So you’re looking to get into the business of renting out property…
It’s definitely a sound financial investment; there will always be a need for housing, whether for the long-term or for a weekly stay. But before you go ahead and acquire your first property, be aware that it is not as simple as it sounds. To ensure that your investment pays off, we’re here to walk you through the first steps in what could very well be your retirement plan.
1. Figure Out Your Business Model
Before you start interviewing tenants and setting up leases, first figure out the type of rental property you’re going to get into. Are you looking to set up a long-term rental arrangement? Or will you be catering to shorter ones, such as extended stays and weekly stays? Each model has its pros and cons, and it’s important to look each one over before deciding which suits you better.
Knowing what business model you’re going for lets you build everything else around it. It will determine your target demographic for one thing, as well as the renovations you will have to prioritize. The rental property business is reliant on the long-game, and having a plan makes it easier for you to earn back your initial investment.
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2. Understand Your Market
With the millennial generation transitioning from higher education and into the workforce, they comprise a significant amount of renters in this day and age. From the newly-grads seeking out internships, to the employees relocating closer to work, it would be well worth your time to try and appeal to their needs to make sure your space stays active and relevant.
Depending on your area, you may also have professionals on the go, or even tourists. Prepare the space accordingly. If the area is frequented more by folks who will only be there for weeks at a time, cater to weekly stays and advertise the space as such. Focus on the market’s demands, and deliver.
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3. Location, Location, Location
Your property’s location is half its draw for any potential tenants. Some areas are more popular than others for a number of different reasons. These places may exhibit growth in employment rates, population, or affordability. The exact reasons determine if this is a spot that’s best for long-term leases, or weekly stays.
If this is your first foray into the rental property business, you should aim to keep your costs manageable. Rental property, in its early stages, is passive income. Whether you spend on prime property or something more cost-efficient, it will still take years for the money to really start coming in at significant amounts. This holds true even if you increase the frequency at which you receive tenants, such as with extended stays or weekly stays. Always aim to make your money back first.
4. Know Your Neighborhood
Once you have chosen a location, it’s time to look at your property at the ground level. Tenants tend to look at different factors depending on the nature of their stay and the duration. Tenants looking to rent for months at a time for instance may work in the area. Transportation as well as affordable utilities would be their main concerns. Those passing through for a weekly stay, such as tourists, may focus on landmarks or commercial areas instead. Always know what your property has to offer, and how to overcome its shortcomings.
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5. Get a Real Estate Developer
Renovations come with the territory of rental property. The moment you acquire the property, there will be points of improvement. Unless you are a professional real estate developer, you may find yourself fumbling through this process. This is especially so if you have a tract of land and are looking to create a rental property from it. Never hesitate to hire a professional.
A real estate developer will have the connections and the experience needed to properly manage the creation or renovation of your property. If you are looking to become a successful real estate developer yourself, start small. Work on property for extended stays and weekly stays first, and then build up from there. It will let you get a feel for the business before you sink in more resources into it.
6. Understand Your Fixtures
A sort of middle-ground between utilities and furniture, fixtures are anything considered to be “permanently”, physically part of the rental property. These are the bookshelves, the cupboards, the lighting, the plumbing, etc. By property laws, fixtures are part and parcel to what you’re allowing the tenant to rent. This is as opposed to movable or removable parts that are considered personal property.
Fixtures tend to come up more often as a concern in long-term arrangements. When tenants bring in their own personal property and attach it to the rental property, disputes may arise down the line. With extended stays and weekly stays, fixtures will usually just be a matter of occasional repair and maintenance.
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7. Sort out The Furniture
Finally, the core of the furnished rental property: Furniture. The question is often whether or not you should fully furnish your property. For this, it would help if you looked at things from the tenant’s perspective.
For weekly stays, a furnished space can be more enticing out of sheer convenience. For arrangements in the long-term, you can opt to only provide the basics. Your tenants may have their own furniture after all, or at least their own vision as to how the space should be furnished. Still, for those looking to relocate to a whole new city, booking a furnished apartment may actually be the best move.
Whether you’re looking to secure a long-term arrangement or set up a hotspot for weekly stays, the rental property business is a waiting game. Just remember to never spend more than you have to, and to manage the costs. In a few years’ time, maybe even some more property down the road, your investment will definitely be all worth it.