Content of the material
- How To Get A Mortgage For An Investment Property
- Get Preapproved First
- 4. Hire or Designate a Manager
- What type of neighborhood should you be looking in?
- A Class
- B Class
- C Class
- Join a Real Estate Investment Club
- 13) Marketing strategy
- Your website
- Email marketing
- Social Media Marketing
- Google My Business
- Word-of-mouth and referrals
- 7. Remember to renew your leases
- Keeping Track Of Repairs
- 7) Location
- Should I Find a Real Estate Investing Partner?
- How To Write A Rental Property Business Plan
- 2. Passive Income Goals
- 3. Structure
- 4. High-Level Overview
- 5. Marketing
- 9. Dont forget rental property at tax time
- What I wish I knew before I bought my rentals
- Outside Tips From Professionals
- Daniela Andreevska, a real estate professional at Mashvisor:
- R.E. Hunter at Victory Property Management:
- Patrick O'Sullivan Owner of Get Multifamily:
- Andreis Bergeron, Head of Brokerage Operations at Awning:
How To Get A Mortgage For An Investment Property
A big question for people buying a property, whether it’s an investment property or a primary residence, is “How much house can I afford?” Start by looking at a mortgage calculator to get an idea of rates and monthly payments, and then you can get preapproved to see how much money you qualify for. Make sure that you tell your Home Loan Expert that you’re interested in buying an investment property, which has different rules than a primary residence.
Get Preapproved First
One of the biggest pitfalls that home buyers of any kind make is searching for a property before securing financing. Let’s say, after months of searching, you find the perfect rental property. But by the time you get preapproved for a mortgage, the house is already under contract with another buyer. Get preapproved now and have the ability to jump on a good deal at a moment’s notice.
Another problem with searching before being preapproved is that you don’t actually know how much money you qualify for. It would be heartbreaking to be looking at houses at one price range, only to find out that you qualify for less. Getting preapproved allows you to make an educated decision about the investment property you plan to buy.
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.
What type of neighborhood should you be looking in?
Well, each person’s strategy is different, but here is how I analyze properties and scout out neighborhoods:
I evaluate them as one of three categories…
These are in “pride of ownership” neighborhoods occupied predominantly by homeowners. The houses are typically well maintained with green lawns, tree-lined streets, etc.
These tend to make great homes to impress your friends, but don’t usually pencil out as great investments. I stay clear of these areas.
This typically has the largest range of products between the three classes. These houses usually serve the greatest number of people within the community and have the largest amount of inventory.
I usually try to target a neighborhood where there is a large portion of blue-collar workers and where there is a 35%/65% ratio of renter to homeowner. You can usually tell if you’re in one of these neighborhoods by the number of utility vehicles parked in driveways – cable repair vans, constructions trucks, etc.
These are in “run-down” neighborhoods occupied predominantly by renters.
These rental properties typically have a high renter turnover rate. People tend to RUN in these areas at night, NOT jog. There’s high crime, gang and drug activity, substantial cop presence, etc.
I am not saying these are poor investments; typically the cash flow on these deals can be high. But the successful investors taking these on are probably running a tight operation and have a specialized property management team in place. For someone looking to acquire one or two investment properties as a way to supplement income, I would recommend against this. I haven’t purchased one and I don’t think John is eager to buy another one either.
Join a Real Estate Investment Club
Just about every city has at least one real estate investment club. Join and meet people who are already running successful rental businesses. You might be able to partner with some, splitting costs and risks. Either way, you will gain valuable knowledge and learn from others’ experiences by being part of the club. Most clubs also network property listings and have investor members seeking project partners.
13) Marketing strategy
A well-designed marketing strategy will help you keep all your rental properties filled with quality tenants year after year. There are multiple ways you can reach your potential tenants. Let’s take a look at some of the most popular and effective marketing methods.
Your rental property website is often a potential tenant’s main destination when determining whether or not they want to reach out to you to schedule a tour or even rent on the spot. Make sure your website is fast, mobile-friendly, and built with the customer’s experience in mind. Slow load speeds, outdated information, and unintuitive search functionality will only deter your site’s visitors.
Work with a web developer, copywriter, and Search Engine Optimization (SEO) strategist to help you build a website that shows your rental properties in the best light possible.
