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How to Set Up a Business for Rental Property

If you’ve been asking yourself how to set up a business for rental property, take some time to be clear about your goals, consult an accountant, and make sure you’re ready before you start. Becoming a landlord and setting up a rental business is typically not something that should be done on a whim. It takes hard work, planning, and commitment. But if you’re ready to become an entrepreneur and start a home-based business or side hustle for passive income, it could be the perfect fit for you.”

Today, I’m going to teach you how to set up a rental property business with no money! Many people would say that you can’t invest in real estate if you don’t have the money to invest. But I know a lot of people who have started funding their properties with a credit card. Don’t go crazy and spend your future on it, but sometimes you can use that as leverage. In this guide, I’m going show you exactly how to do it!

A business for rental property clearly sets the expectations between owner and renter, which makes communication easier. And if you choose to manage more than one property (which many real estate owners do), setting up a business makes that easier, too. Basically, it’s an easy way to separate business from personal expenses.

Learn how to set up a business for rental property to maximize your profit potential. Setting up a business for rental property could be just what you need to secure a passive, recurring income in retirement. Here are the resources I’ve gathered together to help you get started.

What is a property company for buy-to-let?

As a landlord, you can buy your properties as an individual and pay income tax, or you can buy them through a limited company and pay corporation tax.

If you set up a company for your buy-to-let portfolio this is known as incorporation.

Landlords who own their properties through limited companies also receive their rental income differently as it belongs to the company. This means you can either pay yourself a salary from the company or take your rental income as dividends.

There is extra admin involved in setting up a company, such as registering with Companies House, registering with PAYE (if you want to pay yourself a salary), and keeping your accounts up to date.

Join A Real Estate Investor Club

Joining a local real estate investing club or association provides networking opportunities, not the least of which may actually help rental property investors find a partner—or perhaps anyone else who may help them further their rental property business plan. Nathan Hughes at DiggityMarketing suggests that “investors need to identify various factors before entering the rental property business. Investors should join some real estate investors clubs as a beginner”. There’s absolutely no reason to think new investors, specifically aspiring rental property owners, can’t find a helpful hand at a real estate investor club. These types of meet-ups are specifically designed to help their attendees, and there’s always someone willing to lend a hand. At the very least, investors will gain insight into local professionals who are most likely already doing the one thing they want to do.

Pick A Niche & Choose A Market

Determining where to invest can often be more important to investors than how much capital or experience they bring to the table. After all, the golden rule of real estate persists: location, location, location. There is perhaps no more influential factor to a rental property investor’s success than the location in which they choose to invest. The location will determine everything from demand and price, not to mention the property’s long-term potential. Therefore, a truly great rental property business plan will want to make sure it answers these questions and many more like them:

  • How distant a market am I willing to invest in?
  • Do I have a team in place to handle the day-to-day, or will I have to commute back-and-forth?
  • How much will commute and market research cost me?
  • How stable and diverse is the economy in a market? Are there various business sectors that can help keep jobs and businesses? Is there one main employer?
  • What’s the average market price for property acquisition?
  • What’s the average rental price?

No rule says investors need to live in the markets they invest in, but there is no excuse for neglecting to mind due diligence and research the local housing market. To invest successfully, investors need to know every detail about a specific area, not to mention the specific niche they intend to serve. If for nothing else, investors need to know their renters just as much as the area they are investing in. Picking a niche, not unlike focusing on college housing or single-family homes, is the easiest way to target a specific audience. Therefore, at this time, rental property investors should decide who they will serve; only then will they be able to tailor their rental property business plan to see their audience’s needs.

Figure Out Financing

Securing financing is probably the biggest hurdle rental property investors face. However, financing a real estate deal isn’t nearly as hard as many new investors make it out to be. As it turns out, there are countless lenders just waiting for an opportunity to give savvy investors the money they need to invest in real estate. Like institutionalized banks, today’s real estate investors have access to more funding sources outside of traditional sources than ever before. Private money lenders and hard money lenders, in particular, have become synonymous with the best ways to secure funding and are as willing to work with investors as investors are eager to work with lenders.

These “alternative” sources tend to coincide with higher interest payments (often three to four times higher than traditional banks), but the added cost is well worth it. In exchange for their higher rates, investors not only receive the money they need to complete a deal, but they also receive it a lot faster than they would if they went through a bank. Whereas banks can take upwards of a few months to distribute funds, alternative lenders can have the money in investors’ hands in as little as a few days—if not hours.

It is also important to note that securing financing should be done before even looking for a home. That way, the investor will know exactly how much home they can afford and which investments are worth pursuing further.

