How to Start a Rental Property Business

You do not need any particular license or certificate to buy and sell rental properties. But, you do need to have a strong business sense and an understanding of real estate investment before you can start investing and making property management decisions.

If you are interested in starting a rental property business, we have developed a list of steps to take to ensure your business has the best odds at succeeding.

Research Investment Options

First-time rental property investors normally choose single-family homes and small multi-family properties. This is because houses and apartments are more common and have a variety of financing options available. One of the most common investment options in real estate is buying and holding single-family rental homes, which can be rented long-term or also as a short-term vacation rental.

To find homes for sale that can be used as rentals, be sure to use sources such as real estate agents, the multiple listing service (MLS), or websites like Zillow, Redfin, or Roofstock. Roofstock was specifically developed for buying and selling SFR homes and vacation rentals.

Become Educated and Start Networking

Before you dive into owning a rental property business, it is smart to become educated on the real estate business and start to network to expand your knowledge and contact list. Start reading books and blogs and attending in-person networking events to get to know other investors. New investors can also look online for real estate education courses that will teach you the basics of real estate and make you an informed investor.

Look at the Metrics

Rental property investors are looking to find homes that generate cash flow instead of being a constant money pit. Here are some metrics to analyze before buying a rental property:

• Gross Rental Income
• Operating Expenses
• Net Operating Income
• Capitalization Rate
• Cash Flow
• Cash-on-Cash Return
• Appreciation Rate
• Internal Rate of Return

Be sure to consider all of these metrics to create an overall picture of how well your rental property will do over time and if it is worth the investment.

Financing Options

As a real estate investor, you may need to finance your rental property for a variety of different reasons. Whether you want to make a small down payment to control the entire property, diversify your capital across investments, or use a loan to increase your cash-on-cash returns, you will need to know your financing options. These options include some metrics to analyze before buying a rental property:

• Conventional loans
• Federal Housing Administration (FHA) loans
• FHA 203(k) loans
• Veterans Affairs loans
• Self-directed individual retirement accounts (SDIRA) for real estate
• Home equity loans
• Home equity lines of credit (HELOC)
• Private money loans
• Group investing
• Owner financing

Use our affordability calculator. to find out how much you can afford monthly on a rental property.

Understand Management Responsibilities

If you decide to be an investor who self-manages properties, you need to understand what this truly means and the responsibilities involved:

• Running rent comparable to determine a fair market rental price.
• Quickly and efficiently making a home ready for new renters in between tenants.
• Advertising and marketing your rental.
• Screening prospective tenants by running background checks, credit reports, rental history, and talking to references.
• Collecting security deposits, monthly rent, assessing late fees, and deciding on pet rent.
• Enforcing all terms and conditions of the lease.
• Handling tenant issues and complaints.
• Coordinating maintenance and repairs.
• Ensuring that your rental complies with building codes and health and safety regulations.
• Complying with state and federal landlord/tenant laws.
• Conducting move-in and move-out inspections.

In Conclusion

Starting a rental property requires a lot of steps that you may not know or be familiar with. Make sure you go into this process with a plan for educating yourself, marketing your business, and creating a successful rental investment company.