If you are a frequent visitor to Luke1428 you know I have an affinity for rental real estate. I purchased my first property five years ago, mistakenly paying a bit too much for it. I didn’t know how to be a successful landlord then and let my excitement cloud my judgement. I simply wanted to get started…that was all I cared about.
I’ve learned many things since then and survived my share of dark moments. You may remember my post from last fall about the nightmare I went through during my first eviction. Ending up in front of the county judge to settle that dispute was frustrating but valuable all at the same time.
Nobody should become a landlord without doing some serious reading on the subject. That will help eliminate some mistakes you could easily make. But head knowledge can only take one so far. Some things are only learned through experience.
5 Tips on How to Be a Successful Landlord
If you want to know how to be a successful landlord, there are five key areas to focus on that will help facilitate your success. The more you think through these things before starting the better your chances of long-term success.
1. Treat it Like a Business
Many people enter the rental real estate business through the back door. Because their property has gone down in value, they don’t want to lose money on the sale of their home. So they choose to rent it out when they move, praying that home values will increase in the future. “Hopefully,” they project, “I’ll be able to break even.”
Or maybe they experience relocation for some reason. Faced with the prospect of carrying double mortgages, they choose to rent out the former house to cover their payment.
In either of these cases, if the truth is known, the individual doesn’t really want to be a landlord. The position is taken reluctantly, out of a sense of desperation and a feeling they will be harmed financially if they don’t.
Granted these are not the best ways to become a landlord. However, even if this happens, you can still choose to be responsible. Put the sour feelings of how you got into this mess aside and treat it like a business. If you can’t, then it would have been better to stay put until your house sold or you figured out some way to carry double mortgages.
If you don’t have the ability or desire to treat it like a business then you shouldn’t be doing it in the first place. It’s not a circus sideshow that can be ignored all month except on the day the rent is due. There are financial books to keep, tenant phone calls to return, background checks to do, repairs and upgrades to be made, legal issues to be aware of and property taxes to pay.
If you develop an “I’ll treat it like a business, not a sideshow” mindset your chances of success and enjoyment will be much higher.
2. Focus on People, Not Profits
Wait…what? I thought you just said treat it like a business? Isn’t treating it like a business all about making money? Why should I focus on people?
Because without people, no business exists. Without a business, no money comes into your pocket.
The people-first mindset can co-exist with the “treat it like a business” mindset. If you think about it, what I’m really talking about here is Customer Service 101 that would be taught in any business school. Treat the customer like you would expect to be treated.
People are important because they have lives too, filled with ups and downs. They have their own dreams. They are families with kids who need a safe house and a warm bed to come home to at night.
What they need most is a landlord with a passion to care for their needs, within reason, so they can live their lives in peace.
It may sound like I’m advocating reducing profits to meet the needs of people. To a point, I am. That may not be a popular position among real estate investors.
For me, it’s more important to help someone find that perfect place to rent. I have it built into my business plan that I might not make as much profit as my competitors. I enjoy the feeling of knowing I’m helping people along the way and maybe giving them a monthly rent bargain.
I know my rents run a bit cheaper than comparable properties in the area. I’m fine with that. So are my tenants! It’s helped me keep my properties filled and secure new tenants quickly. I’ve never had a property that is ready to rent, sit vacant for longer than a month.
Focusing on people, doesn’t necessarily have anything to do with how much you charge them for monthly rent. That’s just one way I’m working this philosophy out in my business. It’s more about meeting their needs in whatever way you can so they can enjoy their experience in the property.
3. Set Some Business Goals
I’m a huge advocate of making goals in all areas of life. Rental real estate is no different.
Making money from your property should be a prominent goal in your business plan. In addition, it would be helpful to decide what you want the business to become. Are you content with just one property or do you want to build an empire? The answer to that question will determine how your business plays out over the long haul.
Developing other goals will assist you in running the day-to-day affairs of the business effectively. It will help guide and keep you focused as issues arise.
What other goals could you create? Here are a few I’ve put into my business plan:
Respond to general phone calls or emails within 24 hrs.
Respond to emergency phone calls immediately.
Fill vacancies within a month of properties being ready to rent.
Complete background and credit checks within two days of receiving an application.
Abide by all terms of the rental contract (seems like a “Well duh!” goal but you would be surprised how many landlords don’t).
Connect with tenants the day after rent is late.
Purchase additional properties in no longer than three-year intervals.
These are just a few of the goals I’ve set. I don’t always succeed but at least I have a target to shoot for. Set some for yourself based on your circumstances and business model.
4. Accept Challenges and Move On Them
Your air conditioners are going to go out. Plumbing is going to drip. Roofs are going to leak. Pets are going to stain carpets. Tenants are not going to pay rent.
Challenges are part of the business. Why are you pretending that they shouldn’t be happening and getting frustrated about it? Do you know how many dents get put into the walls at my personal home with four kids running around? So will it be at your rentals. Those walls will need to be patched and repainted between tenants.
It’s fine. Just do the repairs without complaining. Spend what money you need to so the situation is livable again. I once had to drill a new well because the old one at a property I owned dried up. You can imagine how expensive that was. It had to be done though or I could have been in legal trouble for being negligent to a basic need.
I simply breathe deep and accept challenges when they come. I’ve found it helps reduce my stress levels and limits tension developing between myself and the tenants.
Believe me, tenants pick up on how you respond to requests for attention. Whenever, I get a phone call for assistance, the tenants are so apologetic because they know they need help. They believe, rightly or wrongly, they have done something terrible. Their experience in other life situations tells them you (the landlord) will be ticked off because it will take money to fix the problem.
The best thing that can happen when that phone call comes is to remember your “Customer Service 101: People First, Not Profits” mindset. Kindly reassure them everything will be fine and work quickly to resolve the issue.
5. Build a Team
Even though I have a good deal of experience from my days of working for a construction company, I don’t have all the skills necessary to excel in every aspect of being a landlord.
I also know this…I certainly don’t have unlimited time.
So building a team will be of paramount importance. Who’s on that team will be up to you.
For married couples the team starts at home. Both spouses must be on the same page when starting this business. You will need the support of each other as you decide how best to use the monthly proceeds and manage the time it takes to run the business.
Your next main team member will be the tenant. You will want them to treat the property with respect. So connect with them and establish a good rapport from the beginning.
What other people do you need on the team? I would suggest you consider connecting with a(n):
Real estate agent
Repairmen (electrical, plumbing, painter, roofer, heating/air)
Handyman (for minor repairs)
Appliance repair company
Mortgage lender or banker
All of these may not be relevant at the beginning but you should work over time to build out your network. After five years of running our business, I’ve consulted with everyone on this list at least once.
I would suggest building a database in whatever format suits you. I keep my network of potential contacts in a Word document file. Of course, I keep numbers stored in my phone of team members I am in frequent contact with such as the tenants, our real estate agent and repair companies.
Is Rental Real Estate For Me?
Only you can answer that question. But you have to learn how to be a successful landlord. I’ve really enjoyed my experience and am looking forward to adding some more homes in the future.
If you can treat rental real estate like a business, focus on people – not profits, set some worthy goals, be fine in dealing with challenges and build out a solid team, then you have a great chance to be successful.
Questions: What would you tell someone about how to be a successful landlord? Would you consider sacrificing some profit to keep your property filled with a quality tenant? How’s your attitude when it comes to problems coming up at your property? Do you complete most of the repairs or do you hire that out?