You may be wondering just how to start a small business, and have considered getting into rental property business. With the current business climate in the real estate sector, it’s no surprise that more and more people are considering real estate investment. Leasing out a real estate property can indeed prove profitable in today’s rental market. Nevertheless, not everyone has what it takes to be a good landlord. You have to understand the responsibilities that go with the role before jumping into a leasing business. Allow this guide to point you in the right direction.
Keep in mind that you are a business owner
Always remember that you are more than just a homeowner when you are a landlord. You are essentially running a business. One of the common mistakes landlords make is that they fail to have a good business plan in place. Real estate investment, although generally passive, is not a hands-off kind of business. It requires a certain degree of involvement, and you will have to devote time to it. Being a landlord also requires skills.
Moreover, you have to make sure than when choosing a property, you are deciding from a business perspective. You can’t just buy a property because you would like to live in it. It should appeal to the type of tenants you’d like to have, and the price should work for them.
Take smaller risks
It’s best to take smaller risks when you are just getting started. Choose units that are smaller. You can also work with a partner so you can minimize the risks you are personally taking. Starting small and getting a feel of things will help you determine if real estate investment is the right business for you. You get to experience firsthand what it’s like to work on maintenance, bookkeeping, and other such business tasks.
It is also important that you work only with trusted developers. This way, you can shield yourself from any major mishap, such as faulty structures and bad property management. Plus, it always pays to work with professionals and respected names in the industry.
Be particular about the neighborhood
You hear it all the time: the key to business success is “location, location, location.” This is especially true when it comes to a leasing business. Don’t get lured easily by properties offered at lower prices. Oftentimes, this is because the property is located in a neighborhood that people would rather not live in. Check for factors like crime rates, quality of schools, possible flooding, and accessibility of transportation. Buying in neighborhoods you are familiar with or that you’ve at least researched extensively about will help you buffer the risks for your leasing business. Investing in condos built by trusted developers is also a plus, as major property developers always conduct comprehensive studies before initiating a project.
Learn about the running rental rate for the property
Rents differ widely in varying areas. Find out what the running rate in the property’s location is. You can check local rental listings to get a feel of what the general rates are. You need to make sure you will be able to rent out your property at a rate that will cover your costs while still leaving a healthy margin for profit. Don’t make the common mistake of looking only at loan payments and failing to take into account other expenses, such as property taxes, insurance, and association fees. Beyond just considering the routine expenses, you should also assign at least 5% of your gross rental income for repairs and downtime that come with periodic vacancies, and another 5% to cover maintenance. Keep in mind that practically everything is subject to wear and tear. It’s best to have money in your bank account when you need to deal with these things.
Understand that the business will require getting your hands dirty
Running a leasing business requires certain skills. Knowing your way around tools will make it easier for you to maintain your rental property. Doing it yourself will help you avoid having to pay electricians and plumbers everytime something breaks. A good indication that you’d make a good landlord is if your own home is well-maintained. You should also be comfortable with the idea of calling your tenants and asking for the month’s rental payment. Buying a condo unit at a good property offers a good workaround though, as you get to work with a reliable property management team.
Get professional help
To manage your rental property well, you will need to consult with a real estate lawyer to make sure you get a solid leasing agreement and that you are aware of both your rights as a landlord and the rights of the tenants. You will also need an accountant and a reliable network of electricians, plumbers, and tradespeople.
An easier approach will be to rely on a property management team. DMCI Homes, for one, has a leasing platform that will make the whole process easier for you. You benefit from a professional team working on your behalf.
Vetting prospects and dealing with tenants are among the key services a property management team can provide. The dynamics is different when tenants are dealing directly with the landlord. They tend to think of you as a friend, which only ends up complicating things. The approach becomes more businesslike when they are dealing with a manager.
Aim to please your tenants
Among the biggest costs you will ever encounter as a landlord are the periods of vacancy. Not only will you not be earning while your unit is vacant, you will also have to spend money every time a tenant moves out. This makes finding and keeping good tenants essential. The kind of tenants you have will determine your success as a landlord.
Make sure you are well-oriented with the ethics of running a rental property. It all boils down to realizing that you are running your business, and that the core of your success is keeping your customers happy. Treat your tenants with respect, and keep your unit well-maintained.
Hopefully, these pieces of landlord advice have helped you with your search for profitable small business ideas. There’s nothing like the right know-how to propel you forward. In any case, feel free to talk to professional property managers to learn more about rental property business.