Are you interested in becoming a landlord? The income potential is limitless, the hours are whenever you want them to be, and the business is endlessly scalable.
Becoming a landlord is one of the best career moves that you can make.
Suppose you are interested in starting a rental property business, then keep reading. We're going to cover everything you need to know about running rental properties, from incorporating the business to investing in landlord insurance.
1. Join a Real Estate Investor Club
One of the best ways to introduce yourself to the real estate community is joining a real estate investor club. These are organizations that host hundreds or even thousands of real estate gurus like yourself.
As a newbie, you may feel out of place at first. However, with the guidance of the experts in these organizations, you'll be on your way to success in no time.
To find a real estate investor club near you, all you need to do is run a quick search online. Most areas have some kind of organization or club for this interest, so you're bound to find something in your area
.If you reach a dead-end, you may want to consider starting a club yourself. There may be some hidden real estate experts in your city that haven't had the chance to share their expertise with others who share their interests.
Real estate investor clubs are great networking mechanisms. You may find a business partner, a mentor, or a life-long friend. Most importantly, you'll come together with experts in the business to learn all that you can about real estate and how to be a good, successful landlord.
Typically, real estate investor meetings are geared towards professionalism and education. So, everyone is there to learn something.
You shouldn't feel out of place if you're new. When in doubt, sit next to a friendly face and start chatting. You never know what could come of it.
2. Consider Niching Down
Some real estate gurus niche down into specific markets. Check different states to see how landlord-friendly they are.
You may want to invest in residential homes, apartment buildings, commercial land, townhouses, or something else. Niching down into one of these markets can help make the investing process more straightforward. If you become an expert in a specific market, you're more likely to succeed working in that market.
For example, you are more likely to become a successful apartment building owner if you know apartment buildings inside and out.
However, there is a downside to this specialization. If the market that you're specializing in isn't doing well, you may have a low period.
Let's go back to the apartment building specialization. During periods of low rental rates, such as summertime in a college town, you may not be making as much money as you expected.
However, if you diversify your portfolio to include other kinds of properties, you're going to have some properties to fall back on when times get rough.
Consider whether or not you want to niche down before you get into the real estate world. You could niche down as you find out which kinds of investments you prefer. When you're just starting out, niching down could be detrimental to your financial portfolio.
Related Reading: When to Hire a Property Manager
3. Secure Proper Financing
Arguably, financing is the biggest hurdle that landlords have to face. Securing proper financing is a battle of wits and experience.
Since you're new, it may be even more challenging for you to secure the financing you want and need as a landlord.
When you're starting up, you have several considerations to make. You need to secure funding for the building, its utilities, its insurance, your landlord insurance, and more.
Financing is more than the cost of the building itself. You have to plan ahead and work with the lenders to find the right kind of financing agreement for you and your goals as a landlord.
Luckily, today's landlords have access to more kinds of loans and other financial resources. You can go through a bank, a private lender, a hard money lender, or another source.
While some alternative forms of financial help come with a higher interest rate, they may also come with better terms.
To find the right kind of financing for your rental property business, you need to determine how much money you need before you start meeting with lenders. From there, you can decide which lender offers the best terms for your business.
4. Hire or Designate a Manager
Whether it's you or someone else, you need a manager that's going to run the show. You don't have to be the manager and landlord.
Since you're just starting, it may be better that you hire someone with more experience than you have to offer.
You can invest in a third-party property manager that has the experience to help you learn the ropes of running your new business. Some of these third-party companies can also provide extra business services, such as helping you create a rental property business plan.
With the help of a third-party manager, you'll be able to expand your business faster and learn the tricks of your new trade. Plus, you'll have more time freed up to work on other components of your rental property business.
You can use this time to network professionally or grow your business in other ways.
Many landlords hire their managers for long periods of time. The benefits of having an experienced manager far outweigh the money that you have to pay to have the manager in the first place.
Plus, you're going to be able to grow your business faster with the manager. This means that you're going to increase the profits you're making far above the rate you'd be paying the manager per property.
5. Implement Efficient Practices
One of the biggest problems that new landlords have is implementing efficient practices. They don't have the experience to understand what kind of practices work and what kind of practices don't work. Therefore, they end up implementing needless barriers that only inhibit the growth of the company. You need to know what you can and cannot do as a landlord.
As you're learning more about being a landlord, you should work on systemizing your business. You may want to automate some of your business practices or invest in organizational software.
By investing in the organization of your rental property business, you'll be more likely to grow your business faster. Plus, your tenants are more likely to enjoy staying at your properties.
For example, let's look at two landlords and their ways of having their tenants pay rent. Landlord A requires that his tenants bring a check or cash to his office between the hours of 8 AM and 5 PM Monday through Friday. Landlord B has an online rental payment system that the tenants can use any day at any time with various forms of payment.
Because Landlord B has invested in an online rental payment system, he has made the process easier on his tenants and himself. The system requires a little bit of financial input, but the benefits far outweigh the price.
Implementing services like these early on in your business is likely to win the favor of your present and future tenants. This helps you become a better landlord.
6. Get to Work and Scale Your Business
With the previous five steps, you've built the foundation of your rental property business. Now, it's time to get to managing the rental properties.
It's time to answer a few questions about the state of your business:
- Are you going to be the manager, or will someone else take on that role?
