Starting a rental property business implies dedication, hard work, and strategic planning. It’s an undertaking that takes up a lot of time and requires careful consideration. It may be so, but investing in real estate and becoming a landlord is worth it.
Real estate has high leverage, which means that you can easily get a loan for this investment vehicle. What’s more, rental property has the highest ROI. You get a fantastic return on your investment. At the end of the month, you’re generating profit after all the rents are collected and expenses are taken care of.
Owning an asset that produces income is better than owning an asset that generates expenses. If you’re investing in real estate for the first time, you must surely be wondering how to start a rental property business. These tips will help you get started.
Choose your niche
The demand for accommodation units continues to be strong, driven mostly by increasing wages. In the United Kingdom rents are expected to rise for the next 5 years. The current situation is favourable for investing in real estate. The best thing you can do, as a real estate investor, is to create a niche – that is, an area of specialisation. You’ll be able to build trust among the clientele and, of course, close more deals. It’s easier to make a name for yourself when you have a clearly defined area of specialty.
The rental properties you’re most likely to come across are:
- Long-term rental properties: They are for extended periods of time and demand commitment from the tenant. You receive monthly or yearly rent. The biggest advantage of renting a place as a long-term rental is the constant income. You don’t have to worry about seasonal fluctuations.
- Short-term rental properties: When renting out a property daily or weekly, you can charge higher rates. People prefer renting short-term units because they offer plenty of room and privacy is ensured. Companies as well use short lets as a cost-effective solution.
You need to consider the pros and cons when making a decision. If you’d like to invest in, say, short-term rental units, you’ll encounter difficulties because the rules on letting out accommodation for less than 90 days are complicated. Conduct a market analysis and investment property analysis when selecting the optimal niche.
Decide where and what to purchase
It’s not possible to see into the future and know where the best places to invest in real estate are. In the United Kingdom, the hottest place used to the north of the Midlands. So, what towns and cities are worth considering now? Newcastle upon Tyne is an excellent place to invest. Other examples are:
- North East
If you’re keen on making a decent profit, avoid the following places because they have the lowest rental yield in the country:
As you can see, it’s not a good idea to purchase investment property in London. The capital is a challenging place in terms of real estate investing. Property is affordable and people aren’t interested in renting accommodation. They would rather become homeowners than pay rent each month. Investing in an out-the-state property isn’t a good idea. Buy in areas you know very well or you have thoroughly researched.
Use your home for financing
Having cash for the down payment is the simplest way to enter the real estate market. You can’t start investing a in rental property without any money. If you’ve built enough equity, you can borrow against the home. Use the equity in your home to get a loan for the rental property. If you’re not planning on staying in the home, let it out. You already have knowledge about the condition of the house, not to mention the desirability of the neighbourhood. If not, take out a home equity loan. You can take a large lump sum of cash up front and repay the loan with time. There are other financing solutions you can resort to, but keep in mind that the bank won’t offer you an advantageous loan if you don’t have any kind of experience.
Understand your legal responsibilities
You must understand your legal obligations when you start a rental property business. If you do not meet your legal obligations, your business will suffer. The laws are put in place to protect both the landlord and the tenant. Become familiar with the legislation and the best practices. As a landlord, you have to:
- Ensure the properties are safe and free from hazards.
- Maintain gas and electrical equipment.
- Offer an Energy Performance Certificate for the property.
- Protect the tenant’s deposit.
- Provide the tenant a copy of the How to rent checklist.
Attention needs to be paid to the fact that no landlord is exempt from the Landlord and Tenant Act. Put legality on your agenda. If you need help, hire a legal professional. A lawyer can help you with landlord-tenant compliance. In some situations, you’ll benefit from the lawyer’s help. When you extend your real estate portfolio, you will need several legal professionals on your staff.
Find good tenants
You can’t have a rental property business without tenants. Good tenants are hard to come by these days. What do you do if you have a home available for rent? You can’t let the property to sit for weeks at an end. Well, you can use the services of a letting agent. Letting agents have a flair for finding good tenants. A specialist will ask applicants about discrepancies, look at their social media profiles, and pay a visit to their current home. If you wish to take matters into your own hands, set up a system for applications and buckhound screenings. It’s not difficult or time-consuming to learn the essentials. Let the prospective tenant know what is expected of them and draw up the contract right away. In other words, sing the tenant to a lease. If you want people to continue to rent from you, offer small incentives like a deduction from the rent.