As a landlord, your rental property business plan is a great step in getting clear on your investment and the overall purpose of your property.
Creating a rental property business plan is a clarifying exercise, even if you create something that nobody ever sees besides yourself.
The act of deliberately making choices about who you are as a landlord, where you are going, and what you want will help you move forward, rather than drift along.
We have laid out a process for developing a business plan as a landlord, but to be clear, this is not a formal business plan. This is a comprehensive exercise to give you the tools and clarity to know where you are going with your business.
Whether you’ve been a landlord for 20 years, or are just buying your first property, this guide will help you align your actions with your goals. Let’s get started.
Step 1: Your Vision as a Landlord
Why even create a business plan at all? Can’t you just buy a property and start filling it with tenants? What’s wrong with that?
Certainly there is nothing preventing you from moving forward as a rental property owner without a plan in place. In fact, we want to be clear this planning process is not a replacement for action.
Action is Greater than Planning
Your plan is not something to spend weeks and months on trying to make everything perfect.
A good plan violently executed now is better than a perfect plan executed next week.
George S. Patton
Ultimately, to succeed as a landlord, you will have to be decisive and assertive. You can’t wait around overanalyzing, or you’ll certainly fail.
The plan you lay out is certain to not come true. So why even create the plan?
Why Create a Business Plan?
The reason for a plan is to align yourself with why you are even doing this. If you are going to become a landlord, you will meet conflict, resistance, frustration and a lot of hard work.
Before diving into all that head first, you want to have a vision of where you want to go.
Creating a plan allows you some space to be honest with yourself about what you want to happen, so then you can map out exactly how to achieve your goals.
For example, you can use a rental property to pay for your kids’ college.
Is that your goal? Is there something else? Seeing a vision of what you are striving for will keep you motivated and moving forward when things aren’t going so well.
Begin With the End in Mind
In Stephen Covey’s Seven Habits of Highly Effective People, one of the habits is to Begin with the End in Mind.
The point is pretty simple. When you start something, have in your mind where the whole thing is going.
You have to think not just about today, but ultimately where are you going.
So, for you – what is the end? What is your goal? Where do you want to be in 3, 5, 10 years?
Creating this vivid vision in your mind of where things are going allows you to have a clear purpose.
Do you plan on adding more and more properties? Do you just want a few solid, reliable properties filled with tenants?
What tools will help you get there?
Whether you’re looking to buy more properties or only keep your 1-2 units, make sure you have a solid management plan in place. A service like ours at Avail can help you with either business strategy. We can help you manage your existing units, or grow with you as you expand and buy more properties to manage on our site. Learn more about how we can help.
There is a big difference between maintaining your properties and growing the business, so it’s better to think about it ahead of time.
Write Down Your Goal and Vision
Take some time to think through where you want to be and write it down. The act of writing it down serves a few purposes.
- It forces you to be crystal clear. When you write it, you have to be specific and defined in what you are writing. Being vague with a goal doesn’t help at all.
- When you write down your vision and goals, you now have something you can continually refer back to. This is not etched in stone. Life changes, and priorities change. The idea is that before you start making moves, you know WHY you are doing what you are doing.
- You can review every 6 months or year to make sure this is still what you want, but most likely, you’ll be progressively building the business you want. We recommend setting a calendar event or reminder on your phone so you have a regular reminder to review your goals and check-in with how you’re doing. Those are great moments to adjust your methods if you’re off-course.
Your Filter for Decision-Making
When you’ve written down your goal and vision, you now have a filter for decision-making. Every decision has tradeoffs. You may run into an opportunity where you can make more money, but it’s going to take up more time.
Or you may have an opportunity to make money in the short-term that carries big risk for the long-term.
All of these decisions have to be made, and you need a filter to make these decisions. If you rely on instinct or reacting as opportunities come, you may end up somewhere you had no intention of being.
The goals and vision give you a decision-making filter, where you can always ask, “Does this get me closer to my goal or not?”
Dealing with Setbacks and Frustrations
No matter how great you are, or how perfect your plan is, you are guaranteed to run into challenges and setbacks. Things will break and people will let you down. It’s a reality of our world.
But how will you respond? Sometimes you can feel like giving up. You can think – “This is not worth it. Why do I even need to own this property?”
Having your goals and vision in front of you can allow you to deal with the setbacks in stride. Will there be frustration? Of course. But you are keeping your eyes focused on the long-term game, not just what’s right in front of you.
If you have a compelling vision for your future and what you want, you’ll be able to push through the short-term issues because you know it’ll be worthwhile.
When developing your vision and goals, it’s important to not only consider money and where you personally will end up, but also how you’re going to develop the identity and legacy you want your rental business to leave. What are the guiding principles and core values of your business?
By intentionally laying out your values, you can make sure the decisions you make line up with your values. Also – you can communicate those out to your tenants and show you are not just doing this aimlessly, but have a true personal investment in your property.
What to Do Now
The first step is to take some time and write out answers to these questions.
- Why do you own rental property?
