How to start a rental property business in 14 steps
Real estate investing is a popular choice for entrepreneurs looking to create passive income and sustainable wealth. In particular, rental properties provide you the opportunity to create a diverse portfolio with multiple revenue streams. There are multiple ways you can approach a rental property business, but to rent out that first property, you’ll need to know how to start your business officially. Let’s take a look at the 14 steps you should follow to open your investment property business.
Can I start a rental property business with no experience?
You are not required to have a particular license to buy and sell a rental property. However, you will need to have a strong business sense and an in-depth understanding of real estate investing before you can confidently make both investment and property management decisions. You can go to school to learn this information or work directly with a mentor or other real estate-oriented professional who is willing to guide you through the process and teach you what you need to know.
1) Business plan
Now that you know you’re ready to start your rental property business, you’ll need a written business plan. A rental property business plan acts as both a map for you to stay on track as you build and grow your business and as a concrete document that proves to banks and investors why they should lend to or partner with you.
A strong business plan will have the following components:
- Executive Summary: A high-level overview of your entire business plan. What does success look like for you in this business, and how do you plan to reach that level of success?
- Industry Analysis: What is the state of the housing market? What insights can you glean from local real estate research? Where do you see investment opportunities?
- Competitive Analysis: Are there any direct competitors with your business, and how will you differentiate yourself?
- Marketing Plan: How will you source and secure quality tenants for your properties?
- Management: What is your plan for property management? Do you intend to work with a property manager, or do you plan to handle all maintenance and tenant activities on your own?
- Operations: How will you ensure that your properties are maintained in addition to the everyday operations of your business? Will you have offices? Will you hire staff members?
- Financial Plan: Do you have a clear understanding of how your proposed or intended rental properties will generate cash flow for your business? Will there be enough rental income to make your mortgage payment and then some? Do you have startup costs? What is your plan for continued growth and investment in additional properties over the next several years?
2) Business structure
As part of your business plan, you’ll also need to determine the right business model for you. There are multiple business structures you can set up for your rental property business. These are:
- Sole proprietorship
- Limited liability Company (LLC)
There are additional options within some of these categories. Review your choices carefully and select the business structure that’s best for your business goals.
3) Business name
Your business name will appear on your business cards, website, brochures, and any other marketing materials you use. A solid business name is:
- Clear, simple, and memorable
- Easy to say and spell
- Relevant to your type of business (for example, you could include the word “rental property” in your business name)
- In line with your brand
4) Ideal clients
While it’s important to consider who you want to do business with when it comes to purchasing property, your ideal clients, in this case, are actually your tenants. If you could choose the perfect tenant to rent from you forever, who would they be? Consider the following questions when determining your ideal tenant type:
- Are they residential or commercial clients?
- What is their annual income or revenue?
- What do they do for a living, or what sort of business are they?
- Are they looking to become homeowners eventually, or do they only want to rent?
- Have they ever owned their own home before?
- What do they value in a rental property?
- Are they married? Single? In a relationship?
- Do they have children?
- Do they like to use their rental home, apartment, or business for parties or social events? How often?
- What social media platforms do they use?
You’ll continue to clarify who your ideal tenant is as you fill your rental property and see what type of person is truly the best fit. Hone your marketing strategy (which we’ll discuss later in this guide) to target your ideal client.
5) Niche, unique value proposition, and branding
Are you interested in filling your portfolio with a very specific type of property? If so, you have a niche. Some niche examples include:
- Vacation rental properties (such as Airbnb)
- Luxury rental properties
- Multi-family rental units
- Single-family homes
- Short-term rentals
You do not have to have a niche, but it can be useful if you identify a market gap or have specific deep knowledge of your selected property type.
Unique Value Proposition (UVP)
Unlike your niche, your UVP has less to do with the type of property you own and more to do with how you operate your business. What can you offer to your prospective tenants that's so compelling they feel they simply must reach out to learn more about your properties?
Branding for a rental property business includes defining who you are as a business and what your prospective or current tenants can expect from your properties. Your branding should include:
- Color palette
- Mission statement
- Managing style
- Ideal tenant type
- Property type and style
- Design aesthetic
- Rental packages and special offers
Ensure that your branding is cohesive not just in your marketing but also across all your rental properties.
Think of your services as what your tenants receive when they choose to rent from you. What are the perks of renting from you over a competitor’s property? What’s included in the rent? Is the management team responsive? These included services help to justify your pricing, so make sure they’re clearly promoted in your marketing.
You know how much location matters when making a rental property purchase. But, have you thought about your business location as well? Do you require an office location, or will you operate from your home? If you feel that leasing a space is your best option, work with a real estate agent. Realtors can help you find the right fit for your budget and needs.
Rental properties require a lot of maintenance and repairs to remain competitive in the market. You may find that your properties need additional fixtures, appliances, and repairs before they’re ready to rent out. You will need to work both the materials cost and the labor cost into your startup budget so that you can achieve a quality product without financial strain.
