I have mentioned, in earlier articles, that rental real estate has provided an excellent way for us to build net worth and to create a passive income. I thought it would be helpful for readers who are early in their personal finance journey to learn about what it takes to set up this type of business. Today we will discuss 10 simple steps for setting up a rental property company.
This will be the first in a series of articles—based on lessons learned from years of experience—that provide some insight into creating a rental property business, including creative ways to finance and manage your business. Who knows, it might save you some time and money.
Disclaimer: I am not a CPA or attorney. As we get into level 201, 301, and 401 topics, it would be helpful to seek advice from a professional. The information I am providing is for entertainment and motivation purposes. It also helps me in keeping my sanity, by discussing topics I enjoy with our reading audience!
10 Steps to Launch a Rental Property Company
I will provide a brief summary of the basic steps one should follow to create a new business. The Internet, local libraries, and bookstores can provide a wealth of information on these topics. I highly recommend that you take the time to understand the reasons that each of the following steps is important when creating a new business. Here are the basic steps needed to establish an official business before generating the first dollar of revenue.
- What is your business name? Determine a name based on something you like. It is better to spend more time up front creating a name that works as opposed to changing it at a future date. If you have not spent the time to formulate a name, it will complicate the next nine steps that are listed. I have made that mistake in the past and I must warn you, it takes some work to get your business name changed.
- Do you want a web presence? This is entirely optional, and something that I still have not set up for our own property business. By the way, the Internet did not exist when I started with real estate! Starting over today, I would at least check GoDaddy to see if a particular URL is available. If it is, you can go to Bluehost to purchase the domain name and host a simple website. I would highly recommend that, if you wish to blog or set up a website for your business, you read Kraig’s article here for some background on Bluehost, WordPress, and Genesis themes. He also has an excellent course that will walk you through all the steps of setting up a website and blog. He was instrumental in my setting up this website! Example domain name: www[dot]YourPropertyBusiness[dot]com.
- Create an email address. If you have elected to host a website, create an email address with your company’s domain name. If you are in business with a partner, it’s good to create separate email addresses for each person. As a suggestion, you also could create a general email address for available rentals. Examples: Bryan@YourPropertyBusiness[dot]com and rentals@YourPropertyBusiness[dot]com.
- What legal form of business should you create? I would recommend you conduct library and online research about the type of business that is right for you, and seek professional advice. You may choose to go with: sole proprietor, a partnership, or a Limited Liability Corporation (LLC). I have had all three forms of ownership in the past. Today our rental property business is a LLC.
- Get an EIN. Register your business with the IRS to get an Employer Identification Number (EIN). You will need this number to set up bank accounts, register with your state, and in numerous other areas of your business. The EIN will be required on your business tax returns that you are necessary to file with the IRS, and the state you reside. Note: If you are a sole proprietor, your Social Security Number will work for steps 5 and 6.
- Register your business with the state. Here is the Arizona website where you are required to register your business name and purpose. You will notice the state requires an EIN from step 5 and some money. Google what it takes to register in your state to understand the requirements.
- Create two bank accounts. I would recommend that you set up a checking and savings account with a bank that has branches where the properties will be located. This can make it simple for tenants’ deposits, transfers, or to use the bank’s automated bill pay service to send their rental payments.
- Order checks. I would recommend you follow ARB’s advice for purchasing checks. Please pay it forward by using his links to order them. It won’t cost you anything extra (in fact it will save you a bundle) and it will put some pennies into his pocket. Please support your local bloggers and make sure to tip the waiters and bartenders on your way out!
- Order business cards. This is another optional step you may choose to follow in setting up your rental property business. Dianne created some business cards from our home computer about five years ago. I have never used a professional printer to create cards for our business. If I were to start over today, I would get business cards, as I do have them for this blog.
- Set up a business credit card. Again, I would like to pay it forward to Greg and Holly at Club Thrifty by suggesting you sign up through their website to find a great deal based on your needs. I have been following their blog for years and have watched them become very successful. They remind me of my earlier days when we started out with rental properties. They own a couple rental properties and are considering more in the future.
Congratulations, you have officially started a rental property business!
You are done! You have completed the basic steps needed to form a rental property business. Granted, you don’t have any properties, tenants, vendors, tools, or money (yet!), but you can say you own a business.
Most of these 10 steps can be completed in a couple of days. The tasks of ordering checks, business cards, and getting a credit card may take a week.
What is next to get this company running?
I plan to discuss how one should go about finding sources for financing to purchase rental properties. It is important to have a financing plan formulated first before attempting to purchase a property. In fact, a general business plan isn’t a bad idea, either. The assumption is that you are not able to purchase a rental property in cash, so we will need to review how to find financing. This will be covered in the upcoming Financing 101 article.
I hoped this was beneficial for those who have some basic questions about how to create a business. Many of these steps are required regardless of the type of business you create, even if it is not for a rental property. To those who might be sitting back saying, “One day I am going to create a business…” why not do it today?
I believe all of these 10 steps can be completed for less than $100.
What are you waiting for?
Photo copyright : lculig