- What outcome do you ultimately want from being a landlord?
- What are your core values as a landlord?
What to Do Next
Once you lay-out your long-term goals, then ask the question – what do I need to do in the next 6 months to get closer to where I want to be?
The answer may sometimes be eliminating certain activity that’s not getting you closer to your goals.
You won’t achieve all of your goals at once. That’s why it’s important to lay out the long-term vision, then get to taking action day-by-day to bring it to reality.
And again, we recommend revisiting your vision every 6 months to see if you’re on track and whether anything has changed with your overall goals.
Step 2: Your Rental Property Financial Plan
When you create your vision for why you own rental property, that vision should translate down into numbers.
You want passive income. You want an additional income stream. You want to put money away for some future purpose.
Whatever you are trying to do, you need to be aware of the financial game you are playing and maximize your effort. Without a proper model in place, you can work very hard for very little return.
Building a Budget
To create our plan, we need to build a budget, but to build a budget we really need to work backward. Begin be defining a goal for personal income from the property for a year.
How much money are you hoping to have put away in a year?
To start with a number, we can work backwards, and start to create the perfect budget for creating what we want. If we find in budgeting that the numbers don’t make sense, then you can make an adjustment and find a different path to the goal.
Mike Michalowicz wrote a bestselling book called, Profit First. In the book, he introduces the concept of Profit First where he explains that most businesses and households don’t take an intentional approach to budgeting.
What we typically do is generate a certain amount of income, then spend on a number of expenses. Then, we subtract the difference and what’s left over is profit.
His suggestion is to change the model and build in profit right from the start. When you get paid, you set aside money for you. Then you have to plan to make sure you have enough money to cover expenses.
The problem with the traditional approach is we spend whatever is there and we rarely have much left over for what we want.
Your Rental Property Financial Plan
Many landlords jump right in and buy a property, fill the property, and then see what money is left over.
The problem with that strategy is the expenses of owning a rental property can be surprisingly high. If you don’t plan for it and don’t get your pricing right, you could end up making very little money because you are seeing the money go right back out the door each month.
In this guide, we want to walk through some of the items you can expect each month so we can start to build our budget.
The good thing about planning a rental property budget is there are not a lot of variables involved.
- Fixed expenses
Fixed expenses are self-explanatory. They are regular expenses you know will be coming and you know how much they are. These are easy to budget for. Take some time in a spreadsheet and map out the recurring monthly or annual expenses for your rental property.
This is a baseline total you know is coming and has to be covered.
- Variable Expenses
Variable expenses are more challenging to budget for, but are crucial. In a rental property, repairs are always lurking around the corner with potential big expenses tied to them.
You aren’t going to be able to predict this, but you should budget for some level of expenses for repairs.
Then when it happens you aren’t caught off guard, and you have some cash set aside for handling the issue.
How many units do you have?
How much do you charge for rent for each unit?
Once you have your expected budget for expenses, you can plan on how much money you want to bring in.
This is where you can determine your rent price and a strategy for making sure your properties are kept full.
Of course, it’s not a perfect world, and we have to account for vacancy. So when planning the income side of the budget it’s best to expect some level of vacancy so you’re not hurting when space is empty. This allows for a nice bonus if everything is full.
Building a Business Model
Now that we’ve gone deep and looked at some of the details of your rental property investment, we can zoom back out and think again about the overall game plan.
What’s your overall goal? Where do you want this to go?
Now that you have numbers budgeted, you can map out what it will take to get there. Do you have a certain annual dollar amount you want to spin off? Play with the numbers. What would it take? You would need to have a certain number of tenants at a set price. Great. Now you have a target to focus on and can take action.
Too many real estate investors ignore the numbers. They take action, which is good, but then let the results fall where they may. This is an approach that can lead to a lot of headache and wasted time.
The last thing you want is for a years to pass by and realize you’ve spent all this time and effort and only make a minimal dent in your actual goals. Build the budget. Build the game plan. Start taking the steps toward your goals.
Once you have a business model nailed down and budgeted, you can start to evaluate actual numbers versus projections. As you cycle through a year, you should get closer and closer to your your projections and even more confident in hitting your goals.
You may even find you have a great working model and feel it’s not daunting to purchase more properties and keep the momentum going.
This is a natural step as a Real Estate Investor: when something works, you’ll want more and you can expand and repeat.
That’s a great plan, but the only word of warning to consider here is to make sure it fits with your goals and vision. Bigger is not always better. More money is not always better.
If you have a goal and a property that is helping you meet that goal, you may be fine to just continue monitoring and taking care of that property. But if you have a big goal and big vision, then it makes sense to get a model nailed down and continue to expand.
Just make sure your decisions are aligned with your values and goals.
Step 3: Your Rental Property Marketing Plan
The best planning in the world won’t get you anywhere if you have a bunch of empty space and are short on income.
So the final step in creating a rental property business plan is a marketing plan that makes sure units are full with the right people, who pay on time.
