If you are an investor in the real estate industry, one aspect that you can focus on and make money from is rental investing. Real estate like you already know is a lucrative business to venture, so you will no doubt find it successful.

However, your success in the rental investing business will be dependent on a number of factors. All of this factors will be examined in this article.

• What is a Rental Property Business?
• How can you Start a Rental Property Business?
• 11 Rental Investing Tips for 2021
• How Much Money do you Need to Start a Rental Property?
• Can you Really Flip Houses With no Money?

What is a Rental Property Business?

A rental property business is a venture through which an investor will purchase and manage one or more income-producing properties. These properties can have one or more units that are leased out to tenants in exchange for monthly rental fees.

Read Also: 9 Smart Home Buying Tips From Real Estate Experts

Investors can have an effective rental plan without having to directly manage these properties; property management companies can be hired to carry out the duties often associated with landlords, such as rent collection and maintenance.

Renting a house may be considered a business endeavor, depending on who you ask. This may seem like a controversial question, and there are at least two answers to take into consideration.

From a financial standpoint, renting a residential property may result in passive income. It is important to note that investors do not have to pay self-employment taxes when reporting their rental properties.

Therefore, many would argue that owning a rental property is not considered a “business,” specifically in the lens of tax filing.

From a career standpoint, however, many individuals make a living on passive income derived from their rental property companies; in this lens, renting a house can be considered a business.

When all is said and done, it’s entirely possible to manage a rental property portfolio as a business, but those with a single rental property may not necessarily need to start a company to collect passive income.

It’s only once the portfolio starts to grow that turning the practice of renting into a business becomes more important.

How can you Start a Rental Property Business?

Learning how to start a rental property business from your apartments for rent in atlanta ga isn’t all that different from just about every other entrepreneurial endeavor. Investors simply need to identify several key elements prior to getting started; that way, they can start their business on a solid foundation.

Here are some of the most important steps to consider when drafting a rental property business plan and becoming a real estate entrepreneur:

Join A Real Estate Investor Club

Joining a local real estate investing club or association provides networking opportunities, not the least of which may actually help rental property investors find a partner—or perhaps anyone else who may help them further their rental property business plan.

There’s absolutely no reason to think new investors, and specifically aspiring rental property owners, can’t find a helpful hand at a real estate investor club.

These types of meet-ups are specifically designed to help their attendees, and there’s always someone willing to lend a hand. At the very least, investors will gain insight into local professionals who are most likely already doing the one thing they want to do.

Pick A Niche & Choose A Market

Determining where to invest can often be more important to investors than how much capital, or experience they bring to the table. After all, the golden rule of real estate still persists: location, location, location.

There is perhaps no factor that is more influential to the success of a rental property investor than the location in which they choose to invest.

The location will determine everything from demand and price, not to mention the property’s long-term potential.

Therefore, a truly great rental property business plan will want to make sure it answers these questions, and many more just like them:

• How distant a market am I willing to invest in?
• Do I have a team in place to handle the day-to-day, or will I have to commute back-and-forth?
• How much will commute and market research cost me?
• How stable and diverse is the economy in a market? Are there various business sectors that can help keep jobs and businesses? Is there one main employer?
• What’s the average market price for property acquisition?
• What’s the average rental price?

There’s no rule that says investors need to live in the markets they invest in, but there is no excuse for neglecting to mind due diligence and research the local housing market.

To invest successfully, investors need to know every detail about a specific area, not to mention the specific niche they intend to serve. If for nothing else, investors need to know their renters just as much as the area they are investing in.

Picking a niche, not unlike focusing on college housing or single-family homes, is the easiest way to target a specific audience.

Therefore, it’s at this time rental property investors should decide who they are going to serve; only then will they be able to tailor their rental property business plan to see the needs of their audience.

Figure Out Financing

Securing financing is probably the biggest hurdle rental property investors face. However, financing a real estate deal isn’t nearly as hard as many new investors make it out to be.

As it turns out, there are countless lenders just waiting for an opportunity to give a savvy investor the money they need to invest in real estate.

