If you currently own cash flow investment property, you already know that the key to making an asset profitable is keeping the occupancy rate high, the expenses low and the tenants paying. If you don’t know this, you soon will.
Turnover, repairs and empty units can drain your resources quickly and put you out of business. I thought I would share a few thoughts that I have found helpful in keeping our properties very profitable.
#1. Attitude. How do you view the residents of your investment properties? Are they your customers, your tenants or a necessary evil to put up with? I suggest that you not be a landlord if you have the last attitude.
Your attitude in how you view your residents will come through loud and clear in everything that you do. We view our residents as customers and that the long term value of a customer is worth thousands upon thousands of dollars. This is especially true when you consider that the majority of our residents stay multiple years at a time.
Consider the life time value of a resident that pays just $600 a month for rent for 5 years; and then buys a home from you because they have faith and trust in you as their landlord. That is no chump change!
#2. Vacancies. I see too many landlords as well as property management companies taking way too long to fill a property. A vacancy needs to be viewed as an emergency. Here is why.
You have no income, but have potentially 4 negative expenses: repairs, utilities, insurance payments and mortgage payments. You need to have adequate reserves to cover these items or they will wipe you out very quickly. I prefer to minimize these expenses as much as possible and keep more money in the profit category.
You would probably prefer to do that as well. Here are some strategies that have benefited our business.
A.) Place a clause in your lease so that you can begin to market and show the property 30 days before the end of the lease.
B.) Conduct a pre-exit inspection for the current residents so they know what will need to be fixed by them or will be charged back to them.
C.) Have your maintenance list ready for your maintenance crew and have them begin working on the property the very next day after move out.
D.) Conduct routine inspections on the property at least twice per year. Provide the list of items you will be checking to the resident at least 2 weeks in advance. Make sure that cleaning is part of the inspection process. During the inspection be looking for preventive maintenance items as well so that minor issues do not become large expensive issues later.
E.) Schedule the end of the lease so that it will occur during the time period that requires the least amount of utility use.
#3. Marketing. Conduct your research and know what your market rents are in the area. Learn how to distinguish your property and your business within your market.
Whether you have one property or multiple properties, you need to stand out. You can do this by creating more value for the potential resident than other landlords.
Here are some examples:
- provide a maintenance guarantee
- provide a rent credit towards a future home the resident might buy from you in the future
- provide a gift card for 12 months of on time payments
- provide a resident referral program
These are just a few ideas. Don’t get into the habit of discounting the first month’s rent. When you do this you start to become a commodity. When something is a commodity, the only thing that matters is price. You want to provide more value than the next landlord and keep your rents above average. Also, market on multiple websites with pictures and make your headlines attention grabbing.
#4. Resident Selection. This is probably the most important step in the entire process, but too often lacks consistent structure. Develop a systematic approach in how you evaluate potential residents.
Just because a potential resident says that they are good person and will pay on time does not make it so. Trust, but verify everything independently. Our potential residents are being screened from the moment they call or email us.
Every potential resident receives a 5-10 minute preliminary telephone interview to verify that they meet our minimum rental standards before they are allowed to view one of our properties. We have established financial criteria, cooperation/ reliability criteria and rental stability criteria in evaluating potential residents.
We also conduct credit, criminal and eviction background checks. By systematizing your approach and knowing the fair housing laws, you will be consistent in evaluating your potential residents and tip the odds greatly in your favor of choosing the best candidates for your properties.
Implementing these basic principles have reduced the number of turnovers per year and reduced the vacancy duration in our business; all contributing to a stronger bottom line.
Feel free to share ideas that you have found helpful through your experience. I am sure others would like to know as well as myself.
Great ideas!! Thanks for the idea about the 2x yearly inspection. I was doing once a year but this is much more organized and on the ball.