The Five Success Principles of Rental Property Investing
Uncle Ben once said, “With great power comes great responsibility.”
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Although he may have been giving Spiderman advice on kicking the backsides of bad guys, the same principle applies to real estate investors.
You stumbled upon something incredibly powerful when you decided to get into real estate investing. Most of your family and friends will never flip the switch in their heads to take control of their financial destiny. In much of the world, even those who know about the power of real estate couldn’t do anything about it.
But you… you are incredibly blessed with great power, which means you’ve got some responsibilities now. Now, maybe you don’t feel you are “successful” yet, but that’s okay. If you cultivate these habits now, they can help you develop into the kind of investor who is successful. Fake it till you make it, right?
The following are the five responsibilities, or principles, that every rental property owner must adhere to for the rest of their investing life to maintain continual success.
1.) Manage Effectively
The first responsibility you’ll have as you become an experienced real estate investor is to manage your portfolio effectively. Whether you have a property manager in place or you manage your own tenants, you are STILL a manager!
Owning a rental property is a lot like walking a tightrope. You need to keep walking on that thin line and when a gust of wind comes from the left, it’s your job to lean to the right so you balance yourself and don’t fall off.
In your rental property business, “gusts of wind” can take many forms. Thieving employees, bad property managers, natural disasters, fires, economic depressions, and more can throw your investing off kilter and force you to step in and maintain stability. Don’t assume that just because you own some rentals that you can sit back and relax on a beach 365 days a year.
In addition to managing your properties, you must also manage your finances. Keeping accurate records every day, week, month, and year are vital to the continual success of your business.
2.) Increase Income
As you move through your investment life, one of your tasks will also be to increase the income that is generated by your rental properties. And I’m not only talking about raising the rent, though that is obviously the largest aspect of increased income.
First, you need to ensure your property is always being rented at the market rate, not below. Now, maybe you think that by offering below market rent you’ll deal with less drama, which may be true. But how much are you sacrificing for that?
This becomes increasingly problematic the more units you have. If you own 50 units and each is under market by just $25, that’s $1,250 you are missing out on each month, or $15,000 per year. At a 10% cap rate, that’s $150,000 in value you are missing out on because of just $25 a month.
Of course, you also must be cognizant of being priced too high. Just as I advocate raising the rent to stay current, also be quick to decrease the rent if needed to fill units. As I’ve mentioned at other times in the past, vacancy will be one of your biggest cash flow killers, and keeping rent competitive is the easiest way to keep vacancy rates down. It may be a bit of a balancing act, but learning to maximize your income is incredibly important for your entire investment life.
3.) Decrease Expenses
Another task you’ll need to continually stay on top of is decreasing expenses. I’m not saying you should be spending all your time pinching pennies, and some landlords take this way too far. You should not sacrifice the right your tenant has to quiet enjoyment of their property just because you want to save money. However, there are numerous ways you can cut costs as a landlord. For example:
- Transfer the responsibility of certain utility payments (water, garbage, electricity, etc.) over to the tenant.
- Switch your garbage pickup to a larger can but fewer pickups.
- Negotiate lower rates with vendors in exchange for longer contracts or exclusivity.
- Switch to energy efficient appliances where you are responsible for paying electricity.
- Switch to low-flow toilets and implement other water-saving techniques to keep the water bill down if you pay for water.
- Shop around for better insurance rates.
- Challenge your property tax bill if you feel it is too high.
These are just a sample of the kinds of expense decreasing activities you can do as a real estate investor. No one else will likely do these tasks for you, but small changes can sometimes result in a massive boost to your bottom line.
4.) Carry Out Your Plan
I often talk about having a real estate plan and compare investing in real estate without a plan to the act of driving across the country without a road map. Hopefully you’ve built some sort of plan for yourself and have some kind of goal as to where you want to get to. However, having the plan is not enough. Now you need to carry it out.
I recommend reviewing your goals on a daily basis and monitoring your progress on a monthly basis. In other words, if your goal is to achieve $1,000,000 in net worth, where are you at right now? On the BiggerPockets Podcast Episode 113, real estate investor and author Jay Papasan mentioned how keeping track of his net worth daily has made the greatest impact on his life and his investing.
Your plan will likely change during your career, as it should. Life happens, and it throws a curveball into your plan. Kids are born, natural disasters happen, your physical abilities slow down, and the increasing knowledge of your own mortality can play a role in your plan as well.
However, a goal without a plan is just a wish, so even if that plan changes, keep working your plan and don’t give up.
5.) Give Back
Finally, I believe that every investor has a duty and obligation to give back to others, no matter what level of success they have achieved so far. Giving back can be done in multiple ways, but primarily I’d encourage you to look at giving back both educationally and financially.
You might have just purchased your first deal, but that puts you miles ahead of 90% of the rest of the population who have never owned a real estate investment. So give back and share what you’ve learned! This is the spirit of the BiggerPockets community, where people from all different experience levels can share, learn, and grow together. So share your story, help out others, and help others achieve the success that you’ve seen.
I believe strongly in giving back financially. If life has rewarded you, I believe you should give back financially to help those who have less opportunities than you. Do some research and find an organization that you can trust to use your money to make a difference in the world. Not only is this good for the world, it’s also good for your own heart, helping to keep you grounded and focusing on the things in life that really matter. It’s easy for real estate investors to get SO focused on the money and the success that we lose sight of the bigger picture. And remember, you don’t need to be a millionaire to start giving back. Start today! I would recommend starting with giving back 10% of your income and see where that takes you.
You’ll never get to the end of your life and say, “Man, I wish I wouldn’t have given back so much.” So cultivate in yourself an attitude of generosity and become the kind of person who gives back to society. After all, all the success you’ll ever achieve in life is because someone else gave back and paved the way for your success.
It’s time to pay it forward.
So what do you think? Any other responsibilities you’d like to add?
Leave your comments below and let’s talk!