So, you’re thinking about getting into the rental property business? We’ve heard many times: More wealth has been created through real estate investment than almost any other industry. Starting small with residential rental properties, such as single family homes we own and manage, is a great way to build wealth while developing skills and strategies to grow our business. In this series of articles we’re going to discuss getting into the rental property business in three parts: Considerations, Planning and Launching. When we’re done, we’ll be ready to start our business. Considerations are simply questions that determine if the rental property business A) is right for us and B) can be operated profitably given our resources and capabilities. Let’s start there.
The rental property business is very simple – we buy rental properties, lease and manage them. Within the details of those simple tasks lie the work that gets our hands dirty. We need to be skilled in finding the right properties, negotiating the purchase, preparing the property for tenants, finding tenants and managing day-to-day rental operations. There are sub-tasks within each of those functions, but we’ll address those details when we discuss Planning. For now, we must consider if we want to spend our time performing any or all those tasks. If not, are we willing to hire someone to perform them? If we don’t have the knowledge or skills needed to operate our business, can we learn or develop them? Hands-on real estate investing is not “mailbox money” – we will have to do much or all the work ourselves or have a basic understanding of the work we hire others to do. Our first consideration is do we want to do this type of work? Will we enjoy doing it? Is the potential result worth the effort?
Our next consideration is how does this fit into our lives? Do we want to keep our day job and operate rentals as a part-time gig or do we want to grow our business to the point that it can support us financially on its own? If we plan to manage the properties ourselves, can we be available 24 hours a day, seven days a week to handle emergencies? Business start-ups of any type require a substantial time commitment.
Our final consideration is can we make a profit operating this type of business? In addition to the skills and desire addressed above, do we have the time and start-up cash to get started? Do we have strategies that will make our business profitable given current real estate market conditions and availability of properties to purchase? To get started, we’ll need a financial model to analyze potential purchase opportunities and at least one property we can green light (buy). If there are no acceptable properties available, it could mean we need to wait for one to come along, consider making unsolicited offers, or perhaps develop better strategies.
Our considerations boil down to can we? and should we? If the answers to both questions are Yes, we should write down a few details about how we intend to operate our business, which we will cover in Part 2 – Planning. Subscribe to this column (see sign-up in right margin) or check back on our home page.
Have questions about getting into the rental property business or other real estate issues? Drop me a line: Contact Us.
About Real Living with Broker John™
Each week Real Living with Broker John™ provides innovative tips and information regarding all aspects of owning, buying and selling real estate. John Souerbry is Broker/Owner of Cordon Real Estate, a full service brokerage in California’s San Francisco Bay Area (CalDRE License 01370983). Contact John with questions or comments regarding Real Living or real estate in Wine Country/North Bay, East Bay and Silicon Valley.
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