How to Start a Home Rental Business
By Bazal Razzaq
Updated: October 12, 2023
Editorial Note: We earn a commission if you use the services recommended on this page. Commissions do not affect our opinions or recommendations.
- Business plan for Home Rental Business
- Form your business into a legal entity
- Register your Home Rental Business for Taxes
- Open a Bank account and get a credit card
- Manage accounts for your business
- Obtain permits and licenses for your business
- Get Home Rental Business Insurance
- Define the brand of your business
- Create a business website
- Set up a Phone System for your business
- Frequently Asked Questions (FAQs)
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Nowadays, the Home Rental Business is a very beneficial and considerate business to earn profits in the long run. Entrepreneurs who want to enter the rental property business, invest in more than one-family homes. These income-generating properties are either self-managed by their owners or they hire the services of the property management company. The owner of the property leases it out to the tenants in exchange for rental fees.
If you also want to start a business without putting in much effort then a home rental business is a good option.
10 steps to start a Home Rental Business
- Business plan for Home Rental Business.
- Form your business into a legal entity.
- Register your Home Rental Business for Taxes.
- Open a Bank account and get a credit card.
- Manage accounts for your business.
- Obtain permits and licenses for your business.
- Get Home Rental Business Insurance.
- Define the brand of your business.
- Create a business website.
- Set up a Phone System for your business.
We have written a guide to assist you with a Home Rental Business. It will ensure that your business is well-planned and executed.
#1 Business plan for Home Rental Business
If you want your business to excel then do thorough planning and pay attention to every single detail. You must be able to answer the following questions.
- What will you name your business?
- What are the startup and ongoing costs included?
- Who will you target?
- How much will you charge the customers?
Don’t worry, we have answered these questions for you.
What will you name your business?
Choosing the correct name for your Home Rental Business could be very challenging. If you haven’t already thought of a name yet, then you can get one from Home Rental Business Name Generator.
If it’s a sole proprietorship, it will be better to operate under a business name rather than your name.
Before you register your name, we suggest you check for
- State’s Business Records.
- Trademark record of State and Federal.
- Social Media platform.
- Availability of web domain.
It will be good to secure a domain name before anyone else does.
What are the startup and ongoing costs included?
Securing a personal home loan and financing for investment properties are very different from each other. You should be able to understand the down payment before making any decision as rules change periodically.
Investors owning more than four rental properties put down 25% whereas those owing less than four keep 20% down payment. Even if you have the full cash flow to pay for the full investment, we suggest you reconsider the decision. Also, investors suggest investing the capital in multiple properties which can increase monthly income and long-term equity.
The rental property must have insurance to protect the property and liability.
A small section of your budget should be kept to make necessary improvements and maintain your property. There are several expenses related to the home rental business. Some of them are as follows:
- Property Taxes.
- Cost of Lawn Maintenance- some landlords do it themselves while others want the tenant to bear the cost.
Who will you target?
While considering making investments, you must also think about the target market. If you want to include HUD housing or tenants from different demographics in the portfolio. Both of these are positive investments but you must define your demographics to ensure you purchase property which gives a good return.
How much will you charge the customers?
Rental fees depend upon the location, landlord cost, and specifics of the property.
Profit is directly related to properties you own, ongoing expenses, loan amounts, and the amount of rent you charge. An accountant can help you to determine the rate of return on investment before purchasing the property.
#2 Form your business into a legal entity
The sole proprietorship, partnership, limited liability company (LLC), and corporation are the most common business structures. When you form an LLC or corporation, it protects you from being held liable for any loss in the business.
You can form an LLC and pay the minimal LLC costs or hire LLC services at an additional fee.
#3 Register your Home Rental Business for Taxes
You will be required to register for several taxes before you start your business. You can begin with obtaining an EIN from the IRS and then register for taxes.
The EIN is obtained from the IRS’s official website. There may be some taxes not applicable to your business.
#4 Open a Bank account and get a credit card
It is advised to use dedicated business banking and credit accounts to protect your assets.
If your personal and business accounts get mixed, your personal assets will be exposed in case the business is sued. It is called piercing your corporate veil.
Open a Business Bank Account-
The benefit of having a business bank account is-
- It separates your personal and company assets which is essential to protect your personal assets.
- It makes accounting and tax filing a much easier process.
Get a Credit Card-
A credit card helps you with-
- It separates personal and business expenses by keeping your business in one place.
- Build a credit history of your company.
#5 Manage accounts for your business
A business owner should record expenses and sources of income to understand the financial performance of the business. When you maintain your accounts, it simplifies your annual tax filing.
#6 Obtain permits and licenses for your business
You must get the necessary permits and licenses to avoid fines and protect your business from getting closed. You will require some state permits and licenses to run your home rental business. You can visit SBA’s reference to state licenses and permits for more information.
You should also acquire a Certificate of Occupancy (CO) to operate a business in a different location.
Get a location on lease:
- Landlord must obtain a CO.
- Your CO must apply to a home rental business.
- A new CO will be required after a renovation. If your business place is renovated before opening, then include it in the lease agreement that lease payments will not begin until a CO is issued.
Purchase or build a location:
- Obtain a valid CO from the government authority.
- Examine and understand building codes and zoning requirements that apply to the location.
#7 Get Home Rental Business Insurance
Every new business needs Insurance to operate safely and lawfully. It protects the financial well-being at the time of losses.
To begin with, you can obtain General Liability Insurance that covers all the needs of small businesses.
If your business has workers then you must obtain a Workers’ Compensation Insurance because the state may ask you to carry it.
#8 Define the brand of your business
Your brand defines your business. Having a strong brand helps you stand out among your competitors. You can prepare a logo and add it to a QR code with the help of a QR Code Generator.
#9 Create a business website
Once you have defined the brand and logo of the website, you should create a website to promote your business. Building a website is important because of the following reasons.
- All legal businesses have a website.
- Social media accounts like Twitter, Facebook, and Instagram cannot replace the importance of having a website.
GoDaddy Website Builder is extremely helpful in building a website. You can also use other popular website builders like WordPress, WIX, Weebly, Squarespace, and Shopify.
#10 Set up a Phone System for your business
You should arrange a different phone set to keep your personal and business life separate. It makes your business more automated, and legitimate and helps you connect with potential customers.
Successful home rental business owners should be confident while making huge investments and disciplined in saving money.
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Frequently Asked Questions (FAQs)
You make money when you rent your house to a tenant and they make monthly payments to you. However, there is no guarantee that your investments will make passive income. To earn profits, you must receive higher rent than making property expenses.
Entrepreneurs, new to this business are advised to invest in properties that can make them earn good cash flow and save some money to meet the unexpected expenses.
To earn more profit, you should invest in a quality property, minimize costs and pay your loans as quickly as possible.
Once a tenant moves in you should try to make a good relationship and check on them from time to time. Especially if a tenant calls regarding an issue, you should resolve it quickly.
It includes the following responsibilities-
- Finding and screening tenants when properties come up for rent.
- Prepare the lease agreement which must be signed by you and your tenant.
- Manage properties and issues when they come up.
- Have contractors, plumbers, and/or handymen, who can handle problems in your absence.
- Growing your network within the community.