Real estate investment is hot right now for a number of reasons, and there is a lot of money to be made by renting out properties you own. However, this is not a get rich quick scheme and you will have to treat this as if you were setting up any other business. What follows is a guide for how to start a rental property business that has the highest chances of success.
Do Market Research
Real estate markets vary widely based on location – Waterloo is very different from New York City, for example. You will need to investigate each of the areas in which you are considering buying property to thoroughly understand the local market. See what other investors in your area are doing as well as check what they are charging for rent. Also consider what the costs of maintaining a property in a certain area will be, including regular maintenance and property taxes. Investors specializing in rental properties always need a strong sense of what everything will cost so they can determine whether an investment in a specific property is financially worthwhile.
Find Your Niche
As when starting any business, you want to find a niche that will help you stand out against your competition as well as focus your efforts. For example, owning and renting a condo is significantly different than renting out single-family homes. Renting out properties to vacationers on a short-term basis in certain areas is also very different from the standard year-long leases in other places. Specializing in luxury properties could be another niche option to occupy.
You are going to have to figure out how to pay for these properties you wish to buy. In some cases you may be able to secure financing, but often you will not if you are buying the property for investment purposes and especially if you are looking to buy foreclosed properties. Financing is likely going to be required to purchase an apartment complex, for example, however, simply due to how much they cost. One way to get started without a significant additional upfront investment would be to rent out your old home instead of selling it when you upgrade.
Find A Real Estate Agent
To start a rental property business, you will need to buy properties, and to do that, it’s advisable to work with a real estate agent. However, not any real estate agent will do. Buying a property to rent out is very different than buying a property you intend to live in. Aside from that, you will be buying and selling more than once if your business takes off. You want to find a real estate agent who specializes in working with investors looking to buy properties to rent. Ideally, your real estate agent will have experience in buying and selling rental properties themselves.
Create A Network Of Professionals
A real estate agent may be important, but they are not the only professional you will need to assist you in starting and running a rental property business. A lawyer well-versed in your state’s tenant laws should be retained, and they should also help draft your lease agreements (which are legally binding documents). An attorney familiar with your properties and lease agreements is in a better position to represent you in the case of legal trouble. You will also need to have a stable of reliable and quality contractors to perform work at your properties. Ensure all contractors you work with have adequate insurance and keep that proof on file.
Consider Whether You Need A Property Manager
Many rental property owners work with property managers to handle the day-to-day running and maintenance of their properties. You will also need to consider if an on-site property manager is necessary or if an off-site one will do. On-site is typically more expensive but can be more convenient for your tenants. On-site managers are better choices for apartment complexes. You may also need multiple property managers if you own property in more than one city or state.
Starting up a rental property business can be a very smart move. However, you must go about it correctly and do research to ensure you know what you’re doing before you either buy a property or start looking for tenants. The right preparation will get your new rental property business off to the right start and help ensure long-term success.