Tenants: Your Most Important Asset in Rental Real Estate
When investing in rental real estate we can focus on price and location all we want, but even though we must get those right it will not matter if we cannot procure and retain quality tenants.
Your Most Import Asset in Rental Real Estate
This is hands down your tenants. The rental income that comes from your tenants is what provides your cash flow and pays down the principal of the mortgage if you carry one.
The rental income is what builds your wealth in rental real estate. Sure, you can have appreciation or buy something at a great discount, but those are not steady income and wealth producing factors the way rental income is.
Keeping Your Potential Tenant in Mind
When buying a property and doing renovations your focus should be on what renters in the area expect. What you desire may not be the same as the rental community.
One of my properties is an example of this as the location is not somewhere I want to live. It's in a busy, noisy area that also happens to be close to the highway and a bunch of stores and shops.
Given I don't have a daily commute and spend most time from my home office I appreciate quiet, however for the person that likes convenience and has a long daily commute this property is right in their wheelhouse.
Knowing that I'm not the norm and more often than not people do have a daily commute; the property is desirable to renters in the area.
Tenant Turnover Costs Money
The ideal situation is finding a quality tenant that turns your property into their home. People tend to stay long periods in their home and this means you keep more money in your pocket, thus boosting your return on investment (ROI).
You should know exactly why this boosts your ROI. If not, then you may not be using a property calculator to run numbers on a property. Use the scaredy cat rental calculator to be sure you run the numbers correctly and are factoring in vacancy as party of the calculation.
Screening and Communication
Initially the screening of a tenant is the most important step. You want to ensure they make enough income to support the rent and have a relatively clean rental history.
I dedicated a chapter to this in my book called "The Five Key Points of Tenants Screening."
Once you have a good tenant in place, the next important factor is creating an environment that lends toward them staying.
The best way I have found to do this is through communication. This does not mean you need to talk to your tenant all the time. On average I communicate with my tenants, maybe once a month, probably less.
However the thing I do ensure is that they feel heard. Most people just want to be heard and know if their is an issue they won't be left hanging.
This doesn't mean you cater to their every whim. The lease exists for a reason, it sets the rules and expectations of both parties. Just fulfill your end and keep communication open and the odds are in your favor.
Organize and Collect
Then you just organize and collect. I love that saying and use it as a mantra. In the end this is what you are basicaly doing with rental properties anyway.
Published by ScaredyCatGuide
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This is so important as my early experiences were horrible as I did not invest time screening potential tenants. Once I learned the hard way with losing lots of money, I learned two important aspects. First, screening and establishing a respectable relationship is important. Second, if you sacrifice short term cash flow in could lead to a long term gain. I now have two great tenants, one who just entered his third year and the other almost nine years! The long term has worked out for sure!
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Yeah man, tenant screening is huge.
You almost make the scary part of renting less scary. :-)
Haha, I see what you did there ;-)
Funnily enough I just dropped my rent significantly in order to keep them. While it certainly hurt my cashflow, the potential cost of having to advertise for new tenants which could take months outweighed the cost of dropping the rent. In real estate I feel like it is always a constant balancing act between keeping enough liquidity to stay above board until the market turns.
I've had this discussion with some other investors before. It seems crazy to most to drop rent, but if the times call for it and the math makes sense compared to cost of turnover and screening its a good move.