- Are you going to find and select tenants, or will someone else do that for you?
- Are you going to repair the properties, or will you sign a contract with a third-party company?
- Are you going to maintain the properties, or will you pay someone else to do that for you and your tenants?
Answering these basic questions and figuring out the structure of your rental property business will set you up for success down the road.
Right now, your answers to these questions are going to depend on the amount of money and time that you have. In the future, you may have more resources to work with. With those resources, you may expand your business and create a more pleasing business plan.
Outside Tips From Professionals
We have gathered some tips from real estate professionals on starting a real estate business. Here is what the experts "who have walked the walk" have to say:
Daniela Andreevska, a real estate professional at Mashvisor:
Employ the power of digital marketing from scratch: In recent years, digital marketing has taken over the real estate industry, and the pandemic has further accelerated this trend. Regardless of the exact nature of your real estate business - whether an investment group, a brokerage, or a property management company - you have to start building your online presence even before launching. Build a website optimized for search engines.
Make profiles on all major social media networks. Consider Facebook and Google Ads. Be ready to send out email campaigns as soon as you generate your first leads. The best way to find real estate clients is to use digital marketing, as it allows you to reach a large audience at a very reasonable cost.
Build a strategy for converting leads into customers: While it can be relatively easy to generate leads online, once you get your first leads, your job is not done - you still have to convert them into actual clients.
Real estate is very much a people’s business, so you have to get to know your prospective clients. You have to nurture them and show them the actual value of doing business with you rather than another competitor before they are ready to hire your services. So, you need to have a solid strategy for this process when starting a real estate business.
Make use of a CRM: If you do everything else right, your real estate business might take in no time, so that you find yourself managing dozens or even hundreds of clients as well as other real estate professionals such as agents, brokers, insurers, lenders, appraisers, mortgage brokers, property managers, and others, depending on the nature of your business.
It’s easy to get messy unless you organize your work correctly from day one. Thus, you should employ the use of a CRM from the very beginning. There are plenty of free management platforms out there that you can start with, and you can always switch to a more sophisticated paid version later on.
The amount of initial capital you will need to start a real estate business varies significantly, from a couple of hundred dollars to hundreds of thousands. It depends on what industry you plan to start. For example, suppose you want to create a rental property real estate investment business. In that case, you will need a minimum of 20% down payment (of the price of the property for sale) in addition to closing costs which run an average of 2-5% of the loan amount.
So if you have to invest in a rental property as your real estate business, you have to be prepared to pay about 25% of the property sale price. Meanwhile, property prices vary significantly across the US market, from a median value of $131,000 in cities like Camden, NJ, to $2,569,000 in Malibu, CA, according to November 2021 data from Mashvisor, a real estate data analytics company.
Regardless of what real estate business you are thinking of starting, the first and most crucial step is to do diligent research on this business in your local market. All business decisions - especially in the real estate industry - need to be based on solid research, reliable data, and analysis.
R.E. Hunter at Victory Property Management:
Try to find a niche market that's big enough to matter but small enough to target without mainstream competition. Just to get things going. It is tough to simply bust out on the general market and compete with an entrenched company these days, starting with some sort of a prebuilt edge to help get things started.
Do the research, be the best and most known for that niche, and if it's large enough, you'll be able to compete early on. You could do a simple P&L forecast, determine how much income you need to support yourself, then manage to those very small numbers. That method would work with the niche approach in that you could start building your business with very little invested which is what I did.
Of course, if you have existing or loan resources, then I'd still caution against a significant initial investment without a lot of experience and a rock-solid business plan. It's relatively easy to start cheaply in real estate, so why not capitalize on that luxury? If I were going to invest a large sum upfront, I'd instead buy an existing and proven company that I could immediately begin building on.
The real estate industry is very clearly undergoing a paradigm shift, make sure you're in front of, not behind the trends
Patrick O'Sullivan Owner of Get Multifamily:
Align your business plan
Without a business plan, your business is nothing but an aimless boat. Put attention to what features and services will put your team apart from your competitor businesses and stand out in the housing market. Based on these, make the right plan with the best strategy.
Consider these questions :
- What makes your real estate team different from other teams?
- What are the values that drive your real estate business, the target market?
- How do you plan to create brand awareness around your neighborhood?
- What would be the services for your clients?
- What tools or software would run the company system?
Discussing with your known expert and experienced one would help you lay your plan properly to stand out as a real estate team. Avoid repeating unproductive patterns in your plan to become for the sake of starting your real estate business.
Andreis Bergeron, Head of Brokerage Operations at Awning:
Given that most do not have $1.25 - $2.5 million laying around I would highly suggest you build your real estate portfolio up to a few million dollars in value before doing real estate full time. The most effective way to leverage your cash is by starting with single-family (up to 4 units)real estate and using primary residence financing allowing you to put 5% down.
By starting with single-family rentals, let's say a quadplex, you can put $50,000 down on a $1 million dollar investment instead of $50,000 on a $200,000 investment. This will allow you to grow your real estate empire at an accelerated pace.
Invest in Landlord Insurance to Protect Your Business
Starting a business isn't easy. Starting a rental property business is even more challenging.
Managing rental properties can be extremely lucrative, but it may be confusing when you're first getting started. You may make mistakes and have to learn some things the hard way.
One thing you shouldn't have to learn the hard way is how to insure yourself.
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