Should rental owners have a business plan?
Something to consider when owning rental property is having a written business plan. For many small companies, a business plan in needed to raise money for investment. For a rental owner it helps to organize thoughts on how the rental business will be run. Getting these thoughts on paper can help you create a successful rental business.
To run your rental business properly, put together a simple plan that will help you think through the major points of making your business profitable. Start off with how much you are estimating to spend on down payments, maintenance and repairs. One property I owned required a new water main that cost several thousand dollars to repair. This was not in the plan! Make sure you plan to keep some money aside for unplanned events.
Setting your rent amount is another important aspect that must be analyzed. Just choosing an amount that your neighbor may charge is not always the best strategy. You need to compare differences in properties such as amenities, rooms, condition and location and set the rent accordingly. A comparison may need to be completed regularly to stay accurate.
Consider how you will obtain tenants. Signs, Internet, Newspapers or a Rental Agent may all be alternatives. How much will you spend? When will you begin to advertise? What requirements are you looking for? Will there be a deposit?
Management of the property is often the most critical thing to consider. Will you do all the work yourself or hire someone. What if you are not around? Who do the tenants call for an emergency? Will you have scheduled maintenance? What if a repair is too much for you to handle? Thinking through all of the things that can happen and being prepared ahead of time will help you to be successful.
Some of the other financial aspects of the plan may include setting up security deposit accounts and a bank account for rental income. How much money will you keep aside for repairs? How will you keep track of tax information?
Finally, an often overlooked component of owning a rental property is an exit strategy. Will you sell the property or rent forever? How long will you rent for? What if the property goes un-rented for a long period? What if the return on your investment decreases? Bad experiences with tenants can also get some landlords to want to sell. Give some thought to when you may want to move on from your investment property and hopefully enjoy the profits.
A simple business plan for your rental property can help you be more prepared and keep your investment profitable.
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