7 Key Steps for Starting a Rental Business

7 Key Steps for Starting a Rental Business
5 min read
11 November 2022

Investing in real estate can be a very profitable and rewarding.

With that being said, there’s a lot that goes into running a real estate business and being a landlord. It’s crucial to have an understanding of the business before simply jumping in.

Here are seven steps you should follow when starting a rental business.

  1. Buying Your Rental Property

Before you buy a rental property, you must first decide what type of property you want to invest in: a single-family home, an Apartment complex, a condominium, etc.

Then, you need to narrow down the location. Be sure to consider an area’s cost of living, crime rate, local tax rates, and average income.

Choose a property with high cash flow potential and return on investment (ROI). A property’s ROI is calculated by dividing your total investment by the expected yearly profit. If you’re buying a property with existing tenants, this adds value to the property.

Next, you must find a mortgage lender, make a down payment, and evaluate interest rates. Generally, the bigger your down payment and the lower your interest rates, the better.

  1. Getting Insured

As a landlord, you must have landlord insurance. This protects you and your business from property damage, casualty losses, lost rent, and liabilities. The cost of landlord insurance is dependent on the building’s age, valuation, and construction details. On average, it costs around $1,200 per year.

  1. Preparing Your Property for Tenants

Once you have your property, you must get it ready for tenants. This involves:

  • Inspections – Hire a professional home inspector to evaluate your property’s electricity, plumbing, structural integrity, sanitation, fire hazards, roofing, etc.
  • Repairs, improvements, renovations – Make basic repairs, ensure everything is in working order, and add improvements/renovations that can increase your property’s value.
  • Cleaning and Repainting – Make sure the unit looks fresh.
  • Curb appeal – Ensure the landscaping and the rest of your property’s exterior is attractive.
  • Staging – Style and accessorize your unit so it looks appealing to prospective tenants.
  1. Determining Your Rent Rate

Determining your rent rate is a balancing act between making it high enough to cover your operating expenses and still turn a profit, but not too high to where you’re sitting on a vacancy because no tenant wants to spend that much on rent.

Your goal should be to choose a rate that’s competitive, yet reasonable. Explore comparable units in your area to see what the rent rate is. Consider location, square footage, features, and amenities.

  1. Advertising Your Rental Property

In order to fill your unit quickly and start collecting rent, you need to know how to advertise a rental property.

First, you need to create a compelling property listing. This is comprised of:

  • An appealing headline with key information such as price, location, and number of beds/baths
  • Quality photos of your unit
  • A description with more detailed information such as a list of rooms, dimensions, amenities, and policies

After you’ve created a great listing, it’s time to market it. In today’s day and age, the most effective way to market rental property is online through listing sites such as Apartments.com, Zillow, Zumper, and Craiglist.

  1. Bringing On Tenants

When you start receiving interest in your property, it’s crucial to conduct thorough tenant screening. This will help you avoid bad tenants and find great ones. Performing credit reports, eviction history checks, and criminal history checks give you access to important information when deciding if someone will be a good tenant. You should also require a rental application so you can gather information from a tenant directly, such as rental history and proof of income.

Additionally, make sure you review the fair housing laws. To avoid being accused of discrimination, it’s essential that you evaluate every applicant the same way by using a tenant scoring system.

  1. Managing Your Rental Property

Once you’ve found a qualified tenant, it’s time to start managing your rental property. This includes lease management, rent collection, and maintenance management. You have a few options when it comes to property management:

  • Individual resident managers – Employees who live locally and manage your units
  • Rental property management companies – Companies that work as independent contractors with several employees who manage your properties
  • Property management software – Cloud-based applications that give you the tools to manage your own units

Conclusion

Starting a rental business is an exciting yet involved process.

By understanding these key steps of owning a real estate business, you’ll be well equipped to start your journey as a new landlord.

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Anuj Singh 0
Joined: 1 year ago
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