The key that holds successful entry into the world of rental property investment lies in a document that many business professionals are familiar with: the business plan. This document is essential if you are to analyse your current investment position, project your investment goals, and identify specific courses of action to achieve these goals.
So here are guide questions for you to consider as you go about creating your business plan.
WHAT ARE YOU GOALS?
A goal, simply stated as, ‘I’ll make money through investment property,’ is no goal at all. Going back to the basics, your goals should be SMART – Specific, Measurable, Attainable, Realistic, and Time-Bound. As you set your goals, consider these questions:
Do you want to be a landlor full time or part time?
Do you have other jobs that you need to give up if you are going to do this full-time?
How is your income affected if you give that job up?
Do you want to invest in residential or commercial property rental?
Do you want to invest for capital growth for future selling, or do you want to generate a steady source of income?
WHAT INVESTMENT PROPERTY ARE YOU INTERESTED IN?
You might be thinking that you’re cut out to become a rental property investor. However, given that there are many types of property investment for you out there, and that there are many property investment strategies available, you have to make sure that rental property is the best fit for you.
Again, this goes back to your goals and your values as a property investor and your tolerance to risk. Investing in rental property requires a long-term commitment, requires your time, and requires that you be familiar with the prevailing tenancy laws in the property’s area.
WHERE DO YOU WANT TO INVEST IN?
Location matters, not only for prospective home buyers but also for investors. We’ve mentioned above that if you become a landlord, you have to be prepared to carve some of your time out to focus on how your investment, your tenants, and your numbers are doing. And then there’s the need for you to allot some time to commute to your rental property. At times, you might have to be on a plane if it’s too far away from where you live.
So consider whether or not you’re prepared to invest in places far from your current location, or if you want to focus on rental properties within your immediate area.
WHAT ARE YOUR NUMBERS?
There’s a good deal of preparation needed if you are to invest in rental property. That’s most especially so if it’s your first time. Some of the things you need to take into account are as follows:
What’s the initial investment needed?
How will you come up with the money if you don’t have a starting capital?
How much monthly expense towards the property are you anticipating?
How much emergency fund will you need to cover for repairs and maintenance?
How much will you need to make up for vacancy?
How much money will you allot for marketing?
How much income are you expecting?
How much taxes will you owe?
The questions above will allow you to consider things like mortgage payments, vacancy rates, rent price, taxation, insurance payments, rent arrears, and so on. What you need to do is to cover all bases by considering where money is needed, how much is needed, when its needed, and where and how to get it.
HOW WILL YOU MARKET YOUR PROPERTY?
So with all things in place, you’re ready to accept tenants. The question is, how will you attract tenants? Where will you advertise? How will people know that your investment property is up for lease?
Advertising your property requires understanding of tenant preferences. Knowing how they end up choosing a place to rent is important so you can pattern your marketing efforts and target them.
Then again, there are different tenant groups. Do you want a growing family to rent your property? Do you want students, couples, or individuals to pick your place? Or can anyone just submit a tenant application and you make a selection based on their credentials?
HOW WILL YOU MANAGE YOUR PROPERTY?
Consider your goals. Would you be managing the property first hand or would be hiring a property manager? If you decide to manage the property by yourself, are you willing to assume landlording responsibilities? If you hire a property manager, how will you select the agency? What will you be looking for in a property manager? How do costs fit into your overall financial plans?
HOW WILL YOU MANAGE THE TENANTS?
Tenant management is just one aspect of rental property management. From marketing to tenant application, screening, and selection, to tenant legal forms preparation, trust account setup, up to tenant eviction or lease expiration, landlords have a lot of things to manage. Then again, how you approach these processes determines whether this will be a pleasant or an unpleasant experience for you.
Just like any other types of investment, the investor needs to be accountable and responsible for the things that makes the investment prosper. So be clear about how exactly you want to manage your property, and whether you’ll consider delegating your tasks to a property management agency.
WHO WILL HELP MAINTAIN THE PROPERTY?
Some investors are hands-on in their investments that they get involved with the affairs of their investments directly. So considering that your rental property needs maintenance and some repairs, consider whether you’ll be doing them yourself or whether you’ll be hiring contractors to do maintenance jobs for you. Factor this in on your budget.
WHAT WILL YOU DO IF IT DOESN’T WORK OUT?
When you’re just testing the waters on rental properties, you’ll learn a lot of things along the way. And while some property investors do succeed, some encounter challenges. Those who encounter challenges can either survive it or not. So if investing in rental property won’t work for you, what will you do? Setting up a contingency plan is important so that you can recover in a timely manner.
Remember that not every investor is cut out to become a rental property investor. Unlike property flipping, leasing a property requires more responsibility, skill, and most of all, patience.