I would like to start a property business where I purchase the properties and I rent it out, I already have a paid up property that I am renting out but my taxes are too high on the rental income so I am considering starting up a business. Could you advise me on where I can get more information on the requirements to start this and provide some guidance on whether it would be wise to pursue this business?
Before starting any business, it’s important that you’re absolutely clear about why you’re doing it – and that it’s going to be something that excites you, drives you and challenges you in the long-term.
If you’re only considering starting a property investment and management company to try and reduce your taxable income, then I don’t believe this is an appropriate – or a sustainable – solution. You should rather consult a reputable financial adviser about other investment options that would better suit your personal needs.
If owning and managing properties is, however, an opportunity you would like to pursue, I would then recommend that you start off by equipping yourself with a proper understanding of what it actually means to be a landlord. This will help you to make an informed decision about whether or not you want to start this (ad)venture as an entrepreneur.
At a very basic level, here are some of the things you might want to consider to determine if this is the right business for you:
You need to consider the initial cost that you will be incurring when setting up the business, especially since you have a property in your personal capacity.
You will need to transfer the property from your personal capacity into your business and pay transfer fees and transfer costs.
These costs will be calculated based on the current value of the property.
The work and planning
No matter whether you’re a residential or commercial landlord, property management requires a great deal of work and planning. Remember you will be responsible for all aspects of the property: From purchasing it to maintaining it on a day-to-day basis.
This involves everything from transfer to managing the monthly utility bills, all the way through to replacing the geyser when it bursts and ensuring your tenants behave appropriately in the building. You would also need to source your tenants and ensure that they pay you on time.
All by yourself
From a start-up perspective, you would probably need to do all of this yourself in the beginning. As such, you would need to work to build up your own database of reputable suppliers: Plumbers, electricians and handymen. It’s important that you find experienced, qualified suppliers that you can trust, and who will be able to deliver on time and cost-effectively.
This can be a very time consuming process. Also consider that you would need to be on hand to facilitate all of this work: Arranging the call-out with the supplier and the tenant; overseeing the work delivered; paying the supplier etc.
Business owner development
Above and beyond that, you’re then going to need to develop yourself as a business owner. You will need to equip yourself with the skills and knowledge required to lead and manage this business in order to make it both sustainable and profitable. This will require a significant investment from you: time, effort and money. The more you commit to this journey of personal and professional development, the better your chances of success.
If you can picture yourself doing – and enjoying – all of the above, it’s then equally important to consider if this is a viable opportunity.
The greatest barrier to entry in this sector for you as an entrepreneur is probably going to be finance. You need to be conscious of this from the outset.
- Do you already have access to the funds you need to purchase the properties you are going to rent out?
- If not, what are your plans to secure this funding? And what are the returns you are expecting?
- Also consider the funding of the business itself. How will you finance this, especially during the first year?
My recommendation here is to take the time to do your homework – and the maths. While this could be a business opportunity, it might not be something that will be possible for you to do on your own.
If you have a feasible plan regarding the above, you then need to start working on developing a model for this business – as well as a strategy and plan. All of these will require research on your behalf: From reading Entrepreneur to accessing websites, possibly visiting walk-in centres etc.
This will include unpacking the actual opportunity itself – and determining if there really is a demand for your service offering.
Please note that the above are thinking or “trigger-points” – listed simply to give you an idea of some of the things you need to consider, as well as the mindset you will potentially need to adopt as an entrepreneur. Your response to them should give you a good sense of if this is the path you wish to walk.
Remember that entrepreneurship is a journey – and every day on this road is a learning opportunity. If it is for you, embrace it whole-heartedly, don’t be afraid of failure and be sure to seek out the assistance available to you.
Read next: How To Start A Property Development Business