Conduct Research & Hire A Property Manager

Becoming a landlord means investors will be responsible for maintaining the appearance and function of the rental property. However, whether or not the investor is a handyman is a moot point, as hiring a property manager is highly recommended. While it helps to know everything about a subject property, enlisting a third-party property manager’s services is an essential step in a rental property business plan. Through their help, investors may expand their portfolio without adding on countless hours of work. If for nothing else, a property manager will take care of everything. From finding tenants to collecting rent, property managers will see to it that everything is covered. Meanwhile, the investor is free to add more assets to their portfolio and increase their passive income cash flow.

Leverage Your Existing Home for Financing

If you are looking for real estate to invest in, think about leveraging your own home first. You can do this in one of two ways: Use the equity in your home as a down payment for a new property, or simply rent out your existing home while you move into a new one.

If you plan on staying in your home but want to tap the equity, you have a better chance of getting approved for a home equity loan compared to an investment property loan. Until you have rental experience, banks might give you less-favorable loan options on investments. If you plan on moving and want to rent out your home, you already have insight into the condition of the home and the desirability of the neighborhood. This makes it easier to rent.

Develop Financing Options and Business Relationships

Over time, develop other financing options and business relationships so you can build a larger portfolio. This might start with an equity line on an existing rental and potentially include private investors.

Understand Rehab and Maintenance

Depending on the condition of the home when you buy it, you might need to fix it up. Homes purchased through foreclosure or tax deed auctions are often distressed and must be fixed before you can rent them. Even homes in good condition have things break.

If you aren’t handy, develop relationships with good contractors and repair people. These are resources you can’t live without, because you need to trust that people you send to your property will do the job well and not antagonize your renters.

Learn How to Rent

There are a vast majority of ways to rent a property. Some landlords specialize in underprivileged neighborhoods that get approved for Section 8 housing. Others rent homes and apartments to students in college towns.

You might not want to deal with tenants who struggle financially or move annually and would prefer catering to urban families with dual incomes. That’s fine, although there are never guarantees. Focus on rental properties in an area that attracts your ideal client.

Set Up Screening Systems

Set up a system for applications, credit checks and background screenings. Develop a rental agreement or find an online template resource. Talk to the local housing authority to understand the state laws and regulations. Landlords have obligations, as do tenants. Learn these to understand your rights, including how to evict someone legally if you need to.

Run It Like a Business

Start small with one property and grow. While this might not allow you to quit your day job, treat the rental property as a business. Establish a bank account specifically for the property, and keep track of income and expenses. Take classes and educate yourself so you can grow as a landlord.

Speak with your tax adviser about what you can and can’t deduct. If you are serious about making this a sustainable business, treat it as a business from day one. Build your network so you have the right resources as your business expands to more properties.

Get Ready to Become a Host or a Landlord

Renting a room by the day involves answering numerous calls from potential guests, not all at convenient hours. Some people prefer to know why people call them before answering, so you should decide if you want a separate phone number for accommodation requests. If you do, you can use a phone with two SIM cards or get another smartphone. If you have continuous Wi-Fi access, you’ll want to look into Wireless Republic as an alternative to lower your phone bills.

Pro Tip: You’ll also need a planner or a calendar app, a way to track reservations and vacancies. And don’t forget to choose and ensure the desired payment methods.

For example, with Airbnb, you’ll need a bank account that will allow guests to pay with their credit and debit card. It helps to have it tied to a mobile banking app or find some other way to check its balance and receive transaction notifications.

Good to Know: You should also consider setting up accounts with PayPal and Google Pay if you don’t already have them.  You can use existing accounts or set up new ones to use for your rental business exclusively.

What are the pros and cons of setting up a property company?

There are tax benefits to owning a limited company to rent out your properties, although it can be more complicated and time-consuming.

It’s important to weigh up the pros and cons and work out which ownership structure is best for you. Here’s an overview of what you need to know:

Benefits of incorporation

  • owning through a limited company allows you to pay corporation tax, which is usually lower than individual income tax rates
  • transferring a property between companies could mean you don’t need to pay stamp duty, inheritance tax, or capital gains tax, which could save you money
  • restrictions on buy-to-let mortgage interest tax relief don’t apply to limited companies
  • you may benefit from greater legal protection due to ‘limited liability’, which means if something goes wrong you’re only liable for the money you put in when the company was incorporated

Downsides of incorporation

  • there are more responsibilities for landlords with limited companies, such as filing accounts and returns
  • it can be harder to get a buy-to-let mortgage for a limited company, although the number of products has increased in recent years
  • there are costs for switching to a limited company, and if you take profits out of the company you’ll have to pay income tax
  • you’re likely to need specialist advice from a broker or accountant, which could cost you more and make the process longer

Conclusion

A rental property business could be a solid investment opportunity, but there are certain factors to consider before making the decision. When considering “Should you start a business for rental property?” it’s important to outline what you want from your business and how much you’re willing to invest.

If you are asking yourself should you start a business for rental property, I would say… Yes! However, it depends on a few things, including how many properties you own and how you want to handle each one. After all, even if you own just one rental property, it does require a certain amount of oversight and upkeep.

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