Outside of traditional sources, like institutionalized banks, today’s real estate investors have access to more funding sources than ever before.

Private money lenders and hard money lenders, in particular, have become synonymous with the best ways to secure funding, and are as willing to work with investors as investors are eager to work with lenders.

These “alternative” sources tend to coincide with higher interest payments (often three to four times higher than traditional banks), but the added cost is well worth it.

In exchange for their higher rates, investors not only receive the money they need to complete a deal, but they also receive it a lot faster than they would if they went through a bank.

Whereas banks can take upwards fo a few months to distribute funds, alternative lenders can have the money in investors’ hands in as little as a few days—if not hours.

It is also important to note that securing financing should be done prior to even looking for a home. That way, the investor will know exactly how much home they can afford, and which investments are worth pursuing further.

Conduct Research & Hire A Property Manager

Becoming a landlord means investors will be responsible for maintaining the appearance and function of the rental property. Whether or not the investor is a handyman, however, is a moot point, as it’s highly recommended that they hire a property manager.

While it helps to know everything about a subject property, enlisting the services of a third-party property manager is an essential step in a rental property business plan.

Through their help, investors may expand their portfolio without adding on countless hours of work. If for nothing else, a property manager will take care of everything.

From finding tenants to collecting rent, property managers will see to it that everything is covered. Meanwhile, the investor is free to add more assets to their portfolio and increase their passive income cash flow.

Systemize

There are many rental plan options for landlords, such as specializing in low-income neighborhoods or university towns. Alternatively, they can choose to specialize in higher-income, urban neighborhoods.

Different strategies require different skill sets, so landlords may find better success if they pick a niche in which they specialize. However, regardless of the niche, landlords will need to set up a system for running applications, credit, and background checks.

Adding proven systems to a rental property business plan is the surest way to make success habitual. Therefore, investors will need to create a system for every single process associated with rental property investing.

That way, there will always be an appropriate course of action, regardless of the situation. Property managers, for that matter, make it a lot easier to implement systems.

Manage The Properties

Managing a rental property is about far more than just hiring a property manager; it’s about figuring out exactly what systems will be put in place to keep the properties in good shape and the cash flowing in. This means answering queries like:

• Are you going to be a landlord? (Or will you hire a property manager?)
• Who will find and select tenants?
• Will you perform repairs to maintain the property? (Or hire a contractor?)
• Who will perform yard maintenance and other duties?

Your answers will depend on your budget and available time. The key is to use your rental property business plan to map out all management systems beforehand and ensure there are no last-minute surprises.

11 Rental Investing Tips for 2021

As a beginner in the rental property business, you might feel overwhelmed with the different investment opportunities available that you might make a wrong start. So what should you do?

The key to real estate investing for beginners is developing a baseline grasp of the essential aspects of property investment. This includes everything from market research and what to look for in rental property to financing, investment property analysis, and rental strategy execution

Below we have provided 11 tips that will help you invest and get a great result from your rental property.

1. Focus on single-family homes

Novice rental property investors should start with the simplest type of investment properties: single-family homes.

These homes are easier to manage and dealing with one single tenant is highly preferable when you are just starting out. Moreover, the expenditure that comes with single-family homes is substantially lower than multi-family homes.

2. Get your rental property financing in order

Getting financing is an integral step in buying rental property. When it comes to rental investing as a beginner, it is essential to have your financing lined up before making an offer.

Make sure to explore all your options and shop around for the lowest mortgage interest rates.

3. Prepare a rental investing marketing strategy

Unless you are planning on buying an occupied rental property, you will need to come up with a marketing strategy in order to attract tenants. In fact, the last thing you need to deal with in rental investing is a high vacancy rate.

This can severely affect your bottom line and delay your ability to generate a positive cash flow. Before becoming a landlord, craft a marketing plan that outlines how and where you will advertise your property.

4. Use real estate investment tools

Thanks to the advent of AI and machine learning algorithms, there is a plethora of real estate investment tools that are available to investors.

