Have you considered starting a leasing business, but you’re not sure if it’s for you? It can be tempting to jump into a new venture — after all, it’s a dream come true to be the boss and earn passive income.
But before taking that leap, there are some hard truths about owning and operating a leasing business that you need to think through. Let’s uncover them in this article to help you decide whether or not being a lessor is worth it.
- More competitors
- Involves a pile of paperwork
- Negotiation and social skills are assets
- Requires a huge amount of capital
- Needs a strong understanding of the market
- Upkeep and maintenance costs must be considered
- Requires patience and persistence when dealing with clients
1. More competitors
Leasing businesses in the Philippines are highly competitive. In the 2019 Annual Survey of Philippine Business Industry (ASPBI), the real estate market generated ₱1,099.54 billion.
Meanwhile, the demand for office leasing remains stable, especially in Metro Manila and Cebu.
With the economy bouncing back, the trend for affordable rentals is also upward. If you don’t have an excellent location, then you’ll find yourself constantly looking for tenants if you plan to go for real estate business.
2. Involves a pile of paperwork
Leasing businesses are often bogged down by paperwork because they must deal with various documents. You probably need a liaison to handle the following:
- DTI or SEC registration
- BIR registration
- Local permits
- Legal documents for your business registration
You also need to handle the contracts. For example, your contract must be clear and concise. Consulting with a legal specialist or lawyer can help you review the lease contract’s clauses, terms, and conditions. You will also need to take care of tax and fee requirements.
3. Negotiation and social skills are assets
Negotiation and social skills are assets in a leasing business because they help you create good relationships with potential clients. Negotiating helps you close deals that are beneficial to both parties.
When dealing with a potential client who wants to lease equipment, negotiation can help you develop mutually beneficial terms.
Excellent social skills allow you to build rapport with tenants, current and prospective clients, vendors, and business partners.
As a landlord or property manager, you must empathize with your tenants’ needs and address their concerns — a noisy neighbor or a pending repair in the apartment — as much as possible.
4. Requires a big capital investment
When you lease a property, you generally make a long-term investment. It means that you will need to have a significant amount of capital available to cover the costs of the lease, as well as any associated costs like insurance.
You must consider the construction costs to put up apartment units. All of these require a significant amount of upfront capital. Turning to a business loan could be one of your options.
5. Needs a strong understanding of the market
When entering into a leasing business, it is crucial to have a strong understanding of the market to succeed. Consider the following.
- The target market’s needs: what are they looking for in a lease agreement? How much can they afford per month?
- Your location: is it a busy place near hospitals, malls, schools, or other business establishments?
- The competition: who else is offering leasing services in your area, and what are their terms?
- Your own financial capabilities: can you afford to offer competitive rates and still make a profit?
6. Upkeep and maintenance costs must be considered
If you’re considering starting a leasing business, remember there’s more to it than just collecting the rent. The lessor and lessee must also discuss and agree upon upkeep and maintenance costs.
Depending on the terms of the agreement and who has control of the premises—the lessor or lessee—the costs may be borne by either party or even split between them.
7. Requires patience and persistence when dealing with customers
Leasing business can be a rewarding experience, especially if you have apartment rentals. Money just goes into your pocket while you sleep. But patience and persistence are essential when dealing with clients because they have different needs and preferences.
So, how do you apply these two principles? You can use them when:
- resolving disputes between tenants or clients
- renegotiating terms if needed
- collecting overdue payments from customers who fail to honor their contracts
- maintaining leases that span multiple years without interruption
Running a business can be exciting, but it has its challenges. Owning a leasing business is no different – the competition is strong in the city, paperwork can pile up, and ongoing costs must be considered.
However, when done correctly, with excellent negotiation skills and knowledge of the marketplace, those willing to put in the effort can reap the rewards of regular income from rentals.
If leasing interests you as a business venture, take some time to research before taking things further — this could be a smart move for your future financial stability. If you’re up or considering jumping into this arena?
After all – it’s still better to have supplemental income than to rely only on a single income.