients.
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