For a variety of reasons, including recurring rental income, property value growth, investment diversification, and tax advantages, people invest in rental property.
Real estate ownership has a lot of potential advantages, but in order to increase your chances of success, you should have a plan. In this article, we’ll outline how Should You Start a Business for Rental Property?
Types of Rental Properties
Vietnam’s Ho Chi Minh City is quickly rising to the top of the list of Southeast Asian locations for tourists and businesspeople looking for a great place to live, work, and play. It’s also a great time to look for real estate in the city that you can call home, with lots of opportunities for the adventurous spirit.
You should look into the top five most common types of rental properties in the nation.
How are homes and serviced apartments different from apartments? In its simplest form, an apartment is a rented living space inside of a residential building, setting it apart from a condominium. A typical apartment may have one or more rooms, making it perfect for a family or a single person. One residential complex may contain several apartment units, but each apartment is independent and can either be owned or rented. Aside from the standard rooms that everyone needs, like a bedroom, kitchen, and bathroom, an apartment may also have additional features and amenities. For instance, a studio apartment is perfect for a single person because it only has one space that serves as the dining room, living room, and bedroom, along with a tiny bathroom and kitchen. A loft apartment is made up of several units housed within a multi-story building, whereas a garden apartment is typically surrounded by landscaped areas similar to a townhouse. Although there are now various types of apartments available, most apartment units are by definition studio apartments, which are best for a single person or a small family.
In addition to having all the standard amenities of a typical apartment, a serviced apartment is a high-end type of rental property that also offers additional services from the landlord. This means that in addition to other benefits you might typically find at a hotel, the serviced apartment also offers regular cleaning services, repairs, maid services, and other amenities. For those looking for better space, utilities, privacy, and a longer stay, as well as something extra from the deal, this type of apartment is ideal. In contrast to staying in a hotel, you can still prepare your own meals and spend your time however you like without having to pay extra for the use of the amenities because the lease contract includes everything. A serviced apartment is designed to give the tenant the best luxurious space to make them feel at home. But like most apartments, a serviced apartment has both private areas and areas that are shared by all of the residents.
Row/Street or Detached House
A detached house is a standalone building with its own private patio, parking space, and garden, much like a typical family-owned home. The detached home can have additional features like a pool, boundary fences, a driveway, and a garage in addition to being a single- or multi-story building. This is distinct from a row house or a street house, which are built next to other apartments. The row house may be a multi-story building similar to an apartment, but they typically have more floor space, and the lower levels may be home to offices and retail establishments. Although an apartment complex and a row house may be similar, the latter typically has a common area and public stairways, elevators, and walkways. For foreigners planning a brief stay in Vietnam, apartments are the best option because, unlike houses, the landlord also furnishes them with furniture and appliances. The house rentals, like the villas, are intended for extended stays and for families who require larger workspaces for work and study. How do you decide between renting an apartment or a house? For one or two people, the former is advised, but for families on a tight budget, houses are bigger and better. Although it is more difficult to find houses for rent than both apartments and villas generally, houses are also significantly less expensive than villas in Vietnam.
Since a room rental only has one room, like a studio apartment, it is smaller than an apartment or a house. Renting a room does not deprive you of the same fundamental rights to amenities like water, electricity, privacy, and parking that apply to renting any other residential space. However, you should also check for adequate heating and cooling systems, Internet access, storage, and common areas. Since renting a room is typically less expensive than renting a studio apartment, it might be more practical for single people. It’s also a great option for students and people who are on a budget and want to split the rent with a housemate. Look for apartments close to businesses and educational institutions, though the premium location will probably mean higher rent.
An apartment or a detached home is similar to a city villa, but the amenities and facilities are typically of a higher caliber. The surrounding garden, pool, and access to other amenities you would typically find in hotels set city villas apart from other rental property types. The amenities of a villa also include a garage or parking space, a number of rooms, a fully equipped kitchen and dining area, a spacious living area, an entertainment system, a pool and/or jacuzzi, and access to public spaces like the pool, game courts, golf course, beach, gym, and others. Some city villas offer on-site staff and services as well for a truly opulent stay. When searching for a villa, take into account the villa’s location and the nearby commercial areas, the contract’s inclusions, the unit’s layout, and its size.
How to Launch a Rental Property Business in 6 steps
The procedures for launching a rental property business are comparable to those for most other types of businesses. When you have a plan in place, achieving your financial and investment goals is much simpler.
Here are the six main steps to start a rental property business, though each real estate investor may follow a slightly different route.
- Collaboration and learning
A sound rental property business is built on a solid education. This is because networking and insider knowledge are extremely important in the real estate industry. Reading books and blogs, going to in-person networking events to meet other investors, and enrolling in online real estate courses are all ways that an investor can educate themselves.
A good real estate education program should allow you to proceed at your own pace, offer individualized instruction and one-on-one coaching, and provide networking opportunities through online forums and specialized communities.