A great example of this is the rental property finder. Thanks to this tool, finding rental properties for sale can be done in a matter of minutes.

Additionally, the property finder gives you access to each listing’s rental property calculator and provides you with a general outlook on the property’s return on investment.

5. Check local rent control laws

It’s important to be familiar with rent control laws before buying a rental property. Checking these guidelines will give you an idea of how rent increases are handled as well as the legal amount of rent to register.

6. Retain the services of a professional property manager

Even if you invest in a single-family home, managing rental properties can pose several challenges to beginner real estate investors. The process is very time consuming and you are likely to make several costly mistakes throughout it.

Working with a property management company will allow you to focus on other tasks and save you the hassle of dealing with tenant-related issues.

7. Explore no down payment options

Buying an investment property with no money is entirely doable. In fact, there are several methods that allow you to invest in a rental property with no down payment.

For example, you can leverage the equity in your primary residence to obtain a home equity line of credit (HELOC) or a home equity loan. Other options include seller financing and hard money loans

8. Consider investing in vacation rental property

Investing in vacation rental property is an evergreen strategy that will always yield good results when used properly.

As a matter of fact, the rental income that these investment rental properties generate is higher than you would get from traditional rentals in most housing markets.

Make sure to narrow your search down to locations with lax short term rental laws and a booming tourism sector.

9. Pick a location with decent amenities

Amenities should always be taken into consideration when crafting a rental investing business plan.

Generally speaking, locations that boast all the essential amenities will attract a constant stream of potential tenants. Focus on areas that have good public transit as well as several schools and universities.

10. Extend your rental investing to out of state rental properties

One of the perks of becoming a rental property investor is the possibility of investing in different housing markets across the country.

As a matter of fact, investing in out of state rental property is an option you should seriously consider. Profitable real estate deals can be found everywhere and there is no reason to limit yourself to your local housing market.

11. Pay attention to economic indicators

The strength of the local economy is one of the most critical factors in rental real estate investing.

Not only should the property you invest in be located in an area with a strong economy, but the future outlook of the real estate market should also be bright.

Keep an eye on the indicators that forecast economic cycles, namely projected employment growth and demographic data.

How Much Money do you Need to Start a Rental Property?

Rental properties are a great investment, but they require a lot of money in most cases. It is simple to figure the cost on a rental property if you are paying cash, but things get more complicated when dealing with financing.

Most banks require 20 percent down when buying a rental property and you have to consider carrying costs and repairs as well.

It can be expensive to buy rental properties since most banks require at least 20 percent down. If you are looking to buy many rental properties, it is tough to avoid putting 20 percent down.

Many banks start requiring 25 percent down once you have four mortgages in your name. Most banks will stop lending to you all together once you reach ten financed properties.

There are ways to finance more than four and more than ten properties with a portfolio lender. Down payments are not the only factor when determining how much money is needed to buy a rental property.

Closing costs

Depending on house values in your area, a 20 percent down payment can be a lot of money. Some houses you might buy are usually right around $100,000, which is about $20,000 needed for the down payment.

You will also have closing costs when purchasing an investment property, which consists of interest, insurance, recording fees, origination fees, tax certificates, appraisals, and more.

It is usually safe to assume closing costs will be at least three percent of the purchase price, but you can ask the seller to pay all or part of your closing costs. You can ask the seller to pay part of my closing costs to reduce the amount of cash you have into a property.

You also may have to pay for an inspection, which can cost $250 to $500 and some sellers such as HUD do not pay for title insurance, which can add another $500 to $1,000.

Repairs and carrying costs

Repairs can add a huge chunk to how much money is required to buy a rental property and you have to wait for the repairs to be completed before it can be rented.

While you are waiting for repairs, you are paying carrying costs on that property, which also increases the money needed. You will have to pay interest, utilities, taxes, and insurance until the home is rented.

In a perfect world, it should only take a week or two to have a professional contractor complete most repairs, but it usually takes longer.

As for repairs, they usually cost more than you think they will. On a house that needs minimal repairs, you still assume that you will need at least $5,000 in work done before it can be rented.

