Developing Your Rental Property Business Plan


Developing Your Rental Property Business Plan

My husband and I have owned rental property for going on twenty years now. The question we get more often than any other is: Is purchasing rental property a good investment? The answer is yes. However, just as with any other type of business venture, there needs to be a sound business plan in place with both short-term and long-term goals clearly defined!

When considering income property (and developing a business plan) many people have a hard time properly accounting for the normal expenses that will be involved. For example, even if you pay cash for your property, there will still be insurance and county taxes to consider. General upkeep is also a critical part of rental property ownership and is something that has to be in your budget from day one.

Here are some things I’ve learned:

– You can expect carpet to last anywhere from 4-6 years, depending on the amount of foot traffic it receives and the quality of the carpet.

– You will typically get 7-10 years out of good appliances; often less if you opt for a lower quality.

– While a quality HVAC system will last for a decade or more, there are filters to change and other regular maintenance considerations that must be taken into account.

– Lawn and landscaping need attention on a regular basis, especially during certain seasons. Even if your HOA takes care of the yard, you’ll pay a monthly fee for that service.

– Random handyman type repairs are required from time to time. Think about your personal home and the things that need to be touched up, repaired or replaced in a single year. Your rental property will be no different.

These expenses may seem daunting, but the really aren’t. Don’t let these things deter you from making a quality purchase! As long as you account for these expenses in your business plan, you will be just fine. I can assure you that it’s not terribly complicated.

Now, with these expenses in mind, you’ll want to do some additional research and calculations as you develop your plan. Calculating your mortgage payment, taxes and insurance can be done easily and in a matter of minutes. Make a few phone calls, if needed, to get these estimates correct. With this information in hand you’ll have a good idea what your expenses will look like for your new venture.

Income is always the more fun part of a business plan and is relatively simple. Determine the amount of rent you expect to collect from your tenants and add that to the plan. And while it isn’t direct income, there are also potential tax advantages that you may be able to include in the plan. For details on those be sure to talk to a qualified financial adviser. You may be surprised at the financial benefits you never even considered.

With a good business plan in hand you’ll be ready to pull the trigger when you find the right deal.

Executive Summary: Owning rental property can be quite rewarding and profitable. Doing your homework up front and developing a sound business plan will significantly increase your chances of being successful.

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