Email marketing is a great way to follow up with potential tenants who may have submitted their information to learn more about a property but have yet to rent from you. Design a series of newsletters or marketing emails meant to educate and build trust. You can also advertise new property rentals as you have them. The more helpful your email marketing content is to your reader, the more likely they will want to work with you in the future.
Social Media Marketing
Social media allows you to promote your vacancies as well as your company. Build brand authority with great photography and helpful, informative captions. You can also add ways for interested parties to get in touch with you about a property.
Some major social media platforms to consider for your marketing strategy are:
Google My Business
Google My Business helps your company get found on—you guessed it—Google. This applies most specifically to Google local search but may also help you rank better nationally when paired with an effective SEO strategy. Register for a free account, enter your business information, and you’re set!
Word-of-mouth and referrals
When you find a great tenant, you want to keep them. What’s more, you probably want to find more tenants just like them. That’s where word-of-mouth and referrals come in.
Offer an incentive to current tenants if they refer more potential tenants your way. A common incentive is to offer a certain dollar amount off their rent the month after a referred tenant signs a lease. Remember that you can harness social media for word-of-mouth as well, so encourage the circulation of your “available for rent” posts on all your platforms.
7. Remember to renew your leases
If mom-and-pop landlords have one glaring blind spot, it’s the failure to renew tenant leases in a timely manner, according to George.
“You’d be surprised how many landlords don’t renew their leases every year, so they’re letting their tenants go on month-to-month leases,” she says. “What’s wrong with that? What’s wrong is, their whole thinking is that now, if I want to get my tenant out, I can’t because now they’re not strapped to a lease.”
“Also, they can’t raise rent,” says George. “The only way you can change rent is if you have them sign a form changing the lease every year. That’s how you keep your tenants in check. When you let it slide like that, it can be really difficult to get your tenants back on track,” George says.
Depending on the state, county and city where the property is located, landlords can give notice of eviction for a specified period. In California, where George is based, the state requires landlords to give 60-days’ notice for tenants who have lived in the property for more than a year (or 30 days for less than a year), though the situation may be different in rent-controlled cities. The landlord also might offer a new lease contract at the same time.
Keeping Track Of Repairs
Since you’re making income from this investment property, you’ll be expected to pay income taxes, but the good news is that rental properties offer some great tax benefits. Whether you’re hiring someone to make a repair, paying interest on the mortgage or simply driving to your property, there’s a wide range of potential deductions.
Words of wisdom: You’ll need to make sure you keep track of these expenses – which means receipts – on the off-chance that the IRS comes knocking. To get the full value of your investment property, you should be making the most of your tax deduction opportunities.
This is another perk of using a management company. They’ll keep track of all of your rental expenses and send them to you in a nice document during tax season. Once again, the amount of time this saves you is worth the money.
You know how much location matters when making a rental property purchase. But, have you thought about your business location as well? Do you require an office location, or will you operate from your home? If you feel that leasing a space is your best option, work with a real estate agent. Realtors can help you find the right fit for your budget and needs.
Should I Find a Real Estate Investing Partner?
A real estate partnership helps finance the deal in exchange for a share of the profits.
Instead, you can ask your network of family and friends, find a local real estate investment club, consider real estate crowdfunding, or search for social media groups that target real estate investors.
How To Write A Rental Property Business Plan
Starting a rental property business is one thing, but learning how to write a rental property business plan is entirely different. While the two sound similar, the latter is critical to making the former even stronger. At the very least, knowing how to start a rental property business must come before actually starting one. As a result, investors will need to familiarize themselves with the most important steps first:
Determine a vision and write a mission statement
Set passive income and business goals
Build a team structure that is conducive to success
Gain a high-level overview perspective of the company as a whole
Develop marketing systems and funnels tailored to a specific audience
[ Ready to take the next step in your real estate education? Learn how to get started in real estate investing by attending our FREE online real estate class. ]
A truly great rental property business plan must emphasize one thing above everything else: the investor’s vision or mission. What an investor hopes to achieve by investing in real estate may simultaneously serve as motivation and a guide when times are less than ideal. Therefore, investors must take a minute to think about why they are investing. Is it to retire comfortably? Is it to spend more time with family and friends? Is it both of these things? Knowing their “why” will help investors build out a sound business strategy, one that gets them closer to their goals with every investment. Consequently, those without a mission won’t know what direction to head, which doesn’t bode well for any rental property business.