On a house that requires more repairs and updates, you can easily spend $20,000 or more. It is always the little things that take time and add up to big repair costs.

As a general rule of thumb, you can always add $5,000 for unknown costs on any rental or fix and flip that you buy.

Make sure you get bids if you are not an expert at estimating repairs. Estimating repairs can be a very difficult thing to do, even for experienced investors. 

Repairs always seem to cost more than the investor thinks they should and contractors always seem to find more things that need to be repaired.

Total amount needed

Here is a breakdown of the costs that you would normally have on a $100,000 rental property.

Down payment:    $20,000

Closing costs:        $3,000

Repair costs:         $10,000

Carrying costs:      $1,000

Total investment:  $34,000

These figures would be on a home that needs moderate work.

Having to put 25 percent down on a property would greatly increase the amount of money needed. Repairs costs will affect how much money you would need as well.

Another factor to consider is that the bank will want you to have money in reserves when you get an investment property loan.

Can you buy rentals with less money?

There are ways to decrease how much money is required to buy a rental property. You may find a gem that needs no repairs at all, but it is rare to find a home that is a great deal and in good shape.

Rental property number ten and rental property number nine were both in decent shape and purchased below market value. You can ask the seller to pay part of your closing costs when making an offer.

It is very common for a buyer to ask for two or three percent of closing costs to be paid by the seller. If the seller does not want to budge on price, raise the price of the property to make up for the closing costs.

The cash you save upfront will make up for the slightly higher loan and purchase amount.

If you are a real estate agent, you can also save a lot of cash on each property you buy. This decreases how much money is required to buy rental property tremendously.

You may need as much as $30,000 to buy a $100,000 house, but that can increase if many repairs are required or if you have to put down more than 20 percent. You need to make sure you have enough reserves if things do not go as planned.

Remember, if you are purchasing more expensive homes, that number will increase significantly and it will decrease if you are buying lower-priced homes.

Can you Really Flip Houses With no Money?

There are ways to flip houses with no money but be prepared to bring value in another way like wholesaling property by assigning contracts, building a private investor network, or giving up equity in another residence.

Flipping houses with no money requires creativity, sweat equity, and the ability to take on risk.

Flipping houses with no money can be an involved process. Typically, you’ll have to find an attractive investment, convince an investor or lender to put down money, and then invest some sweat equity. However, when people talk about flipping houses with no money, they typically want to know how to finance the property.

You can typically flip a house with no money in the three ways.

1. Flipping Houses With No Money by Wholesaling

A real estate wholesaler contracts with a seller to purchase property at a discount. Then, they remarket the home at a higher price, assign the contract to the new buyer before closing, and never take title.

Wholesalers make a spread from the original contracted price and the amount paid by the new buyer or a fixed fee.

When wholesaling a fix-and-flip property, you’re selling the opportunity to purchase a property without ever taking title. You make an assignment fee for acting as an intermediary.

It is best for beginners to have a real estate attorney review your contracts to make sure you include assignment contingencies and to hold escrow funds.

Wholesaling is right for people who have an existing network of investors looking for fix-and-flip deals.

Wholesalers need to understand their local markets, real estate contracts, construction cost, and investor’s desires for real estate returns.

Most wholesale contracts are bought by real estate investors that want to fix and flip a property. These contract assignment opportunities add value to their business.

The wholesaler finds the property, negotiates a deal with the seller, and the investor goes to closing and rehabs the property.

Pros and Cons of Wholesaling

Wholesaling can be a great way to learn how to flip houses with little to no money down. There are pros like using sweat equity and information to make cash, and there are negatives like being responsible for buying a property you can’t afford.

The pros of wholesaling include:

• Provides a way to get into real estate with less money than traditional methods
• You don’t pay closing cost, down payment, or construction cost
• If done right, it is less risky than putting a large sum of money into a project if you’re inexperienced
• You can do more than one at a time
• You don’t need good credit or loans

The cons of wholesaling include:

• You must be familiar with contracts and knowledgeable about the process
• You need a pool of active and ready investors to purchase your contracts
• You need an exit strategy for each transaction
• You make less than the real estate investor

2. Flipping Houses With No Money Using Private Investors

A private investor or private money partner allows you to purchase begin a fix-and-flip business with no money down. Private money is considered cash from a partner or partners, an investment group, or an existing relationship.

