Like starting any business, choosing to start your own property rental agency is a tough decision, and one that requires a lot of planning. Already having an idea on how to run a business and understanding the rental property market will help you get ahead of the game, but these are all things that you can also learn as you go along. More and more people are choosing to rent over buying a property and with the likes of Airbnb becoming so popular, it is no wonder many people are looking to break into this market. Here are five things you must consider before starting your very own property rental agency.
Researching the Market
Running a successful business includes doing thorough research about the market you are going to be investing in, as failure to do so could mean that your agency fails before it has even begun. When starting any business, you need to find a name that no other property rental agency has, and you also need to find out how to make your agency stand out from the rest. Before risking your hard-earned cash, you need to understand everything there is to know about real estate investment.
Some of the basic concepts you should know include the different types of properties that can be rented, tax rules and any regulations and laws set by the country and the state. To ensure that you do not accidentally commit real estate fraud or inadvertently become a part of it, view this post to understand what is involved and what you should look out for.
Choosing Your Rental Agency’s Niche
Once you have researched the market and the agencies that are already out there, it is time to see where you fit into this market. It may be that you have found a niche that is not yet available where you are. Although rental properties are a niche in themselves, you then need to choose what kind of rental properties you want to market.
Usually, these are considered as long-term and short-term rental properties. This usually consists of either holiday homes or properties where people may live for years at a time. Learning about the advantages and disadvantages of each type of rental property may help you make up your mind about which one is best for you.
Let’s Talk Money
There are many methods in which you can invest in the real estate market and choosing how you wish to start your own rental property agency will determine how you want to invest. You can use financing methods such as mortgages or you can use cash. Using cash to invest ensures that you will have higher profits and better cash flow, but it also means that you are investing a lot of money into something and you need to understand if the business is worth the risk.
Mortgages are a safer option in terms of not putting in a lot of money at once, but also means that part of your income will then have to go on paying back your mortgage. Mortgages result in lower profits, to begin with, but after a while, you will earn better profits. There are also many different mortgages out there, so it may be worth talking to a financial advisor about which one is best for you and your agency.
This is perhaps one of the most difficult stages of beginning your property rental agency, as choosing the right property is the difference between your agency making it big or failing. This is where even more exhaustive research is needed and you should never just jump into this stage. If a property you have found seems too good to be true, it may well be. You need to take a thorough look at the inside and outside of the property, the neighborhood and the city to understand if the property has what it takes to make some good money and attract customers.
There are a number of ways to check out these facts and this includes searching for similar nearby properties and seeing what the agencies are charging rent-wise, as this will give you a good baseline to understand what you could earn. If there are lots of properties close by and none of them are popular, there may be a reason for this.
To truly understand what kind of money your property rental agency will make, you need to understand the rate of return of your new rental properties. This ties in a lot with the last paragraph and will help you to choose which property is best. The cash flow can be calculated with any rental property and is worked out through calculating the rental income that you will charge and deducting any expenses such fees, etc. If this comes back as a positive number, then all is well. If it is negative, the property may not be worth investing in.
Remember, when looking at cash flow you need to ensure that this includes everything from energy bills to any maintenance work that needs to be done on the property. It is also important for the new agency that you understand metrics, such as cash on cash returns and cap rates. If all of this is very confusing to you, check out this post by Forbes. It is certainly worth talking to a financial advisor if you do not have much experience in this field, as setting up a property rental agency is all about understanding finances to get better profits.
Research is important before you formulate any kind of business plan. If you already know someone in this market, speak to them as much as you can so you do not miss out any important steps. Research any questions you have on the web; it is surprising how much help is out there. Finances are the most crucial thing when starting a property rental agency, so understanding your cash flow in terms of property investment is a must.