Developing a Business Through Rental Properties

With the financial crunch, individuals and families are turning to home or apartment rentals, rather than investing a huge portion of their monthly expenses to a home mortgage.  This is coupled by the emergence of plenty of investment properties sold at “wholesale prices”. This environment presents a good opportunity for building a business with rental properties.

Below are some factors to consider whether managing rental properties is the right business proposition:

–          Rental rates for leased property. Remember, with real estate, the key secret is location, location, location. A potential rental property entrepreneur needs to study the best locations for rental properties. This includes areas where there are plenty of students and young couples, who are more apt to look at renting instead of buying a home.  The location of the property will help determine the monthly going rate for the rent. Of course, to make a profit, the expected monthly rental should exceed any loan payments, maintenance and repairs costs, insurance premiums, taxes, landscaping and so on.

–          Availability of all-around handyman. Initially, landlords need to be able to DIY small construction and maintenance projects. Getting a house ready for occupancy may require some work – fixing that broken stair, ensuring that there are no leaking pipes or doing some work on the yard. If the owner is not a do-it-yourselfer, he should be able to know someone he can trust to do the job. Indeed, as the rental property business expands, the business may need to hire additional manpower to respond to the tenants’ needs.

–          Landlord responsibilities. A landlord is not simply one who collects the monthly rental fees. He is the tenant’s go to person when there is a problem with the rental property. This includes busted pipes, noisy neighbors that are also your tenants, implementing an eviction for non-paying tenants and securing the rental property. In other words, it is not an easy job. A landlord can screen tenants in order to minimize the possibility of having problems, but it still requires serious consideration before one decides to become a landlord with all its responsibilities and potential liabilities.

–          Startup capital. A savings account is the best source for startup capital. However, not all entrepreneurs have that much money in the bank. Bank loans may also be hard to come by, especially if a person already has at least four properties mortgaged to his name. Banks also require the property to be in superb condition, which may require a potential buyer to have repairs on a house that he does not yet own. Another option will be to apply for a hard money loan, which leverages the equity of the rental property. This type of loan is similar to a bank loan in that one still has to cover the 20% down payment and other closing costs. But the fast loan funding companies are more apt to fund a property that still needs some fixing. With a hard money loan, one can secure the rental property, fix it and put it up for lease. By that time, a traditional loan from the bank is more easily obtained. Hard money loans charge higher interest rates but offer an opportunity to get started in the business.

–          Expansion. If you plan to venture into the rental properties business, seriously consider expanding the number of properties you have. This can provide economies of scale that comes from buying construction materials by the bulk, getting good deals with the contractor because of the amount of business you are able to give and maximizing any manpower you hire for the properties’ maintenance and upkeep.

Better Than Loans is a reputable provider of hard money loans, including loans for investors who are thinking of starting a rental property business. Better Than Loans facilitates real estate startup capital through various types of loans, such as apartment building loans and bridge loans.