Do you want to learn how to start a rental property business? Starting such a business can be lucrative, providing a steady income stream and an opportunity for a long-term investment.
However, there’s a lot to consider before investing in rental properties. It’s important to note that getting started can be a lot of work, and those who succeed have a deep understanding of the real estate market.
Here’s a quick guide to walk you through the essential steps to starting a rental property business.
What Is a Rental Property Business?
A rental property business is a company that purchases, manages, and sells real estate properties for profit. It aims to provide a steady cash flow and potential appreciation in property value over time.
As a rental property business owner, you will be responsible for maintaining properties, handling tenant relationships, ensuring compliance with local housing laws and regulations, and a host of other responsibilities. Of course, some owners hire a property manager or enlist the help of property management companies to complete such tasks.
Some rental property businesses specialize in a niche. Residential niches may include houses, apartments, condos, or vacation homes. Businesses focusing on commercial rentals may specialize in office spaces, retail stores, or warehouses.
Why Rental Properties Can Be a Good Business
Here are three reasons why owning rental properties can be a good business decision.
1. Property appreciation
The National Association of Realtors (NAR) has reported that U.S. real estate has averaged more than 6.74 percent appreciation annually over the past 50 years. Buying real estate has always been a go-to long-term investment strategy.
Even if you only break even, and your monthly rental income equals your expenses of owning and maintaining the property, you will still enjoy a profit when you sell the property.
2. Tax savings and deductions
According to the IRS, those who receive rental income may deduct certain expenses on their tax returns. These expenses may include the following:
- mortgage interest
- property tax
- operating expenses (advertising, maintenance, utilities, and insurance)
- depreciation
- repairs
It’s critical that you work with an attorney to set up your business in order to receive tax advantages. You must also work with a knowledgeable tax professional to understand what expenses and deductions can be claimed on your business return.
3. Cash flow
Regular rental payments can provide a consistent revenue stream for owners. However, you must plan for vacancies and significant expenses such as new HVAC systems and roofs.
You may be looking forward to these financial benefits often associated with real estate investing. However, some enjoy the excitement that comes with the market. They receive satisfaction by hunting for suitable properties and getting the most out of their investments.
Steps for Starting a Rental Property Business
You may have seen TikTok videos claiming that real estate rentals are a source of passive income and a key to wealth. But, owning and managing rental properties requires a significant amount of work – and a great deal of knowledge to do it right.
Don’t jump in with both feet until you learn about the business and real estate industry. Here are some general steps to get started.
1. Understand the rental property market
The best way to learn about the rental property market is to take courses led by someone who understands your local industry. Colibri Real Estate School offers affordable, at-your-own-pace real estate education courses. During your classes, you’ll learn about investment real estate and will check off the first step of the licensing process (if you decide that obtaining a real estate license might help you in your endeavors.)
Related article: Investor Real Estate Agents: How to Become an Investor Agent
2. Research the area
Before investing in a rental property, you must understand your area’s real estate market, including average rental prices and vacancy rates. Many investors also consider population trends and the area’s economic health.
You’ll learn how to analyze neighborhood data during your real estate courses. And, if you decide to earn your license, you’ll also be privy to industry information as you interact with other agents and community leaders. This knowledge will enable you to spot reasonable prices on properties and keep you from overspending.
Related article: 10 Best Places to Invest in Real Estate in 2024
3. Find properties
Your research will enable you to narrow down an area or neighborhood that would be an optimum site for a rental property. Again, those with a real estate license can utilize the area MLS to find details about available properties. Also, real estate agents are often privy to properties that will soon become available.
4. Run the numbers
During your real estate courses, you’ll learn how to calculate whether a real estate investment is a good idea. (Don’t worry! You don’t have to be a math genius to understand how to do these calculations.) You’ll learn about cash flow, cap rate, and cash-on-cash return, which are critical metrics to consider when analyzing a property.
5. Understand legal considerations of owning rental properties
There are many federal, state, and local housing laws and regulations. You must know the legal considerations of owning rental properties as a property owner.
Real estate agents are required to know these laws. In fact, a large portion of their licensing exam covers real estate law. Because real estate courses are designed to help prospective licensees pass their exams, enrolling in a state-specific real estate class will teach you all you need to know.
6. Acquire rental properties
The investment market in many areas is cutthroat. When a property becomes available, you may have to move quickly. Being a licensed real estate agent would give you the access and knowledge necessary to make a prudent investment.
If you plan to acquire multiple properties, consider ways to cut costs. For example, you may save on real estate commissions by becoming a licensed real estate agent. However, your state may have regulations regarding this practice. Make sure you understand them before becoming licensed.
7. Find a property management company (optional)
Many investors utilize a property management company to oversee their rental properties. The responsibilities of property managers vary, but most take care of marketing the property, managing tenant relations, administering leases, and coordinating maintenance.
Of course, hiring a property manager will increase your monthly expenses. However, it may appeal to those who would rather take a hands-off approach to investing.
It’s worth noting that in some states, property managers must have a real estate license.
Related Article: How To Become a Property Manager in 2024
8. Scaling your rental property business
Some business owners leverage their knowledge and equity from existing investments to purchase new rental properties. To mitigate risks, consider diversifying your investments across different property types and locations.
Investors who continuously monitor market trends can capitalize on emerging opportunities.
Related Article: 10 Reasons Why Real Estate Is a Good Career
Enhancing Your Success with Colibri Real Estate Education
Are you wondering how to start a rental property business? Learn all about the industry by taking real estate coursework with Colibri Real Estate School. Colibri Real Estate offers at-your-own-pace online real estate classes. You can take these state-specific classes to learn more about real estate investing, or you can complete an application and background check and become licensed.
Key Takeaways
- Starting a rental property business requires comprehensive knowledge of the real estate market. Taking real estate courses and obtaining a license can provide valuable insights and advantages.
- Before investing, it’s crucial to research the area, understand local market trends, and analyze neighborhood data. This helps in making informed decisions about property investments and avoiding overspending.
- It’s important to run the numbers to assess an investment’s viability, considering metrics like cash flow and cap rate. Understanding legal obligations, including federal, state, and local housing laws, is essential for compliance and successful property management.
- Acquiring rental properties can be competitive, requiring quick decision-making and potential licensing advantages. Whether self-managed or through a company, property management is a significant aspect of maintaining rental properties and ensuring a steady income stream.
Source:
Kohler, Mark J. “The 4 Benefits of Owning Rental Property as a Business.” Entrepreneur, August 20, 2019. https://www.entrepreneur.com/growing-a-business/the-4-benefits-of-owning-rental-property-as-a-business/334854.
