7 tips to building a great cash flow rental business
Indeed, todays financial climate has changed. Covid has changed the way we do business, changed which stocks you may want to invest in (or if you even feel comfortable investing in stocks). And has everyone looking into their long-term investment objectives. This has put much attention to the world of real estate investing as people are seeking tangible assets to invest in. Additionally, today we have a massive numbers of baby boomers looking for a passive way to create monthly cash flow. This has all ignited a fire within real estate investing.
Two huge drivers that make real estate investing safer and secure
Safer with more controls: Owning a tangible property like real estate is considered to be a much safer and more controllable investment. Unlike the results of stock market returns, you as an investor of real property, allows you to have most of the controls over this tangible asset. When working with a great property manager, you simply steer the ship and make the big decisions and while your crew safely navigates you through the process.
Large demand: As the saying goes, “Find a need, fulfill the need and you are positioned to create wealth.” Today better than a third of all households are renting. This number has risen drastically over the past decade. With many more households renting, it makes sense that we need more investors providing housing for these renters.
With more safety, better controls over your investments and a huge need for housing, you simply want to develop a great rental business. The stars are in alignment and you will only be limited by your own desires.
Run it like a business:
Creating the clarity within yourself that you are in essence creating a little business with these rental properties is JOB ONE. Some investors are active investors and will be involved in all day to day activity. Yet many are passive investors who simply want to have professionals such as realtors, property managers and accountant’s run it for them while they just steer the ship. The common link to this success is to run it as a business and not simply look at it as a hobby. It does not need to be difficult, but it is your investment dollar so creating a duplicable process for your business to grow should be your priority.
Identify your investment niche and stick to it:
The key here is investing into what you are passionate about. Many start the process and are quickly distracted into other investment opportunities and that (chasing the shiny object syndrome) stalls them out. What I have found is the first thought you had about investing tends to be the one you are most passionate about and are probably best served sticking to that niche. If you first considered investing in single family homes for long term buy and hold, then that is where you may want to consider staying. If it were multi-family units then invest in multi family, etc., etc.
Identify your funds:
Unlike most investments, real estate allows you to leverage your funds and borrow funds to combine a much larger pool of capital to make larger investments. (This Leverage opportunity is part of the 5-wealth building principles).
Some people prefer to use cash while others have self-directed IRA’s that they will use for funding sources. Before diving into investing and utilizing all your available cash, you may want to give consideration as to what will make the most sense for you. If you are financing, it is important to talk with your lenders in advance so you have an idea of what funds and terms you have available to you.
You will want to have these funding sources in place so you are able to create pro-forma’s and truly identify what types of returns you can get based on how you structure your purchases. This of course goes hand in hand with running these investments as a business.
Learn and network:
Unless you have a great background in real estate, you will want to network with others and learn what is effective and what is not. Talk with many different property managers to learn about what they do that is effective. If you hire a property manager it is imperative to hire a GREAT one. Property management is where the rubber meets the road. Great property management will make or break an investment. Over the years (through networking) I have developed a pretty extensive list of questions to ask a property manager to help you find a great one.
Bonus tip: if you plan to do your own property management you will want to ask yourself these questions. I bet you will discover a couple of things you did not give consideration to.
Search for the best most sustainable investor advantage markets:
We now live in a global economy, and while you may not be comfortable leaving your local market with your investment dollar it is only prudent to realize that with real estate being all about location and that many of you do not live in the best location for investing.
I always say, “Live where you wish but invest where it is best.” Over the past 8 years I have assisted several hundred overseas investors to invest here in the U.S. because they realize that for them the U.S. had better investor advantage markets. We can take our queue from these foreign friends that location is paramount to the real estate investor.
Property due diligence:
This is the step where most people start their investing business. I know, sad but it is true. I believe it is because this is the easiest step for most people to wrap their heads around. I get it you want to dive right in but building the strong foundation first is paramount to sustainable investing.
Those who do start here have a huge disadvantage and I see it every day. Having read and given thought to the above 5 steps, you can clearly see why it is important to be purposeful. Part of the process of running these investments as a business is identifying what sort of returns you realistically expect to get. Then it is simply a matter of evaluating the structure to make sure it is a great building and then run the pro-forma.
Invest and duplicate:
Having now built a purposeful and intentional investing business the hard work is done. now it is simply to invest (with purpose) and duplicate the process. Duplicate until you get to your monthly cash flow desires
(But why stop, after all it is about the journey)
Happy investing!
The author’s opinion cannot be construed as tax or legal advice, and may not represent the views of HTBUSA or its stakeholders. HTBUSA is not a legal service or professional tax service. As with any investment, there is an inherent risk in investing in real estate..