“I’ve been in the industry for a few years, and I’m doing well without a rental property business plan. Do I really need one?”
Yes! Developing a business plan is equally important for new as well as experienced real estate investors. It’s an essential step to starting a rental property business. And as you grow your portfolio as a real estate investor, it becomes even more crucial to have a rental property business plan.
What Is a Rental Property Business Plan?
A rental property business plan is a strategy for acquiring and running rental property investments. Real estate investors who use well-thought-out business plans are more likely to succeed when they start renting in today’s highly competitive real estate industry.
Real estate is like any other business. To treat it as a business, you should prepare a business plan for rental property. Follow these 5 steps to learn how to make a business plan for success:
5 Steps to Developing a Rental Property Business Plan
#1. Set the right goals
Setting goals in real estate helps you measure and evaluate performance. If you didn’t meet your goal to achieve $1700/month in April in Airbnb rental income, you’d need to evaluate to see what went wrong and take the steps to move forward.
Ever heard of SMART goals? These are goals that are specific, measurable, attainable, relevant and time-bound. To set goals for your business plan, begin by determining your mission statement and your vision. This is the larger goal or the purpose of your business.
After you’ve set your goals, it’s time to write out some objectives and tactics to achieve those goals. For example, what are you going to do to achieve the $1700 in April from your Airbnb investment property? You may want to consider adjusting the price, work on receiving better reviews, or posting excellent quality photos to better market your property. These are all tactics to achieve the objective of $1700, which goes into the overall goal of making a profit. If you do not achieve your goal, and there’s nothing left to do, maybe the goal you set was unattainable. So continue to test and adjust your real estate business plan accordingly – that’s the key to developing an unmatched rental property plan!
Related: 5 Real Estate Goals You Should Set for 2020 (And How to Achieve Them)
#2. What rental strategy are you opting for?
After you’ve set your goals, it’s time to select a rental strategy to pursue to achieve the above goals. Generally, you can choose one of two rental strategies; long-term (traditional) or short-term (Airbnb). With long-term rental investments, you’re renting out to a single tenant with a lease usually no shorter than 6 months. With short-term rental investments, you can list your property on home-sharing platforms such as Airbnb, and rent it out on a per-night basis.
Your rental property business plan will differ based on the strategy you opt for. So make sure you explore the pros and cons of these strategies and decide on the best fit for you. Usually, your choice will depend on your availability, the city or state you’re investing in, as well as your real estate goals. For example, if you’re investing in the New York City real estate market, it may be smarter to opt for a traditional rental strategy due to the current Airbnb legal status in the city. If you’re investing in a more Airbnb-friendly city, such as the Philadelphia real estate market, you have more of a choice to make.
Related: How to Choose the Right Rental Property Investment Strategy for You
#3. Develop a financial plan
You can’t do anything in real estate if you haven’t done any financial planning. When investing in rental properties, it’s crucial to consider potential revenue and associated costs to evaluate expected rental income for a property. When buying rental property, you can use Mashvisor to obtain data on expected rental income, to run costs analysis, and to assess potential profit. Before you jump into an investment, you ought to ensure that it’s a profitable one. Learn more about our product.
Before becoming a real estate investor, you also need to assess your current financial situation and ability to access funds to buy an investment property. A large chunk of your rental property business plan should include a strategy to finance your real estate investment. If you have access to cash, can take out a mortgage, or are planning to partner with another investor, go ahead and proceed with the steps to develop a rental property business plan!
Related: 3 Useful Hints for Keeping in Control of Real Estate Business Finances
#4. Marketing your rental property, finding the right tenants
Developing a marketing strategy is one of the most vital elements when it comes to writing a business plan. You can do everything right and still struggle in the industry if you don’t market your rental property correctly.
Marketing your property will depend on which rental strategy you choose. If you choose short-term rentals, your Airbnb business plan for marketing will look slightly different from traditional. With Airbnb, you can use the platform for the bulk of the marketing efforts. If you optimize the use of the website, Airbnb algorithms will be in your favor. You can use Airbnb.com to market your rental property by uploading high-quality photos, adding a thorough and appealing description, by acquiring positive Airbnb reviews, and by attempting to achieve a Superhost Badge.
As for traditional rental properties, real estate marketing can be a little different. You can advertise online, offline, or both, with a variety of means. You can use traditional means such as word of mouth (WoM) marketing through your real estate network, and traditional means such as newspapers and magazines. If you’re targeting a younger demographic, you might want to shift your efforts to digital marketing and social media marketing. Many investors today are choosing online marketing as an easier and more efficient way to find the right tenants.
#5. Outline a clear team structure
Creating your business plan will eventually leave you with a set of tasks that you need to accomplish. And if you have a real estate team at your business, you’re going to need to outline a clear team structure as part of your rental property business plan. This includes dedicating roles and tasks to different team members, making sure no overlap occurs. If you’re buying your first rental property, you may not have a team yet, so you can forgo this point at the time being, but revisit when you do create a team.
Ready to put your rental property business plan into action? Start looking for the right investment property now.