You will need to be able to qualify for a loan from a bank or other lender to finance the full amount of each of your properties, minus the down payment, which is paid out-of-pocket.
Your chosen bank will probably require that specific types of insurance coverage are in place before they lend to you. They will also want to see your business plan to understand in detail how you intend to pay off any loan they may give you.
Beyond the initial investment, recurring costs are also a factor in your overall budget. These can include property management fees, property taxes, legal and accounting fees, and more. Ensure that all these are accounted for in your business plan.
As a new real estate business owner, you must have certain small business insurance policies in place. This applies to all businesses. However, the exact type of insurance coverage needed changes based on the type of business you are in. As a rental property business owner, you’ll require a specific set of policies. Some of these policies may include:
- Workers' Compensation: If you have one or more employees, you are required to have workers’ comp. This form of insurance covers you if one of your employees becomes injured or sick at work. Securing workers’ compensation used to be a long process, but now you can purchase it online. Get a fast estimate of your workers’ comp premium with Huckleberry’s 60-second workers' compensation calculator.
- General Liability Insurance: Covers your business if you are ever sued for injury or property damage.
- Business Property Insurance: Protects your building in case of serious damage. This policy also applies to any fixed components of your building, such as permanently installed equipment. It does not cover removable items.
- Business Owner's Policy: A Business Owner’s Policy bundles several insurance policies together. Your Business Owner’s Policy may include general liability and business property insurance, among others.Find out your estimated business insurance expenses with a fast and free quote from Huckleberry.
11) Paperwork, licenses, permits, and accounts
You’re almost ready to rent out your property, but first, there’s some important administrative work to handle.
- Register your business name: Go through the Small Business Association (SBA) website to learn how to register your business name.
- Get your Employer Identification Number (EIN): Your EIN acts as a Social Security Number (SSN) for your business. An EIN gives you multiple benefits, so get yours ASAP.
- Secure your business license: Each state is different, so check with your state to see how to get your business license. Each property you rent may need its own business license, so read your state’s guidelines carefully.
- Open a business credit card and business bank account: A business bank account keeps your personal and professional finances separate—very important come tax time. In addition, a business credit card ensures that you can clearly show your business spending were the IRS ever to audit you.
Check with your local government for any other specific licensing requirements you must fulfill.
You will likely need to hire an employee of some kind, whether as a full-time, part-time, or contracted worker. When that time comes, you’ll need the proper paperwork. You can easily download essential hiring forms such as a W-4 and W-9 online. Remember that your employees are as much a reflection of your brand as any other part of your business. Hire wisely to ensure that your partnership with them provides a positive impact for all involved.
13) Marketing strategy
A well-designed marketing strategy will help you keep all your rental properties filled with quality tenants year after year. There are multiple ways you can reach your potential tenants. Let’s take a look at some of the most popular and effective marketing methods.
Your rental property website is often a potential tenant’s main destination when determining whether or not they want to reach out to you to schedule a tour or even rent on the spot. Make sure your website is fast, mobile-friendly, and built with the customer’s experience in mind. Slow load speeds, outdated information, and unintuitive search functionality will only deter your site’s visitors.
Work with a web developer, copywriter, and Search Engine Optimization (SEO) strategist to help you build a website that shows your rental properties in the best light possible.
Email marketing is a great way to follow up with potential tenants who may have submitted their information to learn more about a property but have yet to rent from you. Design a series of newsletters or marketing emails meant to educate and build trust. You can also advertise new property rentals as you have them. The more helpful your email marketing content is to your reader, the more likely they will want to work with you in the future.
Social Media Marketing
Social media allows you to promote your vacancies as well as your company. Build brand authority with great photography and helpful, informative captions. You can also add ways for interested parties to get in touch with you about a property.
Some major social media platforms to consider for your marketing strategy are:
Google My Business helps your company get found on—you guessed it—Google. This applies most specifically to Google local search but may also help you rank better nationally when paired with an effective SEO strategy. Register for a free account, enter your business information, and you’re set!
Word-of-mouth and referrals
When you find a great tenant, you want to keep them. What’s more, you probably want to find more tenants just like them. That’s where word-of-mouth and referrals come in.
Offer an incentive to current tenants if they refer more potential tenants your way. A common incentive is to offer a certain dollar amount off their rent the month after a referred tenant signs a lease. Remember that you can harness social media for word-of-mouth as well, so encourage the circulation of your “available for rent” posts on all your platforms.
14) Additional resources
The life of a rental property business owner is fast-paced and filled with a lot of hard work. Sometimes that can make life a little stressful. To help you stay grounded, focused, and growth-oriented along your real estate journey, check out these and other real estate investment resources.
- Small Business Monthly Checklist
- Investopedia’s List of 9 Essential Books for Rental Property Investors
- BiggerPockets: A popular networking site for real estate investors
- Property search engines such as Trulia and Zillow
Congratulations! You’ve made it to the end of our step-by-step guide, and you’re that much closer to starting your rental property business. At this rate, you’ll have your first rental property ready for renters in no time.