The Good Tenant

The true asset of a smart real estate investor is their ability to get the good tenant.

Most people, both veterans and beginners, completely miss their “true asset” in their real estate investing.

They think that the properties are their assets.

They’re wrong. Very, very wrong.

The true asset of a smart real estate investor is their ability to get a “repeatable tenant.”

The process of getting a repeatable tenant starts with knowing how to pick a specific segment of the market. Then formulating a message to match that specific niche in the market. The type of home, type of sale, and type of rent, layered with emotional triggers. Then knowing with what types of multiple media to reach that market. Fax blasts, Kijiji.ca, newspapers, Google Adwords, Facebook advertising, flyers, radio, TV, road signs, lawn signs, etc. Then collecting cash, or actually “selling” the message, and maximizing profits. And finally fulfilling the promise of the message. You need to hold up your end of the bargain if you’re going to keep the good tenant you worked so hard to get.

Many of the horror stories you’ll hear from real-estate investors are because the investor only invested in property, and didn’t take the time to invest in the good tenant that’ll bring in cash flow with minimal work.

This applies to everything. Look at all the work involved in a successful Rent-To-Own investment. You need to learn about the strategy. You need to go look at properties, qualify for mortgages, get home inspections, organize paperwork, refinance your own home maybe, learn marketing strategies, learn how to speak to tenants, learn about many legal agreements, deal with tenant issues, make unscheduled trips to Home Depot, and hunt down contractors late at night, navigate banking changes, and explain yourself to confused family members and colleagues.

This is an active investment.

Owning a property provides you with little service if you don’t have a tenant to bring in money. If you have a good tenant paying off your investment, you’re set. Continued focus on income from the property while having tenants pay for the equity you gain. That is when your income property becomes a truly productive asset.

At first I was totally shocked, but then I realized we encounter this all the time.

We regularly have investors that talk about the hours they have invested into finding a tenant, like it’s a bad thing.

Most investors will spend a quarter of a million dollars on a property but then get super cheap on the advertising for a new tenant. Take the time and money to invest in the good tenant that’ll continue to pay for the property’s equity.

Look at a person making $60,000 a year. That amounts to $1153.85 per week, BEFORE taxes. Let’s pretend that they invested 80 full hours into finding a tenant; 80 hours is extremely rare, but it could happen. If the tenant was paying them $1,500 a month that amounts to $18,000 over the first year, $18,000! Their regular job pays them just over $2,300 for the same amount of work.

You can own all the real estate in the world, but if you can’t sell a tenant on renting your units you won’t last very long in the business.

We are constantly monitoring how our tenant/customer base perceives their income and financial situations. There’s always a need for good rental housing, in good and tough economic environments, but it never hurts to be aware of how people perceive their financial state, and tailoring our marketing messages accordingly.

If banks stop lending for periods of time it will also mean wild real estate price swings that you’ll have to be comfortable lasting through. For us that means nice little single-family homes where we can use the tenant’s rent to pay the debt on the property. This is exactly why we study so much economic history, and monitor current events so closely. We went to have a good idea of where interest rates are headed so we can prepare by locking in outstanding variable rate mortgages.

Sometimes the upside on the rents seems limitless, or the down payment offered by a tenant buyer could be so large nothing else seems to matter, but every single investment has a positive and a negative.

Make sure you are uncovering both sides of the equation and basing your decision off all the facts. Be prepared for the unexpected.

Even the best tenant will come with work, but a solid tenant who respects you and the property will be a lot less hassle, and will hopefully help you on your way to living your life on your terms.