A worthwhile online option is Roofstock Academy. There are three plans to accommodate various investing timelines, learning preferences, and financial constraints. Depending on the membership plan chosen, classes may also include private investor communities, group and one-on-one coaching, and exclusive lectures.
- Examine possible investments
Single-family homes and modest multifamily properties are popular choices for first-time rental property investors. That is due to the fact that homes and apartments are widely available, simple to comprehend, and have a wide range of financing options.
To profit from real estate, a variety of investment strategies are employed. Purchasing and holding single-family rental (SFR) properties is among the most popular real estate investment strategies. A one-year lease can be used to rent out a piece of property for the long term, or it can be used for short-term vacation rentals. Before choosing an investment strategy, investors may want to weigh the advantages and disadvantages of both options when starting a rental property business.
Traditional sources, such as real estate agents and the multiple listing service (MLS), as well as online resources like Zillow, Redfin, and Roofstock can be used to find homes for sale that can be used as rentals. The only platform among these options designed specifically for buying and selling SFR homes, small multifamily properties, and short-term vacation rentals is Roofstock.
Remote real estate investing is made easier by Roofstock. To facilitate research, information is provided for each investment property listed for sale on the Roofstock Marketplace, including:
- Property evaluations and inspections for particular properties
- Report with title and insurance price
- Local school results and neighborhood ratings
- If the property is already rented, information about the current lease and rent payments.
- Interactive tools for calculating and visualizing important financial metrics, including cash flow, return on cash, gross yield, and appreciation
- Perform the math
Investors in rental properties seek out properties that produce either a cash flow, an increase in value, or both. Investors examine the potential returns from rental properties using a range of financial metrics, such as:
- Total rental revenue
- operational costs
- Operating profit, net (NOI)
- Rate of capitalization
- Money flow
- Return on cash invested
- Gains in value and rental rates
- Rate of return internally
Investors typically take into account all of the aforementioned data points to create a comprehensive picture of potential returns rather than focusing on just one return metric.
- Available financing
For a variety of reasons, real estate investors finance rental properties, including making a small down payment to control 100% of the property, distributing capital among several investments, and borrowing money from third parties to boost cash-on-cash returns.
Financing options for rental property are numerous and include:
- Traditional financing
- Financed by the Federal Housing Administration (FHA)
- FHA 203(k) loans
- Government funding for veterans
- Real estate self-directed individual retirement accounts (SDIRAs)
- loans for home equity
- Home equity credit lines (HELOC)
- Loans made privately
- Cash advance loans
- Loan portfolios
- Broad mortgages
- investing in a group
- proprietor financing
Buy-and-hold real estate investors may choose to finance a rental property with a fixed-rate, long-term loan to lock in low interest rates as a safeguard against future interest rate increases.
The online mortgage rate calculator made available by Roofstock enables investors to research various financing options provided by independent lenders based on factors such as location, down payment, credit score, and loan terms.
After performing the calculations, investors can get in touch with lenders to obtain preapproval prior to submitting an offer.
- Management obligations
Some investors decide to self-manage rental real estate in order to gain practical experience as a landlord. Self-management of a rental property out of state, however, can be challenging.
To handle tasks like interacting with tenants, making repairs, and abiding by local, state, and federal housing laws, remote real estate investors typically work with a local, reputable property management company.
The following are management duties involved in maintaining a rental property:
- Using comparable rents to calculate the fair market rent
- Making a house rent-ready as soon as a tenant moves out
- To reduce vacancy rates, advertise and market for a new qualified tenant.
- screening potential tenants by conducting credit checks, credit history checks, rental history checks, and reference checks
- collecting monthly rent and security deposits, charging late fees, and looking into ways to increase rental income, like adding a pet or roommate.
- Enforcing the lease’s terms and conditions, as well as responding to inquiries and complaints from tenants
- coordinating upkeep and repairs with internal staff or reasonably priced outside vendors
- ensuring that rental properties adhere to state and federal landlord-tenant laws as well as building codes, health and safety guidelines, and other regulations
- conducting periodic property inspections, as well as move-in and move-out inspections
- Expand the company
Automating routine tasks can systematize a rental property business, making it much simpler to expand and scale. Tracking and optimizing a real estate business begins with creating a free account with Stessa.
Stessa’s software for managing the finances of rental properties aids investors in maximizing profits through clever money management, automated tracking of income and expenses, and customized recommendations to improve the performance of individual properties.
Owners of rental property can use Stessa for SFR homes, modest multifamily structures, short-term vacation rentals, and various rental portfolios.
Investors can produce tax-ready financial reports, access the Stessa Tax Center to take advantage of free resources developed in collaboration with The Real Estate CPA, as well as a special TurboTax discount, at tax time.
How to Start a Rental Property Business with no Money
- Focus on the task at hand
The first, simplest, and least expensive thing to start with is the proper attitude. Even though it’s free, it’s still important for the success of real estate investments.
You must be diligent, prepared for research, and tough.
If you possess these traits, you can successfully implement any investment strategy and navigate any market turbulence. If they haven’t cultivated these essential traits, even the biggest investors don’t last very long.
