Any business, whether it’s a small property rental business or a large corporation, should have a business plan. The real estate investing industry is very competitive, and this document is not only used to get funding, but also serves as a roadmap to provide a clear route to achieving long-term goals.

A few sections that are a must-haves in a property rental business plan. These include, an overview of the ideal target market, marketing strategies to reach the target market, and most importantly, solid financial projections. The plan should also outline your strategy for acquiring and managing properties.

Related: How to write a business plan

A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business entity is best for a property rental business, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
 
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

There are a few common property rental licenses that landlords may need, in addition to a couple general business registrations required before being able to rent a property. These include:

Certificate of Occupancy – Issued by a municipal agency such as a local building or zoning office, a Certificate of Occupancy is a document that ensures a property meets all state and local requirements to be occupied by a tenant.

Housing Business License – In addition to the Certificate of Occupance, many cities require landlords to obtain specific housing business licenses. License requirements will vary depending on where the property is located.

Property Management License – In most states, property managers are typically required also have a property management license or a real estate broker’s license.

In addition to property management specific licensing, there may also be some general business licensing requirements as well.

Business License – Many cities require every business to hold a general business license in order to operate legally.

Sales Tax Permit – Most states impose a sales tax on property rentals, and as such, the business will need to obtain a state sales tax permit.

Related: Common business licenses, permits, and registrations by state

One major challenge to breaking into the property rental business is securing the funds to purchase the first property, but there are a few options available.

One option is to take out a loan from a bank, however, this can be difficult, however, as many lenders require a 15% or more down payment and collateral, and some are not interested in loaning on certain types of properties, such as an Airbnb property or vacation rentals. An SBA loan guarantee is normally not an option as the borrower needs to have commercial activity (having a tenant in business doesn’t count) in 51% or more of the property being purchased. Also, know that a bank loan for an investment property will have a higher interest rate than a residential property occupied by a homeowner.

Another option is to seek out a private investor or hard money lender, though it can be hard for an unknown real estate investor to get an investor on board. Approaching family and friends is common, though a strong business plan is important to show you are serious about this venture.

Last, some home sellers will do a contract for deeds, where they act as the bank. The value to the homeowner is they are able to get some interest income,d and if the buyer defaults, they get the property back.

Related: Finding the money to start a business

Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

When renting out a property, it’s important to have the right insurance in place to protect you and the business. There are a few different types of insurance that property rental businesses should get, and is often sold as a landlord insurance policy:

Property insurance: Also referred to as dwelling coverage, this insurance protects buildings in the event of damage from a peril or disaster. If the property was purchased using a bank loan, the lender will usually require property insurance.
Liability insurance: If someone is injured on your property or if you’re found liable for damage caused to someone else’s property, liability insurance will be invaluable.

Related: Types of insurance your business may need