September 13, 2025
From establishing the right legal structures to securing financing and ensuring tenant occupancy, the process can easily become overwhelming.
Starting a rental property business sounds exciting. It can lead to a steady monthly income and a chance to build financial freedom for generations. But let’s be real; most people who talk about buying real estate get stuck before even acquiring their first property. It isn’t easy, and the process can be intimidating. From establishing the right legal structures to securing financing and ensuring tenant occupancy, the process can easily become overwhelming.
However, learning how to start a rental property business doesn’t have to be complicated. With a little bit of knowledge and the right plan, you can go from idea to a business without the unwanted stress.
Keep reading as TurboTenant explores the benefits of starting a rental property business and outlines the steps to take to get started. By the time you finish reading, you should know the move to make leading up to the purchase of your first property, and then how to turn that into a successful business.
What is a rental property business?
A rental property business involves buying a house, apartment, or building and renting it out to other people or businesses. Tenants pay rent each month, and that rent becomes income for the owner.
In exchange for rent, the owner is responsible for taking care of the property, making any necessary repairs, and following all local and federal housing laws. While some property owners manage everything themselves, others hire property managers to help, making it more of a passive income opportunity.
Ultimately, the goal of a rental property business is to earn money through steady rental income and, over time, increase wealth as the property’s value grows.
Why should you start a rental property business?
According to a recent CBS News article, a BatchData report found roughly 20% of the 86 million single-family homes in the United States are owned by investors as of 2024. As interest remains a sticking point, more investors are purchasing rental properties to start or expand their businesses.
For many reasons, it’s a good move. Starting a rental property business can be a smart way to build long-term generational wealth. One key reason is the steady income it can generate. Your tenants will pay rent each month, which will cover your mortgage and provide additional cash flow. Over time, the property itself may also appreciate, leading to profit when you sell.
Another benefit is that you can make it as hands-on or hands-off as you prefer. If you’d like to handle the daily operations of the business, you can do so. Otherwise, you can hire a property manager to take care of everything from tenant screening to rent collection and maintenance requests. While a property manager will add to your monthly expenses, it can help turn it into nearly a 100% passive income source.
If managed properly, a rental property business can give you both short-term income and long-term financial security. It’s a way to build something that grows in value while paying you along the way.
How to Start a Rental Property Business
If you’re thinking about starting a rental property business, make sure you follow these steps.
Step 1: Research the Market
Before making any investment decisions, it’s essential to understand the market in which you wish to invest. Research factors like rental prices, vacancy rates, population growth, and employment growth. These variables can help you understand how well a rental property might perform.
It’s also essential to understand the competition in the area. How do those properties stack up? Tools like Redfin, Rentometer, and public census data can help you pull a lot of the information you’ll need.
Step 2: Create a Business Plan
Once you’ve researched your market and feel comfortable investing there, it’s time to develop your business plan. This plan will outline exactly how you want to operate your business.
What will your investment strategy be? Do you plan to buy, hold, and rent to long-term tenants? You may instead want to invest in several short-term vacation rentals. It’s crucial to understand how you plan to generate revenue.
Also, identify your financial projections and how you plan to attract tenants. Use your business plan to create procedures that ensure your business runs as smoothly as possible.
Step 3: Choose a Legal Structure and Protect Your Assets
Before you buy your first property, you want to make sure you have legal protection. Start by determining a name for your business and then apply for an EIN. Once you’ve completed this task, you’ll want to choose your business’s legal structure and register with your Secretary of State. There are several legal entities you can choose from, including:
- Sole proprietorship: simplest, but no liability protection.
- LLC: liability protection, plus pass-through taxation (popular choice for landlords).
- Partnerships/corporations: useful for larger scale or investors pooling funds.
If you’re unsure which legal entity is best for the goals of your business, consider speaking with a tax professional or business lawyer. They will be able to educate you on which to choose.
Step 4: Secure Financing
You’re almost ready to buy your first property, but first, you need to secure the financing you’ll use. You can choose from conventional lending, which will require 20% to 25% down payment. Alternatively, you could opt for a government-issued FHA loan if you plan to house hack your first property.
Some investors also choose private lenders because the lending requirements can be a little more flexible.
Step 5: Acquire Your First Property
Now the exciting part starts. It’s time to choose your first rental property. By working with a real estate agent familiar with your market, you can find several properties that meet your needs. Your agent can help you perform a financial analysis on each property and negotiate the best possible deal.
Before closing, make sure to have it thoroughly inspected to catch any hidden issues that could cause problems later. Once everything checks out, you’ll be able to finalize the purchase.
