How to Start a Real Estate Rental Business

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Start small when beginning a real estate rental business.
Start small when beginning a real estate rental business. (Image: Jupiterimages/Photos.com/Getty Images)

Real estate rental is a high-risk, high-reward business. Your first step will be learning the ins and outs of real estate transactions. After that, you will need to search for the best property available. Once you have obtained some success, you can think about expanding. Once you have multiple properties bringing in income every month, your real estate business will be a success.

Obtain an education in real estate. You do not need a college degree, but learning about real estate laws, transactions and documents will be a major asset. Options include real estate seminars, classes offered by real estate groups, online courses and real estate books. Information on how to enroll can be found online, through classified ads and by consulting Realtors in your area.

Consult an accountant about structuring your business. Depending on the scope, you may want to form a real estate holding company such as a limited liability company or S corporation or simply claim the income on “Schedule E” of your personal tax return.

Register your business with the appropriate state agency, usually the secretary of state or department of treasury. Pay required fees. This step is only necessary if you are forming a business entity. If you are going to operate as a sole proprietorship, it's not needed.

Apply for a real estate broker’s license from your state’s Department of Labor. This step may not be necessary depending on your state. If your state does not require you to have a license, skip ahead to Step 5.

Locate a property to rent. When first starting, it is best to concentrate on a single property and build from there. Ideally, you want a low-maintenance property in a desirable area (good schools, low crime rate, close to major freeways, near shopping) available at a price you can afford. It's important to gain access to information about the prices of comparable homes in your target neighborhood and how much they rent for. A real estate agent can provide you with this information. Then you can calculate whether, after the purchase and repairs, the property will return sufficient return and cash flow Bank foreclosures and short sales can be good deals.

Raise capital to purchase the property. The amount will vary based on your location and type of property. Obtain financing if necessary. But you have to factor in your mortgage payment, taxes and insurance and ongoing costs to know if the property will make you money.

Renovate and repair the property if needed. If you can perform the repairs yourself, you will save money and ultimately receive a bigger return on your investment.

Advertise your property for rent. Contact realtors to list the property. Other options include the newspaper classifieds and the Internet.

Meet with potential renters and determine who qualifies based on criteria you establish for all applicants. Obtain a deposit upfront and have the tenant execute a lease agreement.

Use the income from your first property to help repeat the process. Over time, you will be able to grow to multiple properties collecting multiple rents.

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