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

Nathan Brooks
3 min read
The Most Important Part of Your Investment (Hint: It’s Not the Actual Property)

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.


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.


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.

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

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.