2. Passive Income Goals
While closely related to one’s own vision or mission, passive income goals identify how much cash flow will be necessary to satiate investors’ appetites. That said, passive income goals should help investors meet their own mission statement. Likewise, if an investor wants to retire comfortably, they will need to set their passive income goals high enough to facilitate their desired retirement. While everyone’s passive income goals will be different, a general rule of thumb accounts for how much cash flow will be necessary to maintain their preferred lifestyle.
Remember, goals should be realistic and directly related to the reason someone wants to invest. Seeing overly ambitious goals can deter many investors from progressing, so the goals must be achievable. The sense of accomplishment developed from realizing a goal is, oftentimes, a powerful motivator.
Determining passive income goals will also help answer the most important question of them all: what type of rental property will I focus on? Residential? Commercial? Multi-family? Start from the end and work backward for better results; it’s the best and most efficient way to build a business.
Starting a rental property business may lead many investors to hire a team. After all, it’s true what they say: many hands make light work. The more qualified individuals investors have worked towards a common goal, the more likely they are to realize success. Not only that but hiring a competent real estate team is simply one more step towards investors removing themselves from the equation and earning more passive income. That said, it’s not enough to hire just anyone; the employees need to bring something new to the table. Investors need to hire a team that complements their skills—not that replicates them. That way, the team structure is more well-rounded and capable of accomplishing more tasks.
4. High-Level Overview
Investors need to look beyond the prospects of a single investment property and towards the potential of an entire portfolio. While a single home can produce encouraging cash flow levels, an entire portfolio can help investors realize financial freedom. Therefore, it’s important not to forget the “bigger picture.” Sure, start with a single home, but plans should inherently be scalable. When writing a rental property business plan, see that everything can be expanded to include future growth.
Buying a rental property is just the first step on a passive income investing journey. At some point, investors need to figure out how to find tenants to bring in cash flow. More often than not, investors will rely on their property managers to fill vacancies. However, in the event an investor neglects to hire a property manager, there are various ways to find tenants, not the least of which include:
Local bulletin boards
Direct mail campaigns
9. Dont forget rental property at tax time
There’s a singular ray of sunshine that beams down upon income property owners each spring as they hunker down with their accountant to prepare their federal income tax return.
“When you have your own home, you can write off the interest and that’s about it,” George says.
“But when you own an investment property, your Schedule E tax form enables you to write off nearly everything under the sun, from painting the home to changing the light bulbs.
“So, even though you have rental income to report, you can show less income than you’re actually collecting and write off your mortgage payment and interest while building equity at the same time,” George says.
It’s that powerful combination of tax benefits and investing returns that helps keep investors interested in rental properties.
What I wish I knew before I bought my rentals
I talked about my first rental already, but I bought more rentals in the next few years. I was not able to buy 10 rentals all at once, but I did buy:
- 1 my first year.
- 1 my second year.
- 3 my third year.
- 3 my fourth year.
- 5 my fifth year.
- 3 my sixth year.
It took time to save the money to buy rentals as I was putting 20 or 25 percent down on all of them. I was married and had kids at the time, so I was not in a position to be able to keep buying owner-occupant homes and turn them into rentals, or maybe I could have… but we can’t change the past, and I did not use that strategy. I could have bought many more much faster if I knew what I know now, but things still worked out great.
My first rentals all cost from $80,000 to $115,000. Most needed from $10,000 to $15,000 in work, and they rented out for $1,200 to $1,400 a month. I got awesome deals on all of them.
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 planWithout 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.
A rental property business plan is required to understand how to start a rental property business and how your rental property will contribute to your monthly income. Without paying a property manager, having the right tools on hand can help ease the stress of managing a property while also saving you time.
Confidence is more than just a pleasant mood fueled by affirmations and “feel-good” mantras. Webster’s Dictionary defines confidence as “the state of feeling certain about something.”
Meanwhile, there may be no more excellent confidence booster than a successful rental property business plan, and this article is perfect for how to start a rental property business. You’ll find wealth-building aims more feasible than you ever imagined imaginable by laying out your precise goals—and the procedures you’ll use to achieve them.