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Business Plan for Rental Properties

Whilst the promise of “unearned income” is enticing, it’s important to be aware of how much of this unearned income will be swallowed up by overheads. That’s why every landlord-to-be needs a business plan.

Step 1 - Determine your initial outlay, or what it will cost to acquire the property and get it ready for tenants. Don't forget to include:

purchase price

renovations and improvements

estate agent’s commission and legal fees

Step 2 - Estimate your monthly expenses, or what it will cost to maintain the property:

repayments

insurance

rates and taxes

administrative costs (office supplies, transportation, etc.)

management fee (if you’re hiring someone else to look after the property)

maintenance and upkeep

appreciation or depreciation of the property

classified advertising

The total monthly expenses will tell you how much rental income you’ll need to make the property profitable. This is fairly simple if you’re just renting out one apartment, or even a whole house. If you have several units to rent, your market research may take some time. You’ll have to compare your figures with rents for similar properties in your neighbourhood to see if you will be competitive.

There are some common pitfalls in rental property business plans. Perhaps the most common is underestimating the amount of money you’ll spend on maintenance and upkeep. Your monthly estimate should budget for the major repairs that will inevitably come your way. Remember, too, that tenants don’t always pay on time. Think about how your cash flow will be affected by a late payment or two.