Step 6: Manage and Market Your Rentals
Now that you’ve officially purchased your first property, you’ll want to move quickly. Every day you don’t have a tenant, you’re letting income slip away. If you’re planning a short-term vacation rental, get it furnished, have professional photos taken, and then list it on sites like Airbnb or VRBO.
If you’re planning to use the property as a long-term rental, make the process simple by using property management software that includes rental advertising tools, handles tenant screening, provides legally compliant rental lease agreements, and more. By going this route, you can create a more hands-off, less stressful situation for your first time as a landlord.
Step 7: Scale Your Business
Once you reach a point where you have a steady monthly cash flow, you can start considering ways to expand your rental property business. You can grow through several different methods.
- Save monthly cash flow: Some investors choose to save their monthly cash flow instead of paying it out as income. Saving these funds enables them to accumulate the necessary funds to purchase additional properties.
- BRRRR method: If your first property was a fixer-upper, you might use the BRRRR method (buy, rehab, rent, refinance, repeat) to turn the appreciation of your first property into the cash needed to buy your next rental.
How much does it cost to start a rental property business?
If you’re new to the idea of starting a rental property business, you’re probably wondering about upfront costs. Here’s a breakdown of some of the expenses you’ll face.
- Down payment: Most lenders require a down payment of at least 20% of the purchase price, while some ask for as much as 30%. In clear terms, if you’re buying a $300,000 single-family home, you’ll need a minimum of $60,000 for the down payment.
- Closing costs: You can expect to pay anywhere from 2% to 5% of the purchase price for closing costs. Most lenders will allow you to include these expenses in your loan, but others might require you to pay them at closing.
- Repairs: Unless you purchase a property that’s immediately ready for tenants, you might need to do some repairs or renovations. The costs will depend on the scope of the job.
- Landlord insurance: To protect your rental property from potential lawsuits, you’ll want to make sure you have landlord insurance. The cost will vary depending on several factors, including the location and size of your property.
According to a 2024 report from Realtor.com, the median down payment for an investment property was 27.4% in Q4 2024. Combine this with the 2% to 5% for closing costs, and you could be looking at needing at least 30% to 33% of the purchase price to start your business.
How to write a rental property business plan
A solid business plan is one of the most critical aspects of learning how to start a rental property business. It will help you stay organized, attract financing, and set clear goals for the business.
Here are the common aspects of a rental property business plan.
1. Executive Summary
Think of the executive summary as your company’s elevator pitch. It will include a summary of your rental property business idea, outlining your high-level goals for the first three to five years. It should also include a rationale for why you believe your plan will achieve success.
2. Business Description
You should include a detailed description of your business and its operations. Discuss the types of rentals you want in your portfolio. Will they be single-family homes, multi-family units, apartment buildings, commercial properties, or a mix of everything?
Add information about your target market. Are you aiming to rent to college students, families, professionals, or vacationers? Additionally, include how you plan to differentiate your business from other rental property owners in your area.
3. Market Analysis
This is your chance to demonstrate your local market research. Cover topics such as housing demand, average rental rates, population, and job growth
Show that you’ve done your research on the competition, too. Include information about other rentals in the area, such as their size, features, and rental rates. You’ll also want to discuss the opportunities you see in the market, as well as any risks that could arise.
4. Business Structure and Legal Setup
Discuss how you will structure your business. Will you operate as a sole proprietorship, which has no legal protections, or will you choose an LLC, partnership, or corporation structure?
5. Marketing and Tenant Acquisition Plan
You’ll also need a section that outlines how you plan to market your properties and attract high-quality tenants. Will you rely on online listings like Apartments.com or Zillow? Will you use social media and local advertising? Have a clear plan for how you’ll reduce vacancies by drawing in tenants.
6. Operations and Management Plan
Include a section that details your plans for managing the property. If you’re planning to handle it yourself, explain how you’ll manage tasks like tenant screening and rent collection. Also, describe how you’ll address maintenance requests, especially those that occur in the middle of the night.
If you intend to hire a property management company, specify what they will handle for you and how their services will impact your monthly cash flow.
7. Financial Plan and Projections
Here is the heart of your business plan. Investors and lenders will pay the most attention here.
- Startup costs: Down payment, closing costs, renovation expenses, and reserves.
- Monthly income and expenses: Rent collected, mortgage, property taxes, insurance, repairs, and management fees.
- Cash flow projections: Show how much you expect to make each month and year.
- Profitability metrics: Cap rate, cash-on-cash return, and ROI over time.
- Break-even analysis: How long before rental income covers all costs?