In exchange for their cash, the private money partner expects an agreed upon return.

Things to look for in a prospective partner include:

• A qualified investor: Make sure your partner has access to cash or loan products
• A good communicator: You will need to both be transparent about the purchase, the construction phase, and the sales phase
• Realistic expectations: Investors who bring the cash may not understand all the sweat equity partner does; make sure you both understand your role and scope of work

Once you find a partner, decide together how you will split the workload and the proceeds from flipping the property. Regardless of what each partner brings to the table, make sure you have a partnership agreement in place.

This will help prevent disagreements over each partner’s roles and their expected proceeds.

For example, you identify an attractive fix-and-flip deal and have the expertise to manage the rehab, which is your sweat equity, and your partner uses his resources ― cash or loan ― to fund the deal.

At the end, you distribute the profits equally or according to your predefined agreement.

Pros and Cons of Using Private Investors

Private money has its advantages and disadvantages when using it to flip houses with no money. There are several pros and cons of using private money for flipping houses.

The pros of using private investors include:

• Your sweat equity and construction management skills are valuable and considered equity
• No money down
• Dividing up tasks so that you have less to do
• Splitting the risk if something goes wrong during the deal

The cons of using private investors include:

• You will need to invest the most time, effort, and expertise
• Some investment groups charge members a monthly fee or other costs
• Someone else will need to sign off on your decisions
• Lack of communication between partners can lead to a longer timeline which increases project carrying costs

3. Flipping Houses Using Hard Money Loans

Hard money loans are short-term loans commonly used to fund fix-and-flip projects. Hard money lender underwriters focus on the project potential and the borrower’s experience rehabbing homes more than the borrower’s credit.

If you own a property with equity, you may be able to qualify for a hard money loan.

Reasons investors use hard money loans:

• Quick pre-approval: Lets you know fast if you should move forward with an offer
• Fast funding times: Allows you to close quickly and get started on the renovations
• Few qualifications: Low credit score requirements and no personal income verification
• Interest-only payments: Keeps your monthly overhead lower

To flip a house with no money, ask your lender if they will roll the closing cost into the deal and cross collateralize for the down payment. 

Hard money lenders require 20-25%+ down so you must have equity in another property if flipping properties with no money down.

Read Also: What Are The Best Ways to Invest in Real Estate

A hard money loan, in general, is easy to find, but one with no money down can be challenging. Start by calling hard money lenders and asking about their down payment requirements. Tell them about your project and other properties you own that could be used in lieu of a down payment.

Pros and Cons of a Hard Money Loan With No Money Down

A hard money loan with no money down isn’t a traditional financing tool so that it’s harder to find than hard money loans that require down payments. You will need to have equity in another property to avoid using cash for a down payment.

The pros of using a hard money lender include:

• Loan is acceptable for a distressed property
• More lenient lending criteria, qualifications are mostly based on the property and your cross collateral
• Lending and credit criteria are not as strict as conventional lenders (check your credit for free here)
• Fixer upper properties are accepted
• Short approval process lets you compete with cash buyers

The cons of using a hard money lender include:

• Hard to find these lenders
• Being a short-term loan, a strong exit strategy must be in place
• Must own another property that has a lot of equity
• High closing cost
• Lenders prefer borrowers who have renovation experience

Flipping houses with no money down involves being creative, thinking outside the conventional loan box and working closely with other investors.

Build your network of investors, real estate agents and lenders and buy in a stable or up-and-coming neighborhood and leave enough room for everyone to make money when it’s finished being rehabbed.

Final Words

As a result of its simplicity and high earning potential, rental investing remains the ideal real estate investment strategy for beginners. Moreover, this is the perfect time to get started as the rental market has never been stronger.