Joseph Rubay

HOW TO SETUP YOUR RENAL BUSINESS INITIAL BUSINESS SETUP REQUIREMENTS

How to Start Your Dream

Now that we know rental property is of interest to us because we can build equity, create a passive income and provide something for both the community and your family, let’s get into the details. Below are the key steps that you need to take right out of the gate.

3.1 Create a business plan

Most issues that arise down the line in real estate are failure to research and create a business plan. The key thing to note with business plans is that they are living documents and you will modify yours over time as your knowledge changes. This is natural and laziness is not an option when it comes to these. You need to take a deep breath and do a sterling job on each one you make and adapt.

Make sure that the plan has:

A Company Description, including an executive summary. This is brief and concise, and usually only a paragraph. Hopefully, the other party or parties get the idea of who you are in the grand scheme of things, however if a bank manager or someone who doesn’t know you, it needs to read well.
Mission Statement. This gives the reader what the business standards for and is no longer than a page in general. You are not writing a book report, concise is key!
You need to include the aim of and objectives of the current business venture along with a schedule. A Gantt chart that is top level as a graphic can help the reader understand your milestones. The aim is no longer than one sentence of what your current venture or project is about. The objectives are usually bullet points or small paragraphs of how you intend to go about reaching your aim. The Gantt chart will show every objective with milestones on what will happen during the venture.
Remember that if a lay person picked this document up, they would know now what you are planning to do, when you are going to conduct each objective, and by when to this point in the document. However, they would be asking you what resources are you going to need to invest into it, where are they coming from and when will investors start making money.
Projections on income generation, outgoings and initial outlay need to be assessed with a pragmatic assessment of return on investment (ROI). Normally, you create an ROI graph to show when your debt gets paid off and profit is actually created. For us, if we get a mortgage that is fixed interest over 30 years and we expect the interest to be paid off in the first 15 years, then we can do some useful arithmetic.
Note, no matter the business plan, remember that you need to be conservative with values and reference and cross-reference where possible where you got the values for your calculations.
Great! But we missed something; for us in particular, we need to calculate the property resale value AND your rental value over time. You also need to do some predictions on what if scenarios, such as vacancies, property damage, fire, flooding and what can be done to mitigate risk.
When you create a business plan, it is useful to get outside help with this, but never press the green button on plans unless you understand where everything in the plan came from. It’s easy to go cross-eyed looking at raw figures and calculations, but it is a necessity. Oh, and don’t forget taxes, operational overheads and other fun granular details. If you are still unsure, work with a rental property business on this.

3.2 Registration of your business

You will need to register your business, not just because you will need to pay tax against it, but also because you can claim tax relief on operational services and consumables. It also makes it easier to gain capital from investors and banks that now know you’re established. There are some other interesting things regarding limited liability and useful bankruptcy processes that you may need to use; not to mention that it isn’t exactly difficult to get a registered business these days. It’s a necessity, so just get it done.

3.3 Setting up your HQ

You need a place you call home. If you are big enough to justify it, this could be a corporate office or it might be a desk in your garage. Key things you need to think of are; colors, ergonomics, organizational layout, and daily workflows, along with lighting, equipment, and stationery. Don’t forget your obligated stack of business cards, phone system and computer system. Remember, if you are a one-person-band, use a separate phone or sim card to your mobile and call forward if you have a corporate landline. Wherever you set up is a workplace, treat it as such and it will stop your mind wandering off.

3.4 Creating bank accounts

For most, one dedicated operational business bank account should suffice. As you expand over time, your transactions will increase and real estate accounting software is recommended. If you have multiple legal entities, each one should have at least one account, as they have their own assets and essentially separate businesses.
Security deposits may warrant another account; this can be a legal obligation depending on location. In some places, a 3rd party acts as a middle-entity for these transactions, to ensure both the tenant and the renter are treated impartially.

3.5 Documentation & Resource Mining

You need to have a system for managing documents and records. Best practice is to keep hard copies of everything in two separate locations, along with digital copies. Plan for different disaster scenarios that could stop your business and document a management process that takes this into account. Although documentation helps with daily operations, it also helps you in court and getting yourself out of hot water. If you keep documentation but not well, it will reflect your success regarding both sides of the sword!

  • Signed legal contracts
  • Meeting your provincial requirements
  • Verifying tenant information
  • Recording and updating tenant information
  • Recording property information on each of your rental properties
  • Manage records of tenant evictions
  • Manage data on household appliances
  • Track of special programs and projects
  • Record maintenance events
  • Maintain rent receipts for everything
  • Record tenant contacts
  • Keep records of key assignments
  • Maintain property information for marketing, including 360-degree AR 3D scans.

Great news! To save you time, you can just download all of them by visiting; www.LandlordBlueprint.ca

3.6 Learning the Residential Tenancies Act in your province.

Learn the laws and regulations of the land. You are a ‘landlord’ and as such need to know everything that can impact your operation.

3.7 Create a procedure manual

A procedure manual is your policies and procedures and is needed for many reasons, such as compliance to fire regulations, internal governing and operational control, risk management, more regulations and aiding in refinement of business practices. At its core you will need the following sections;

  • Company mission statement and core values
  • Company staff hierarchy
  • Communication standards (hours, call handling and other expectations)
  • Inventory of all properties, including addresses
  • Application processes
  • Minimum criteria for tenant approval
  • Tenant screening process
  • Rental collection practices
  • Rent extension process and late fees
  • Security deposit procedure
  • Standard lease terms
  • Pet policy
  • Smoking, alcohol and drug policy
  • Tenant behavior policy
  • Vacating tenant procedure
  • Property turnover procedure

3.8 Setting up the Bookkeeping

Booking can be a joy or a pain depending how rushed you are to do it. It reflects the profit and loss, shows taxes, tax returns and deductions. As a living document, you need to keep it up to date. If you don’t do your own bookkeeping, at least make sure you are fluent at reading it and checking figures. While you are working on the books, always check your work twice if you get a different value. Something is wrong.

3.9 Market Research & A Hot Pot of Coffee

If you are taking a noon nap while your competition is achieving major gains, then it means you weren’t observant enough of your surroundings.
Manage your expectations when your competitors offer superior quality amenities such as real granite countertops and stainless steel backings; if you want to ask the same amount of money, you need to step up your game.
If you know who’s doing what, you will know their strategy and what they are missing; allowing you to capture the high ground and get the best rents, clients and sell your property for far more than them.

3.10 Automate: Property Management Software

If you are half awake reading this chapter, you would have realized half the things mentioned here could have been automated in some way. Always make life easier by integrating your workflows through technology. Property management software already exists in many wonderful shapes and sizes. If you want to do well, know that you will need to start contacting suppliers and getting onsite demos and consultations booked. Once you have seen what these things are capable of and you think it will help you manage the pain points of business, select the one which works the best for your needs and suck up the outlay. But beware of long-term growth requiring potentially different software and also assess the compatibility of each system you use or eventually will use.
Consultants sometimes want to conduct value roadmap exercises to help give you a plan. It is usually a paid body of work and it may be worth doing from the outset; only you will know if it’s right for you.
Great! We now know what we need to look into and get done during the initial setup. Let’s now go deeper in the next chapter and see what pay-dirt we can find!

Leave a Comment