Is it Worth to Start a Property Rental Business?
In the past few years, it has been tougher for entrepreneurs operating property rental businesses in the US. The lending criteria by financing institutes have been tightened while regulations have become less generous. In addition, rental yields have fallen but it is still possible to have good earning opportunities despite these challenges. In this blog, we will present a discussion for and against pursuing a property rental business.
Why you should start a property rental business
Eventually, starting a property rental business in the US will prove to be a great financial opportunity. In 2018, tenants in the US paid an estimate of over $60 billion in rents. Consequently, that helped in sustaining a thriving market where the average property owner earns a minimum of about $80,000 per year. Many people argue that this amount is small compared to how much larger property rental companies pocket.
Most notably, property rental companies in the US earn close to $100 million in a calendar year. Additionally, property rental is a relatively low-risk business, particularly when considering the probable high rewards. That is because properties are less likely to depreciate in value compared with other assets. In 2018, the average house prices in the US rose by at least 5%. Growth for properties is expected to grow even higher in the coming years.
What are the other benefits?
Establishing a property rental business can imply various things to different people based on the number of properties involved. Some property owners rent out one or two properties as a sideline while working a separate job. Going with this choice of business, there will be a significant amount of work to take on at certain times especially during tenant changeover. Nonetheless, the work should be relatively light-duty for the larger part of the year. Taking a year-round view, renting out on a small scale is a great way to earn money with little time and effort.
On the other hand, other property owners take their property rental business to another level by adding numerous properties to their portfolios. They are very keen when employing staff, setting up offices, and forming a company. Ideally, this approach can still bring greater financial rewards despite the immense challenge and fulfillment that comes with building a bigger business.
Challenges facing property rental companies
It is imperative to note that starting a property rental company remains attractive in 2018. Nonetheless, it would be wise for every entrepreneur to be aware that recent regulations have made property rental less profitable. For instance, buy-to-let property owners have long relied on tax relief to service the interest on their mortgages. In April 2017, the relief available was reduced from 100% to 75% of interest. There will be a further reduction to 0% by 2020. Moreover, a 3% stamp duty surcharge has been added for buy-to-let properties worth $50,000 or more.
Some property owners looking forward to going into property rental find the location to be an issue. The annual rental revenue on a property’s value tends to vary geographically. Towns that host universities and major cities often give the best yields.
Getting property set up properly could make all the difference
One of the most essential things of running a rental property company is actually setting it up. If that is done properly, it can highly affect the amount of returns for the company. Additionally, it will lead to the success of a company and will ultimately guide you when navigating the property rental market. Arguably, an entrepreneur will require nailing the basic economics of trade. One must confirm whether the annual yield on properties is sufficient to cover costs and turn a profit.
The gross income at the end of the year will likely be higher if you set up as an individual property owner. This is especially if one is operating on a small scale. Conversely, if one is going to rent more than four properties, setting up as a limited company is more likely to be profitable.
Reliable data indicates that the average sole property owner renting out four properties takes home a net income of about $55,370. However, they would have made to about $64,600 if they had set up as a limited company. The benefits of operating as a limited company increases with each additional property leased out after the four properties.
With this in mind, establishing a limited company is not the only process entrepreneurs need to pursue when forming. We can help take the strain off these tasks, whether you need a registered address or accounting. If you are interested in finding out more, get in touch with us for more information.
