PROPERTYSPARK ARTICLE

Tips to Build a Successful Rental Property Business

One of the most lucrative forms of investment is real estate. When you put your money into land or buildings, depending on your strategy, you can generate a lot of additional income that builds up your savings.

Though there are many types of real estate investing, such as REITs and house-flipping, there is one strategy that has become very reliable for the savvy investor; rental properties. We are at a point in history when many younger Americans are hesitant to commit to mortgages and will instead prefer renting.

Whether you choose to get into long-term housing rentals or short-term vacation rentals, owning property and charging tenants/guests rent to use it temporarily can yield somewhat passive income for years. However, you will need some of these tips to build a successful rental property business.

Location, Location, Location

Success in real estate is highly dependent on one specific factor; location. Whether you are flipping houses, investing in real estate trusts, or purchasing rental properties, your profit potential depends on whether or not the investment is in a prime location. For example, A multi-family home near a college campus is more likely to draw in student tenants than a similar property in a rural community. Similarly, an Airbnb in a hot vacation destination could benefit from a huge tourist population throughout the year. Choosing a good location for your rental property is critical.

Business Structure

If you want to build a business with rental properties, then you must consider its structure. Is it a sole proprietorship where you are the owner and your assets are tied to the company’s? Would it make more sense to form a limited liability company where your personal finances are insulated from those of the business and you can easily fold in other partners or employees? If there are just two of you running the business, would a partnership be the strongest format? Research the various business structures that you can file as to prepare for taxes and the company’s future.

Advertising Strategy

Once you own a property, you need to fill it with tenants to start raking in profits. To do this, you must convince people to choose your property over others in the area. This requires a strong advertising strategy. For a short-term rental, you can advertise on a platform like Vrbo or Airbnb. However, for long-term units, you may need to take advantage of other channels like social media. It may not be enough to “boost” your property ads on Facebook. A focused strategy that incorporates audience data and high-value content is more likely to yield clicks that take users to the property’s listing. You will also need high-quality photos of the unit to share on various platforms.

Financing

Every rental property business starts with no property. You will have to invest in real estate in order to have a place for tenants and guests to stay. Even if you decide to rent out part of your home, you will need money to turn the space into a liveable unit. For this, you will need financing, and there are many ways to find it. If you have owned a home for a while, you could get a cash-out refinance or home equity line of credit to fund a down payment on a new property or to upgrade a studio apartment in the home. Another financing option is a debt-service ratio loan, which is given based on projected income from the property. If you are buying a more expensive property, then you’ll need to understand jumbo loan limits since a conventional loan will not be enough to cover the cost. Financing your properties will be an important step as you build the business.

Know What Tenants Want

Perhaps the most important factor in owning rental properties is knowing what your target audience wants. This includes everything from the number of rooms to the location of the property to the interior amenities. Many renters are looking for extra space for a home office, so can your property accommodate that? Is there a private outdoor spot, such as a balcony or deck, that they can enjoy without sharing it with neighbors? Is there off-street parking available? Research your audience to understand their needs and design the property to meet them.

The Key is to Study the Market

Anyone who wants to get involved in real estate investment must be willing to research markets. This information can help you determine the value of a property, the best location, the kinds of tenants to seek out, and the profit potential of an asset. Before you even look at properties to buy, you should have a deep understanding of both the real estate market in an area and the state of its local economy. When you know the market well, you will have greater success building a rental property business.