- Host a lodger
This can actually help you SAVE money in addition to being one of the cheapest ways to invest in real estate.
With the government’s Rent a Room program, you are able to make up to £625 per year tax-free, which is a great way to set aside cash for your rental property business or to enroll in a course to further your education while also getting accustomed to the demands of tenants.
You’re beginning to invest significant sums of money here, but you’re not quite ready to fund your first development.
A portfolio of shares in commercial and residential property options constitutes a REIT (real estate investment trust).
Since the REIT is required to distribute 90% of its rental profit to its shareholders and is secured by long-term business leases, they typically provide a generous and relatively low-risk income.
- Options for leasing property
Options for leasing property are underutilized investments with low upfront costs. You can rent out a property without purchasing it if you have a property lease option.
You invest a small upfront fee for the process to be legal (as little as £1), agree on a monthly payment to the owner (typically set at the amount they need to cover costs and no more), set the length of the agreement, and then decide on a purchase price should you decide to buy outright in the future.
With only a small initial investment and all the advantages of a reliable rental income without the hassle of a mortgage, you could gain immediate equity if the price rises above your agreed-upon purchase price.
On the other hand, because property lease options don’t provide much for homeowners, these properties are inherently difficult to find.
The solution is to look in areas with high negative equity, which may not appeal to you for obvious reasons, or to run advertisements aimed at people who need to move right away, such as recently divorced people or people who are relocating.
- Interpersonal lending
In peer to peer lending, you make an investment directly with another person or business and use a platform like Zopa to handle the transaction process on your behalf rather than a bank.
If you do it correctly, you can see impressive increases in your ROI because the banks aren’t taking their cut. Peer to peer property investment is even better because it gives you access to a liquid asset, which is uncommon in real estate, and because the interest rate is typically much higher than the pitiful interest rate on cash in the bank.
But keep in mind that these loans are typically unsecured, so if the borrower defaults, you won’t get your money back. This is important to keep in mind if you want to invest in peer-to-peer lending with an individual.
When you invest in peer-to-peer business lending, your money is backed by the company’s property and assets, so you should do your homework to make sure the business is stable.
It is also secured against the property if you use property peer-to-peer lending, which typically enables developers to complete quick projects or short-term renovations.
While there are risks involved, such as the possibility that the development will experience significant delays, being secured against the property typically provides good financial security because your investments can be recouped upon the sale of the property.
- Real estate crowdsourcing
Some nascent real estate investors confuse peer-to-peer lending and real estate crowdfunding. However, they are actually two very different investment strategies.
When a group of real estate investors pool their funds, each person owns a small portion of the total. Peer to peer lending effectively positions you as a mortgage provider, whereas property crowdfunding grants you a share of equity. This is where the two investment channels diverge.
You can offer a short-term loan through peer-to-peer lending, but to see real returns, you must commit to your property crowdfunding investment over the long haul. There are two different ways to invest in real estate.
The first option is to invest in real estate developments, where each investor is entitled to a portion of the profits from the development’s sale. These are thought to be riskier investments but can produce higher returns more quickly.
The alternative is buy to let property crowdfunding, which operates similarly to other buy to let strategies in that investors share in rental yields that are accrued over time.
You already know how much we adore collaboration. Joint ventures are partnerships between two or more businesses that each have something unique to offer one another. Think of them as property crowdfunding on a smaller scale.
Usually, one will have access to key growth markets or a strong marketing plan, while the other will bring non-financial value.
These are frequently chosen by property investors as they begin to expand their businesses because they offer security and are short-term in nature. They are also a great way to create successful business relationships and real estate projects without having to have a lot of financial resources.
However, you cannot use this strategy early in your career because reputable joint venture partners always require evidence of your prior success in real estate investing.
- Apply your own capital
This one may not be the most expensive strategy in terms of money, but if something goes wrong, it will undoubtedly be one of the most expensive.
This is a strategy you should only employ if you are completely confident in your abilities and have additional funds to cover any setbacks in your property investment journey. Otherwise, you risk experiencing the worst and being forced to leave your home.
- Acquire UMV and sell
One of the most common real estate investment strategies is buying properties below market value with the intention of flipping them. However, because this strategy is portrayed in such a glamorous light in comparison to other strategies, it is also one of the easiest to get wrong if you don’t do your homework.
In an ideal world, you would look for deals at auctions or off-market properties, such as repossessed homes or properties from former landlords, and then use a financial strategy like bridging loans to secure financing without rubbing mortgage brokers the wrong way.
When executed properly, this strategy is renowned for producing significant capital gains, but it’s also notorious for having unforeseen costs. If you don’t accurately assess the potential renovation costs, you might end up paying for unforeseen expenses like electrical repairs.
So there you have it—9 ways to start investing in real estate practically for free. Which one do you prefer?
Applying for a loan and purchasing a house are just the beginning of starting a rental property business. An investor can keep their attention on their business objectives and financial success by having a step-by-step plan in place for education, networking, research, financial analysis, and property management.