Defining the Goal
As we covered in the financial plan, everything starts with a numbers goal. If you’ve done proper research into pricing, you’ll have a set rent price to start with.
You also have a set number of units to fill. That gives us a clear goal. We need this many tenants at this rent price.
Learn more about setting how to set your rent price.
The Marketing Formula
In order to keep our units filled, we need to get our message in front of a lot of potential tenants. And to maximize efficiency we need to get the word out to the right people who would be great tenants.
The simple formula to think about marketing is to create 1. A compelling message 2. For the right audience, 3. And get In front of that audience
Crafting the Right Message
In marketing there can be a tendency to jump right into the promotion. You just want everybody to know about your property and think if you spread it to as many people as possible then the problem will be solved.
The issue with that strategy is there are many landlords out there who are also competing for the attention of potential tenants and if your message is generic, you’ll never stand out.
In promoting your rental listing, it’s helpful to break it into component parts. The first element is the listing title. This is where you have one sentence to capture attention and get a potential tenant to read on.
You want to find the balance between creative and professional. You can’t be bland, or the words will blend in and get ignored. But you can’t be over the top, or you’ll come across as sleazy and unprofessional.
Learn how to write a rental listing title here.
As you move beyond the title, keep these themes in mind in your writing. Be clear, direct and simple. Don’t use confusing or passive language. Use proper punctuation and never use all caps.
Your clear writing may not completely set you apart, but will transfer confidence to a potential tenant because they will see you as a reliable professional.
Have a Plan for Photos
More and more, individuals want to do their homework before engaging with a potential landlord. This means when researching apartments, renters want to have a good idea of what they are getting into before they take a serious look.
So quality photos are crucial for your marketing success as a property owner. No matter how great the property is, a low quality poorly positioned photo will make the property look unattractive.
We have an article on why you need pictures of your rental property to learn more. For now, here are some tips to remember.
- Make sure you get photos of every room. The more photos the better. Potential tenants want something to see, and more photos make you seem proud of and confident in your property.
- Remember lighting. Make sure the room looks warm, inviting and bright. Poor lighting can ruin any photo.
- And finally, get the entire room in the photos. Don’t stand in the middle of the room. Stand in the corner and capture the entire space. This will make it look spacious and will allow the individual researching to imagine themselves in the unit.
The greatest photos and writing will get you nowhere if nobody finds them. The next step is to get your listing in front of the right tenants.
Marketing is simple:right message in front of the right people. So our goal now is to take our crafted message and spread the word.
The best way to do this is to create an online rental listing and post it to all relevant sites where renters are searching.
The biggest names people look for rental units are Zillow, Trulia, Hotpads, Apartments.com and about 10 others.
At Avail, we’ve simplified this whole process so that you can post it one time with us and we’ll distribute it to all of the key sites where renters are looking.
In this process, you’ll be on your way to finding great tenants because you have the right message in the right place. In addition, it will be helpful to use social media to bring additional attention to your properties.
When you have a potential tenant who contacts you, there are two very important things to consider.
First, it’s very important to have a solid screening process so that you don’t get a bad tenant. A bad tenant who is irresponsible with payments, doesn’t take care of the property, or could eventually require eviction, which is very costly for your rental investment.
Every interaction you have in your rental property business makes a difference, because the way you present yourself can stick in the mind of individuals who could eventually be tenants or provide referrals.
The best marketing is when you have thrilled tenants who tell their friends. These new tenants will know exactly what they are getting themselves into and trust you right from the start.
It’s a good idea to start from the beginning and think through how to encourage referrals as much as possible.
The best way to start is to make sure they tenants you have receive a great experience. That means first of all, getting great tenants with your screening process. Once they are in your property, make every interaction smooth and professional.
Then, as you build that trust with your tenants you can let them know you have other properties and if they know anyone, you’d love to hear from them.
Your marketing plan, like everything else starts with a vision of what you want. When you know that, you can take proactive steps to get there. With good messaging, the right distribution and a great tenant experience you can have a steady stream of leads and can keep your properties full.
Technology to Enhance your Tenant Experience
An excellent way to encourage referrals is to use technology to enhance the experience for your clients.
At Avail, we’ve streamlined finding, screening, leasing, collecting payments, and tracking maintenance requests. This is not only a huge timesaver for landlords, but creates a professional, organized feel for your tenants.
This professionalism is exactly what they want to see and makes them feel at home. When you plan to create that experience you can facilitate more referrals to keep your units full with the right tenants.
Where to Go from Here
You’ve planned and created the rental property investment you want. Now, it’s time to take action and execute. There is no reason you can’t take the steps to get exactly where you want, especially if you manage your rentals with the help of powerful tools like Avail
How Avail Can Help
Avail is an online tool designed specifically for landlords with less than 10 units. We’ll help you advertise vacant units, request rental applications and credit reports, sign leases, and collect rent — all online. Today, 70,000 landlords use Avail because it’s the only end-to-end platform that helps you scale from beginner to professional with tools, support, and education.
Create your free Avail account today.
By Micky Deming | Last updated November 16, 2018