The Most Important Part of Your Investment (Hint: It’s Not the Actual Property)

by | BiggerPockets.com

Let’s say you have a totally renovated, totally perfect rental property. You’re really proud of it, and you should be! The property didn’t just come together out of thin air. It didn’t will itself into your portfolio. There was the acquisition. Maybe you even negotiated it right from the seller. Or maybe you got a killer deal from your favorite wholesaler. Or perhaps you were lucky and bought it straight from the MLS or right from the courthouse steps. There are a lot of skills you need to do all of those things.

Then you had to figure out how to finance it, pay for it, or both. However you did it, you went through buying the house. Then, you prepared and executed the construction or make-ready process. You made sure you had a detailed scope of work, meticulously working through any design elements.

And soon, your new rental property was ready to go! Now, it looks great. You use your favorite iPhone app, super fancy camera, or photographer to create a digital representation of your property. Of course, you pick up every leaf and mow the lawn with those perfect green lines like they have at your favorite sports team’s field. Shoot, this house should literally be on HGTV, it’s so perfect.

All of this—acquiring, renovating, financing, doing real estate deals—is important. But none of this is the most important thing about your investment.

Have you figured it out yet?

Yes. The most important part of your investment is your tenants.

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Houses Don’t Create Cash Flow—Tenants Do

Take a moment and think about it. As a real estate community, we tend to focus on the house. Believe me, I can get that way too. But the house doesn’t pay the rent. The people in the house do! They are the ones living there, making the house their home.

Related: 7 Types of Tenants That Are Harder to Insure (& What You Can Do About It)

If you aren’t seriously considering where the rental income is actually coming from, you need to think again. And then go back through everything we just talked about. During your renovation, are you making sure you are addressing concerns that your tenant would have? Did you make rent rate assumptions on the returns from your property? Of course you did. And guess what? You need to have that property renovated and presented in a certain way to ensure you have a tenant interested in living there and paying that kind of rent.

Rental Turns are Cash Flow Killers

Have you ever gone through a brutal rental turn? Maybe it was a pet leaving a mess and questionable smells behind. Maybe it was smokers who weren’t supposed to smoke there. Or perhaps it was that special tenant who figured out how to put holes in walls and doors. How do they do so much damage? Did they use a sledgehammer to open the door on the regular? Who knows.

Rental turns can cost hundreds if not thousands of dollars. Serious damage is even more expensive. Take this part of the process seriously. If you are placing the tenants, make sure you have a system in place. If you’re working with a property manager, understand their process. How do they screen tenants?

Make sure you understand the types of tenant you have. Even if they are moving out and don’t want to live there anymore, make sure you know how they are caring for their place now. When you’re in the process of filling your property again, take your time. Follow the proper steps. Finding the correct tenant is so important.

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A Rental House is Someone’s Home

The bottle line is that rental is someone’s home. They could bring a child into the world, get married, or move into retirement years while living there. Are you serving the needs of your tenants? The property needs to serve them. If you aren’t thinking of issues or opportunities that come up, you need to be. Have clear guidelines when routine maintenance is performed at the property. Make the rent payment process clear and simple. Understand how snow removal and lawn mowing is addressed.

Related: 7 Advanced Tenant Screening Tips (So You’re Not Fooled by Wolves in Sheep’s Clothing)

How often do you check on your tenants? Do you know them and make sure everything is going well at home?

Think about it. If there is an open line of communication, and the tenants feel heard, with their issues addressed, don’t you think they might stay longer?

Final Thoughts

Remember, the property is important. But you don’t have a cash flowing asset without a tenant paying rent. The tenant has decided to make your property their home. Don’t take this opportunity lightly. Create a safe and healthy place for them to live.  Understand who the tenants are, or make sure your property manager does.

And then create a relationship that allows those tenants to feel cared for and happy to live in your property for a very long time. When you solve that problem, you will have an amazing property, a happy tenant, and a solid investment for the length of time you own it.

How do you take care of your tenants and rental properties?

Weigh in with a comment!

About Author

Nathan Brooks

Nathan Brooks is the co-founder and CEO of Bridge Turnkey Investments, a Kansas City-based company renovating and selling more than 100 turnkey properties per year. With over a decade of experience in real estate, Nathan is a seasoned investor with a large personal portfolio and a growing business portfolio. Just last year, through Bridge Turnkey Investments, he helped investors add over $12 million in value to their real estate portfolios. Nathan regularly produces educational content to fuel his passion for helping other people learn about and find success in real estate investing. He has been featured regularly on industry podcasts such as the BiggerPockets Podcast, Active Duty Passive Income Podcast, Freedom Real Estate Investing Podcast, Fearless Pursuit of Freedom Podcast, Titanium Vault, The Real Estate Investing Podcast, The Best Real Estate Investing Advice Ever Show, the Good Success Podcast, FlipNerd, Wholesaling Inc., The Real Estate Investing Profits Master Series, Flipping Junkie Podcast, Flip Empire podcast, Think Realty Radio, and more. He is a sought-after speaker and writer and can be found on stage regularly at events across the country.

11 Comments

  1. Phuoc Ton

    Hello all,

    I have tried to do the cashout on my rental and the broker I work with she said since I am no longer have W2 I am not qualify. Is that the fact or may I get a bit more info who would do the cashout? I have quite amount of equity and even have the appraisal to roof it. Thanks everyone in advance!

  2. Scott Sklare

    Nathan, absolutely great article and right on. I may be biased, but I highly recommend that most investors should consider hiring a Professional Property Management company to manage tenant relations.

    I often talk about our 2% rent to purchase price deals. Well, that doesn’t happen without having high-quality, reliable, and happy tenants!

    Nathan, I would love to connect with you. Are you available for a phone chat?

  3. Brian Spies

    This is a good article. Most businesses that you see having issues are because they lose focus on their customers. In this case, the tenant. Having a happy customer/tenant has the potential for higher retention rates and lower vacancy rates.

    I just rented my first property in November 2018; and when I started on this journey, had the idea of offering a property that someone wanted to live in, not just another place to live.

    • Doug Smith

      Brian, I like your priorities. The quality of life and the happiness of the tenant are number one in my book. I want my tenants to be happy with their rental choice, feel safe and well looked after. I keep up with all maintenance and respond to any of their concerns promptly. I want them to be happy and stay, turnovers are expensive.

  4. Stanley Powers

    As Welder and Barge completion worker we had Customers we answered to . Before a Very Expensive Barge is done it must be tested inspected cleaned and painted .If you Customer is not happy he will reject the product .THE Same is true with renting ! Keep your tenant happy he will want to stay . Always check with them and see if there may be issue,s that need addressing …They are willing to pay the rent if you do your part!!! THE customers are always right !!! Same here ! Keep them Happy and you can be very happy !!!

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