Rentals: the business of property letting
Category Blog
Renting out a property, whether one or several, can prove a profitable business venture. However, one must be aware that it requires strategic planning, attention to detail, and a deep understanding of both the real estate market and the legal aspects of property management. All business runs on certain basic steps - a property business would be no different. Successfully buying properties and running these as a rental business means following time-tested business plans, plus a few extras to keep you on strategy and focused.
A business plan only evolves when you define your goals
The first question you need to ask when settling down to compose your business plan, must be...what do you want to achieve with your rental business? Are you looking for long-term passive income, short-term cash flow, or capital appreciation? Any of these - or a combination - can be part of your plan.
- Then you must next analyse the local real estate market to understand demand, competition, and rental rates. This will enable you to identify the best areas for investment and the type of properties that will yield the highest return.
- This is the point where you must plan the finances; and estimate your initial investment, including property acquisition, renovation, and operational costs. Calculate expected rental income, cash flow, and ROI to ensure profitability.
- And finally have your plan for exiting property investment through well-considered sales, and re-investment in other scenarios.
Location plays a crucial role when choosing where to buy
- Location is critical in real estate. Choose properties in areas with strong demand, good amenities, and potential for appreciation. Proximity to schools, transportation, and employment hubs usually drive higher demand. In addition, the type of property - single-family homes, multi-family units, commercial properties, or short-term rentals like Airbnb. Each type has a different risk profile and will require different management strategies, so you need to have real focus and interest in the type you choose.
- The condition of the property would be equally important to price and long-term value. While a renovation can provide a higher return, you may have to cough up a substantial amount to put the property into a worthwhile bracket. Newer or well-maintained properties may have lower maintenance costs, and present both cost and time savings.
Money matters
- If you have the cash for the full purchase of a property, that is a good route to go. However, should you need to borrow money, you will need to research the best rates and terms - and whether the rental will be sufficient to justify the investment. Flipping properties can be successful, but waiting to see how your investments pan out may be a good idea; quick financing may also mean high interest rates
Will you need to make changes and upgrade?
- If you need to renovate and upgrade, always keep the key areas in mind, such as the kitchen and bathroom. External appearance can be crucial to enticing people to take up residence. If you intend to rent furnished, then make sure you choose durable, easy-to-maintain furnishings that appeal to the target market you envision will rent the property.
- It goes without saying that you will have to ensure the property meets all safety regulations, including smoke detectors, carbon monoxide alarms, and proper exits. This also means you will have to conduct regular inspections to make sure that tenants have not obstructed safety measures in any way.
Set the right rent price
- Rent price can sometimes prove a hurdle. Make sure you don't set your rent too high. Compare similar properties in the area to determine a competitive rent price. And also consider factors like property size, condition, location, and amenities. Setting the rent too low may attract the wrong clientele to those you would prefer.
- Obviously, if you are keeping your eye on the business aspect, you need to ensure the rent covers your expenses, including bond repayments, taxes, insurance, maintenance, and property management fees, while at the same time provides a reasonable profit margin. Adjusting the rent may be an important aspect of keeping your investment viable. Be open to changing the rent in tandem with market conditions or to attract long-term tenants.
Management and marketing - and the value of a professional letting agency
While there are several online marketing tools you can use, a professional property agency as your right-hand partner is invariably the best route you can take. They have already built a professional network and know how to market and showcase your properties at every opportunity. They also have the experience and expertise to guide you through the minefield of handling tenants, agreements, and regulations. Consider the tricky areas they can help you with:
- Screening tenants: credit checks, income verification, and background screenings such as references, to assess a tenant's financial responsibility and rental history.
- Lease terms: rent amount, due date, security deposit, lease duration, and renewal terms. Obligations on both sides must be discussed and understood.
- Property and rental laws: this includes compliance with local ordinances. These regulations cover everything from security deposits and lease agreements to eviction processes and tenant rights. So, it's important to not only familiarise yourself with all requirements but be sure you have a property legal eagle by your side.
By following best practices in each aspect of the business, regularly reviewing strategies and market trends - and employing the valuable assistance of a professional agency - you can with hard work and determination build a profitable and sustainable rental property business.
Author: Leapfrog Property Group
