The steps for starting a rental property business are similar to most other business ventures. It’s much easier to achieve investment goals and financial objectives when there is a plan in place. If you fail to plan, you plan to fail. It’s that simple.

While every real estate investor may take a different path, here are the main steps I followed to start my rental property business:

  1. Networking and education

Getting a good education builds a solid foundation for a rental property business. Real estate is all about who you know and what you know. I became educated by reading books and blogs, attending in-person networking events to rub shoulders with other investors, and signing up for online real estate courses, virtual events, coaching, mentoring etc. I treated every opportunity as a learning experience.

Having said that, I learned the most once I made the decision to dive in and commit to buying my first property. I did it alone, but you don’t have to do that. You can partner with someone more experienced and have them guide you through the process until you’re comfortable enough to do a deal on your own.

  1. Consider the different types of investments

Single-family houses, condos, and smaller multifamily buildings are popular among first-time rental property investors. Houses, condos and apartments are plentiful, simple to comprehend, and come with a choice of financing options. Condos have the added bonus of having someone else take care of the exterior and included amenities. I don’t advocate new investors getting into the wholesaling or flipping business. Those are not as easy as people make them out to be.

  1. Check the numbers again (and again)….and again!

Investors want properties that generate cash flow, appreciation, and have their tenants paying down the mortgage. We examine the potential profits from rental properties using a range of financial criteria, including:

  • Gross rental income
  • Operating expenses
  • Net operating income (NOI)
  • Cap rate
  • Cash flow
  • Cash-on-cash return
  • Appreciation and rent growth
  • Internal rate of return
  • After repair value (ARV)
  • Mortgage rates/terms
  1. Options for Financing

Most beginner investors finance rental properties through a traditional bank because it’s all they know and what they probably did for their primary residence. However, the key to maximizing cash flow and ROI is to source a variety of financing options before making a decision. A bank is typically not the best option. Different investments also work better with some types of financing, but not others. One type of financing I like to deploy is owner financing, sometimes referred to as a vendor take back (VTB). In this scenario, there is a LOT of room for negotiation.

A typical owner financed strategy involves giving the seller a relatively small down payment of maybe $20-$30,000. Then every month or quarter, the investor pays “rent” to the owner which covers the owner’s expenses plus a little extra. At the end of 1-3 years, those regular payments add to the initial down payment which then better positions the investor to obtain a traditional mortgage from a bank or private lender. We have done this a couple of times and it has worked out very well.

  1. Management Responsibilities

I always recommend new investors to manage their first couple of properties themselves. Some of these reasons include learning how to fix things without hiring someone to do it, interacting and negotiating with tenants, managing income and expenses, screening tenants etc. After a year or two of doing that, there are NO questions asked when they hire a property management company and get charged 10%/month for their services. That is money WELL SPENT to free up your time to continue sourcing and financing more properties.

If you want more details on anything explained here, feel free to reach out to me or join my newsletter where I continue sharing tips, strategies and pieces of my story each month along with exciting new investment opportunities in Turks and Caicos.

All the best,

MP