What are business ideas that people implement that complement a large rental portfolio? I'm not nearly there yet but I think it's good to plan ahead.
For example, some people start their own in house property management business to take care of their properties and take on others.
Other people become realtors and can deduct their commission with rental property paper losses
While some others have flipping businesses and also use losses from rental properties to reduce taxes from flipping business
Hi, for a rental business strategy jump start for everyone, I wrote up how we run our rental business. Read the file linked off my BP profile 1st paragraph; how to buy a bullet proof rental portfolio.
Join your local REIAs, for local boots on the ground investors, buy and holders to learn from.
At some point some folks create side businesses to create tax advantages and some to reduce costs;
- An in house property management co. Typically an LLC single or multimember (husband/wife etc) and you send in the IRS form to be taxed as an s-corp. You signn a PM agreement between your holding co (or yourself) and the PM co for a fee. That fee pays you a W2, an a K-1 to your 1040 or like me, I pulled all my Schedule E (rentals) off my 1040 up into a partnership LLC, multi member / husband-wife, where I file a 1065 and k-1s to my now nearly stripped of REI 1040. If you are only managing your OWN rentals you do not need a licensed agent/broker on staff.
- a property maintenance / construction co. Typically an LLC single or multi member, you'd also want tyhis taxed as an s-corp. Folks do this to reduce maint costs by employing (w2) handymen that just work on your properties, build, etc. At some point you can soak up excess capacity by offering to do maint on local investors/friends properties too. Now you have more income not just reduced expense to your holding companies ownership of rentals.
- I really don't hear of many getting licensed as a way to save money. I know flippers who are licensed who still off load to another listing agent. IMHO I don't view getting licensed as very useful to REI. You have to pay to hang your license somewhere, pay for CE credits/yr etc etc. But some do I don't see the value.
=== BTW the rumor of huge rental losses to be used to negate gains else where in your tax return needs to be studied. My portfolio of rentals all here in the South East (lower purchase price, hgiher rents, lower mortgages) have all been hugely profitable. No losses except for last year in 8 yrs of filing. Huge gains! No losses to be used elsewhere. I stopped claiming RE Professional, there's IRS/tax disadvantages if you get audited being RE Pro. My loose last year came from the same rental income (no covid drops), but a huge rehab at the end of year without any new income from that new rental. I did have some lower STR income and higgher expenses from the STR too. But normally my rentals contribute alot of income net on my tax returns. Owning older houses that need expensive upkeep, high purchase price for depreciation, hiigh mortgage and bearly cash flowing rent iis how I can guess you'd own rentals that on paper loose money. Most of us in the SE and I'll guess you in KS have difficulty loosing money owning starter homes y9ou rent to blue collar and DSCR >1.5 ideally 1.7. You WILL generate great returns when you can buy at DSCR >1.5 then it goes up with rent raises (mine are 7% to 10% this yr, just mailed them all out).
Best to all.
Agree with everything @Curt Smith brought up.
Another option to consider would be "automated tenants" for commercial properties (i.e. laundromats, vending machines, ATM machines, co-working space). Or "lifestyle" businesses (i.e. a yoga studio if you are a yoga instructor).
@Allen L. I hate to be the guy who just repeats what others have said but we have pretty much followed what @Curt Smith laid out. The biggest difference we don't have other w-2 employees except for the LLC manager. Really helps with taxes. For everything else we use 1099 folks. Just easier in my mind. Lots of paperwork and other costs for w-2 employees. What about a GC company. That why when you aren't flipping your own you can be doing rehabs for others. If you want to go this way check with your local community college to see if they have a test prep course. You will be a licensed GC in no time. And look closely at what type of GC license you are getting. Commercial, or Builders Licenses, is usually the same test with a few extra questions and then you can build anything. Well, legally at least. Again, you can use all 1099 crews. Just tack on your overhead and profit. THis is good approach if you are a good project manager. Then if you really want to get creative think of what you pay for in your when you are building your rental portfolio. You might be paying for bandit signs. So look into being thee guy who supplies all the bandit signs in your area. When you do a flip do you use roll offs? A friend of mine bought a couple and when he isn't using them he rents them. Sure it's not a big dollar item and you need to find someone to pick them up and dump them. But grow that to 10 a week and you're banking 3k/week just to have someone answer the phone to send out or pick up. And you may be able to use SBA to finance it all. There are plenty of spin offs, just look at your checkbook and see what you as an investor are paying for.