How to Setup Your Rental Property Like a Business

“Landlords grow rich in their sleep”. – John Stuart Mill

This statement of Mr. Mill holds true to this very day. This only tells us the endless benefits of having a property and renting it somehow.

If you own a property (either you already have it or probably have bought one or planning to buy one) and decide to be in a landlord-tenant relationship, you may wonder how to start setting up your rental property.

First, let’s talk about how to set it up before deciding to look for tenants.

STEPS ON SETTING UP RENTAL PROPERTY

1. Take Out Insurance

   You don’t want to take yourself in the war of rental investment unarmed. Having both homeowner’s and landlord’s insurance protects you as well as your property and tenants. 

2. Get the Required Permits

   The purpose of permits is not only for government compliance but for safety as well. So go check your municipal cities if you need to have one.

3. Repairs and Upgrades

   You may need to make repairs and/or upgrades to your property as if you were selling it. Beauty attracts but the best thing for the tenant to rent is the feeling of comfort.

4. Education

   This means you have to consider things about being a landlord yourself. Even if you decided to hire a property manager you have to be aware of how your rental property works. You should also know who is your market, how your policy works, and tenant screening, how much will you charge, among others.

These steps are just simple steps to help small businesses start their rental property investment. There are additional steps you can find as you surf the net that you may find helpful as you proceed to your setup.

STEPS ON SETTING UP LLC ON YOUR RENTAL PROPERTY

Having a rental property is overwhelming, but, you may encounter challenges you don’t usually encounter as a homeowner. Some, rental property owners take precautions by having LLCs.

According to the IRS, "a Limited Liability Company (LLC) is a business structure allowed by state statute.

LLC is not a prerequisite for setting up your rental business. However, as your portfolio grows, you may find that it is better to separate properties from one another and thus limit the assets subject to any debt or legal claim. 

Let’s be off to a great start by listing the steps! Remember that each step varies in every state. This is usually the standard one.

1. Choose a business name 

   Each state has a registry of the LLCs in that state. Every business name needs to be unique in the state where it's registered. All 50 states have a database and will follow a similar system for creating an LLC.

2. File for an EIN or Tax ID number 

   If your LLC has more than one member or plans to hire employees, you will need an IRS Employer Identification Number (EIN). 

3. File your Articles of Organization

   The Articles of Organization include the LLC's name and mailing address, plus the name and address of the registered agent. The articles must also state the purpose of the LLC and how the owners will manage operations. 

4. Create an Operating Agreement

   Though this is not required, it adds credibility to the LLC as a business entity. An operating agreement explains how the financial structure works and outlines the working relationship among your LLC's managers or members. It explains the percentage of ownership, the share of profit and losses, and the rights and responsibilities of each owner. It also explains what happens to the business if an owner leaves the LLC.

5. File the Statement of Information

   In a state like California, you'll need to file this within 90 days after filing the articles of organization and again every two years after that. In other states, such as Wisconsin, this statement is called an Annual Report, and you file it yearly to inform the state that the business is still active and operating.

6. Open a business bank account

   A separate account is crucial in separating personal and business finances. Since your LLC is a separate entity, it needs its own bank account to accept money and pay bills. 

Starts and setups usually take time and money. This is also true in the rental property business. Nevertheless, the end will justify that all your effort is worth it as your business starts to give you earnings!