One of the most common fears facing young and aspiring buy and hold investors is the idea of becoming a landlord. Even when you have a great deal of confidence in the accuracy of your deal analysis, the prospect of managing tenants can be overwhelming.
How do you overcome this fear? How do you best prepare yourself for that moment when keys are handed over and you have real, live tenants under your management?
Here are a few key steps that can help you establish solid a solid beginning to your buy and hold career.
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As a young landlord, it is often difficult to gain the respect of your tenants. Your tenants will often assume that you lack experience. In many cases, their assumption regarding your experience will be correct. However, you have the power to completely reverse this notion by acting and communicating in a professional way.
Exceed your tenants expectations in the way you approach their tenancy. This means dressing and acting the part of a true professional. In truth, your tenants are your customers. They will expect a level of professionalism that they would receive for all the other products and services they buy on a daily basis. You should respond and act accordingly.
- Stick to a dress code. You don’t need to wear a suit and tie every time you communicate with your tenants — but what you wear should be consistent and appropriate. Make a conscious effort to dress respectfully and professionally before visiting with your tenants and prospective tenants. This will help you gain the respect you deserve.
- Define your brand. Your brand communicates who you are and what you stand for. While it may be too early for you to form a standalone business entity for your investing activities, it’s still worthwhile to spend time establishing your brand. If you want to save the cost of forming an LLC, you can create a DBA (stands for “Doing Business As”) for a very low cost. Having a title such as “John Smith Properties” helps to bring the interaction between you and your tenants to a professional level. In addition, having some sort of business identity will help you as grow your network and look for future investing opportunities. The key here is not to break the bank. You can go a long way in establishing a professional brand for under $100.
- Keep to a schedule. Many new landlords are eager to respond to questions and meeting requests immediately. Try not to fall into this trap. Like any business owner, you have many tasks and people bidding for your attention. Discipline yourself to respond to questions at a specific time of day. Encourage your tenants to set up specific appointments if they have something to discuss. Immediately responding to ad hoc requests will train your tenants to expect that quick response all the time.
Build Systems and Processes
This step cannot be overlooked! Too many landlords and property managers are still living in the stone age! They refuse to embrace technology and are therefore stuck operating their properties in a reactive manner. Instead, you should anticipate potential issues and build processes to proactively maintain your rental units.
As I outlined in a previous blog post, a valuable exercise is to build out your business process framework. This outline of your business will help you understand all that your business is responsible for and where you may have holes. Your business process framework indicates the various triggers that set your systems into motion. You should have a firm understanding of exactly what action your business is to take in various scenarios.
You don’t get a pass on this just because you only own a few properties. This applies to everyone! Even if you are responsible for managing just one rental unit, you should build systems and processes as if you managed 100.
Act as a Live-in Landlord
This may not be an option for all of us, but this is a great strategy when you are young and/or just starting out. The live-in landlord (or “house hacking” as Brandon had dubbed it) means purchasing a multi-unit property, living in one unit while you manage the tenants in the other units. This strategy is extremely popular among investors who are buying their first property and want to experiment with managing tenants (I used this strategy with two different properties).
This strategy does not come without a couple of potential drawbacks. For starters, your tenants may assume that because you live at the property, you are available 24 hours a day, 7 days a week to discuss the smallest of issues. You must proactively address this risk by setting expectations with your tenants at the onset of your relationship.
This goes back to having established and well-communicated business processes. If, for example, you have a process by which your tenant fills out an online form to submit a work order, they should not be sending you text messages and/or knocking on your door. You should be continuously forcing your tenants to understand and follow your processes. Slipping in this area is like giving your tenants free license to ignore your processes and contact you without regard to your business systems.
Another potential risk is that your residence at the property tends to break down your level of professionalism. Your tenants see you in a social/personal setting. This may lead to a decrease in respect and a feeling that you are more of a friend to your tenants than a landlord. This can be mitigated by setting strict boundaries and being cognizant of impending interactions with your tenants.
Those risks aside, the “live-in landlord” is a great way to get your feet wet in buy and hold investing. Besides, if things aren’t working out, you can simply move out and find a new tenant to take your place!
Never Stop Learning
You will gain a sense of relief after you make it through the first six months of being a landlord. You might be shocked to find that the world didn’t end and that your financial projections actually held up!
These six months will provide some of the most useful real-life education you could ever receive. While you should be proud of your accomplishments, don’t allow yourself to become complacent. You should never stop the education process. Your personal and professional development cannot be compromised. There is always something new to learn and existing skills to sharpen.
Owning and managing rental properties can be a daunting proposition for a young, aspiring investor. That being said, we all have to start somewhere. The sooner you jump into the real estate game, the sooner you will improve your skills to a point where you can scale your buy and hold business.
Where are you in your investing journey? What tips would you add?
Let me know with a comment!