How to make the right business plan (and become a better landlord)
Our recent Good landlord quiz highlighted just how good landlords are. In total, 3,000 of you took part in the quiz, giving us invaluable insight and plenty of cause for celebration. But nobody’s perfect, and the results of our quiz also shone a spotlight on some areas which could do with improvement.
One of the things that stood out to us is that 60 per cent of landlords don’t have a business plan. This was a surprise, because being a landlord is a business. Whether you’re new to being a landlord or a seasoned professional, you need a business plan. Here’s why you need one – and what it should include…
Why do landlords need a business plan?
If you own properties and let them out, you are running a business. Fundamentally, it’s no different from any other. You have a product and you have customers. Then there’s everything else: marketing your product, customer service, tax, accounting, your business reputation, and of course making a profit.
A business plan allows you to set goals, and, importantly, to measure how you’re performing. The whole point of any plan is to get you from A to B. It’s a clear way to see where you are, where you want to go, and how to get there. Without one, you are effectively shooting in the dark, hoping for the best.
A business plan gives you a strategy, it allows you to build and grow your business – and ultimately, it will have a positive impact on your bottom line.
How do you write a business plan?
1. Assess where you are now
A good place to start is by assessing your finances. If you already rent out a property, do you know exactly how much profit you’re making? Or if you’re making a profit at all? Have you factored in costs such as landlord insurance, tax, and all other associated costs?
If you’re just about to embark on a buy to let business, have you assessed your financial situation and access to borrowing? Have you considered how much of your rental income will need to fund your mortgage? What will your profit margin be by the end of the year?
In addition to a financial assessment, you should also consider other factors, such as how much time you plan to invest in the business. Is it your primary occupation or more of a ‘side project’? This should help you clarify how you plan to grow your business and at what pace.
You should also think about existing rental competition and demographics in your area. This will help you determine how and where to market your property, as well as what to expect in terms of rental income.
2. Set the right goals
Once you’ve assessed where you are, you need to start thinking about where you want to go. Many businesses have an overarching five-year plan.
This is the long-term vision for your business. Are you mainly interested in capital appreciation? Or do you want to invest in property that will provide a sustainable rental income? Are you looking ahead and thinking about increasing your pension pot? Or is your objective to achieve all three of these things?
Setting clear goals will help you determine what to do to achieve them; in other words, your strategy. In addition to your long-term objectives and strategy, it’s important to have smaller goals along the way. The crucial thing is that the goals you set are specific, clear, attainable – and that they make sense in terms of your overall plan.
They also need to be time-bound. A goal without a deadline isn’t really a goal, rather an idea, so when you set a goal, make sure you set a time target to achieve it by. Setting the right goals, in the right way, is crucial. For example, you might have a certain profit margin you want to achieve. This is a clear goal.
If you want to earn £1,000 a month from your rental properties, but you’re only earning £750, what can you do to reach your goal? How long will it take? If you’ve done your groundwork and know this is a realistic rental income in your area, you might find that you need to increase your rent. Or you may need to look at different tactics, such as how and where you market your property. Or perhaps you need to employ a number of tactics in order to achieve your objectives. Goals give you clarity of purpose and the ability to make positive changes.
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Free landlord business plan template
Find out why you need one and what it needs to include
3. Identify your strategy
You know where you’re starting, you know where you want to go. So how do you get there?
The first thing to consider is the type of rental strategy you want to use. Ultimately this boils down to two options: long-term letting or short-term.
One of the factors that will influence your decision is how much time you want to commit. Short-term lets, by their nature have a significantly higher tenant or guest turnaround, and therefore are much more time consuming. You’ll have a continuous flow of guests which means more cleaning, servicing, communicating with guests and checking them in and out.
Long-term lets are the most common choice. This means you let your property out to a single tenant or group of tenants, usually for a minimum period of six months. Short-term is anything from one night to a week or two, to a month. The strategy you choose will depend on your long-term goals.
Another key part of your strategy is how you plan to build your portfolio. If you’ve set out how many properties you’d like to be letting in five years’ time, how do you plan to get there? For example, are you only interested in properties local to where you live so that you can manage them? Or are you thinking about buying further afield and employing a third party to manage them? What does the market look like and the wider economy? Is now a good time to buy? The answers to these questions will help you develop your strategy.
A crucial part of your plan is your exit strategy. So ask yourself: What is your ultimate goal?
Why are you running this business? What is your end point? Whether you’re looking for a sustainable retirement income or planning to liquidise your investments at some point in the future, you need to always keep it in mind. This will help you stay on track, and make sensible investment decisions that take you closer to reaching your ultimate objective.
4. Finding the right tenants
Finding the right tenants should be a key component of your business plan. After all, these are your customers, so it’s crucial you reach them. How you find them will depend partly on your rental strategy.
For example, with short-term lets, you’re likely to be using a third party platform to market your property. Your customers are people who visit the site looking for a short-term let. However, your property will be side by side with your competitors’, so it’s important to ensure you stand out. A simple way to do this is by using high quality photos and making sure your information is clear.
When it comes to traditional letting (long-term), you have a number of choices. The first step is defining your target market. If you’re hoping to reach students or young professionals, for example, digital and social media marketing is likely to be a more suitable avenue than print marketing
You also have the option of using a letting agent to find you tenants. There are a couple of things to consider if you do this. Firstly, it will cost money.
Secondly, you need to make sure you pick a reputable agent, ideally one that’s recommended by other landlords.
Despite the cost, busy landlords who don’t have time to manage their properties or get their head around the increasingly complex legislation should outsource the management to a good letting agent. This comprehensive guide gives you everything you need to know about finding the right agent.
Are you protected by landlord insurance? Give us a call today to find out how we can help.