8. Funding Request
If you’re seeking financing, be specific about your needs. How much money do you want to borrow, and what percentage of equity will the investors receive? Also, specify what you’ll use the funds for, whether for the initial purchase, renovations, or building reserves. Finally, outline how and when you plan to repay the loan or provide returns to the investors.
9. Growth and Exit Strategy
You’ll finish your business plan by looking beyond your first property. Explain how you plan to expand. If you start with a single-family home, discuss your plans for your second or third properties. Will they also be single-family, or would you consider moving into multi-family buildings or short-term vacation rentals?
Finally, what does your exit strategy look like? Are you considering selling after a certain number of years, passing the business down to your family, or holding onto it for long-term income?
Challenges of Starting a Rental Property Business
Starting a rental property business might sound like a great way to build and scale a business of your own, but before you get started, make sure you understand some of the challenges you might encounter along the way.
- Initial capital: With housing prices high across the country, real estate investing requires a significant amount of upfront capital to get started. You’ll need to have at least 20% of the purchase price for your down payment. You’ll also need to cover closing costs and any renovations required before you can rent to tenants.
- Tenant relationships: The tenants you choose can either make things easy or difficult. If you have tenants who consistently pay rent late, cause damage to the property, or are a disturbance to neighbors, managing the property can be more challenging. Help yourself avoid these problems by thoroughly screening potential tenants. It can help you avoid many of the unwanted headaches that come from being a landlord.
- Property management: When you first start a rental property business, it can be tempting to manage everything yourself, especially if your rental is located where you live. However, this can lead to a significant amount of work that you might not be expecting or qualified for. Although it may reduce your margins, using a property software company can be beneficial for most people, as it handles tasks such as tenant screening, rental applications, and maintenance from a single dashboard.
Features of Successful Rental Properties
As you start planning for your first purchase, you need to have all the information to ensure you purchase a property that gives you the best chance at success. Here are some key features to look out for when selecting a rental property.
- Location and neighborhood appeal: The neighborhood will be a key factor to consider. It should be in an area with high rental demand and low vacancy rates. It also needs to be close to jobs, schools, shopping, and transportation. Most importantly, it must be a safe neighborhood with low crime rates.
- Positive cash flow: Ideally, your real estate agent has experience working with property investors. This experience enables them to help you understand the financials and choose properties that have the best potential to maximize your cash flow. The rental income needs to cover the mortgage, taxes, insurance, and other expenses, while also generating some profit each month.
- Well-maintained property: Updated and well-maintained properties tend to be the most successful. People are interested in updated kitchens and bathrooms, as well as energy-efficient systems like windows, HVAC, and appliances to help reduce costs.
- Tenant-friendly amenities: Tenants want to feel comfortable at home. They look for features like patios and outdoor spaces where they can relax and hang out. Having an in-unit washer and dryer is also important to most. Further, accessible parking is a significant benefit for tenants.
- Strong property management: Operations run best when a solid system is in place. Having a property management company that knows how to screen tenants and handle maintenance requests properly will make everything run more smoothly.
How To Start a Rental Property Business FAQ
How much money to start a rental property business?
Most investors need at least 20%-25% of the property price for a down payment, plus closing costs and reserves for repairs. For a $200,000 rental, that means $40,000-$50,000 upfront. Some people lower costs with house hacking, FHA loans, or partnerships.
What is the 50% rule in rental property?
The 50% rule is a quick way for real estate investors to estimate expenses on a rental property. It says that about half of your rental income will go toward operating costs, things like repairs, maintenance, property management, insurance, and taxes.
For example, if a property brings in $1,500 a month in rent, you can expect around $750 a month in expenses. This rule helps investors determine if a property might be profitable before conducting a deeper analysis.
What is the 1% rule for rental property?
The 1% rule helps investors determine whether a property will generate sufficient income relative to its purchase price. It states that a rental property should bring in at least 1% of the purchase price in monthly rent.
For example, if you buy a property for $220,000, the rent should be at least $2,200 per month to meet the 1% rule. This rule doesn’t guarantee profit, but it’s a good starting point to screen deals quickly.
What type of rental property is most profitable?
Profitability depends on the market. Single-family homes are easier to manage but may have lower cash flow. Multifamily buildings often generate more income from multiple tenants. Vacation rentals can earn the highest returns but usually require more active management and marketing.
Is owning a rental property business worth it?
Yes, if managed well, rental properties can provide steady income, tax breaks, and long-term growth in property value. They do require time, money, and effort, but many investors see them as a reliable way to build wealth and financial security.
This story was produced by TurboTenant and reviewed and distributed by Stacker.
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