Business Overview

In the rental property industry, entrepreneurs invest in one or more single family homes. These income-producing properties are either self-managed by the owner or by a property management company. Owners lease their rental units out to tenants in exchange for rental fees.

Who is this business right for?

Many people are drawn to this business venture, as they recognize the short and long-term value of investing in real estate. Through their tenants’ rent payments, owners are able to successfully manage each property’s mortgage and expenses, while building equity and further expanding their portfolio. Those with discipline and a sound business plan are able to reach their passive income goals on schedule and under budget. This business is not right for everyone, however. Successful home rental business owners must be confident enough to take investment risks and disciplined in saving money, both for additional investments and to ensure their current investments are properly maintained.

What happens during a typical day at a home rental business?

Until you have accrued a great deal of property investments, the home rental business will typically not require your attention on a daily basis. In fact, many business owners choose to use this as their primary source of income, while working on part-time projects they are passionate about.

Your responsibilities include:

  • Finding and screening tenants when one of your properties comes up for rent.
  • Having leases drawn up and signed by both you and your tenants.
  • Managing properties, handling issues as they arise.
  • Researching common repairs that are typical in rental properties and interview contractors, plumbers, and/or handymen, etc. that can handle problems you are unable to address yourself.
  • Networking within the community would also prove beneficial. Many property owners choose to join local real estate investing associations. This can lead to potential business partners. Additionally, the contacts you make will prove invaluable in ensuring you are able to manage your property successfully and economically.

What is the target market?

When considering potential investments, consider your target market. Do you want to fill your portfolio with HUD housing or do you wish to target tenants in a different demographic? While both are positive investments, defining your demographics will ensure you purchase property that can yield your target returns.

How does a home rental business make money?

As a landlord, you will collect rent from each of your tenants on a monthly basis. This does not, however, guarantee that your investment will generate passive income. When determining your rental rates, carefully consider all ongoing expenses. Collecting rent higher than the property’s expenses will ensure an income each month. Entrepreneurs just starting out in this industry are urged to invest in properties that can generate a steady cash flow and to set money aside each month for unexpected expenses that will come up from time to time.

The most significant income, however, comes from your long-term investment. The equity in each property will be a meaningful asset in your portfolio. A majority of rent collected will go towards your business’ profits and, when you so choose, you can sell the home at a higher price than your initial investment.

What is the growth potential for a home rental business?

This business venture offers significant opportunity for growth. While some landlords choose to stick to local investments, the only real limitations are available cash flow and your personal vision. Many entrepreneurs choose to expand their portfolio to include properties across the country, or even the world. When considering investment opportunities outside of your region, it’s important to conduct thorough research. Not all properties increase in value or offer enough rent to cover all expenses.