Show notes
#171: Your tenant is your customer. I discuss how to attract and retain great tenants. You must think about how your tenant thinks. The quality of the asset you buy affects the quality of the tenant that you will attract. Six qualities tenants want are: 1) safety 2) move-in-ready condition 3) short commute distance 4) upgrades 5) neighborhood amenities 6) rent amount. It's not about what you would want in a rental unit, it's about what your tenant wants. Next, I tell you how to profit from inflation. Debt has a bad name. It shouldn't. I tell you why you want to consider borrowing massively to profit from inflation. Want more wealth? 1) Grab my free E-book and Newsletter at: GetRichEducation.com/Book 2) Actionable turnkey real estate investing opportunity: GREturnkey.com 3) Read my new, best-selling paperback: getbook.at/7moneymyths Listen to this week's show and learn: 01:56 The definition of great tenants. 03:11 Avoid "A" and "D" class areas. 04:16 Six ways to attract great tenants. 13:23 How to retain the great tenants you've attracted. 20:55 How you can profit from inflation. 21:57 Inflation defined. 24:34 Why make extra mortgage principal payments? 27:28 Robert Kiyosaki. 31:05 The power of smart debt. How you get a "phantom" $40,000 gain per year on $1M debt. Resources Mentioned: How To Profit From Inflation - My Forbes article RidgeLendingGroup.com ValhallaWealth.com GREturnkey.com GetRichEducation.com Hey, welcome to GRE. This is Get Rich Education, Episode 171. I'm your host and my name is Keith Weinhold and today we're talking about how you attract and retain great tenants for your income properties - some of which is just sort of common sense. Then after that we're going to discuss a topic that's definitely not common sense which is where real estate investing intersects with the economy that you live in everyday. This is really fundamental stuff. Your tenant is your customer. You've got to be able to supply a product that they demand and then keep them there. As any real estate investor knows, your #1 cash flow killer is vacancy and turnover. So let's dig into the heart of how to reduce that for you here. So the success or failure of your real estate investments depends on your ability to consistently attract and then retain great tenants. In the end, it doesn't matter how great of a deal you got on the property or how strong your projected cash flow and return on investment are. Without great tenants that pay rent on time and take care of your property, the cash flow and returns all just evaporate into thin air. Great tenants by definition - have a job, clean, pay rent on time, and that they're law-abiding. And yes, I do mean that they have a job. Here at GRE we talk about "Don't Follow Money, Make Money Follow You", well your tenant doesn't think that way. By and large, they move to where the job is. They make a central part of their life following money around rather than following their heart or following their passion or chasing their dream. They follow a job. As I've often said, you want to think about how your tenant is thinking. Your tenant is just not as aspirational as you - the GRE listener is - and that's OK - I'm glad that they're there for us and that there's a steady supply of soul sellers - yes, people selling their soul. So the question that naturally follows is: How do you find great tenants for your investment property? The answer is so simple, yet so impactful. The quality of the asset you buy determines the quality of the tenant you are likely to get. You can't change a property's location. Now, understand that you don't want actually want an amazing A-class location. Those high-end properties aren't profitable for long-term rentals, anyway. OK, you're not looking for a single-family rental home with great, sweeping panoramic views of a pristine, sparkling lake that's stocked with trout or a home with a 3-car heated garage with a painted floor. That's A-class stuff: the best properties. I'd also advise staying away from the bottom: D-class properties - the worst. The ol' collecting the rent at knifepoint stuff. That's not where you want to be either. If you want to find excellent tenants for your investment-grade property, you should first purchase an investment property with the qualities that attract excellent tenants. So, really a great question to ponder - if you want to find good tenants - is: then what do good tenants look for in an rental property? 1. Safety Safety is our most basic human need and a powerful motivator for excellent tenants. One of the main reasons why your prospective tenant decided to spend more to lease a home (as opposed to an apartment) is to provide a safe environment for themselves and their family. Purchase properties in safe neighborhoods - again, avoiding D-class areas. Good turnkey providers know this & practice this. They have a company reputation to protect. Turnkey providers want referrals from satisfied investors. 2. Move-In Ready Condition The condition of the property—and more specifically the ability to move right in—is very important to excellent tenants. You could rent out a property that's not quite move-in ready (requires paint, flooring, cleaning, etc.), but I assure you it won't be to an excellent tenant. Your target tenant plans to take care of your property and has high standards of cleanliness and maintenance. If you provide a move-in ready home, you are communicating that you share those same standards. You know what, the first property manager that I ever hired - I only employed them for a year or a year in a half before I had to get rid of them - is because when I had a vacancy, they just didn't get the property fresh and clean for the next tenant. So therefore, the unit still had knicks in the walls and faded paint and half-busted window blinds - and they considered that ready - they showed that to prospective new tenants. Well, what a waste. I wouldn't even want to accept the type of tenant that would accept living in those conditions themselves. Because that type of tenant probably wouldn't respect the unit either. So, what you can ask your manager to do - between your first few tenancies - is have them send you a 30 to 60 second walk-through video to verify that it's acceptable to you. If it's acceptable to you, then it's probably going to be acceptable to a quality tenant - and this is just a good way for you to get an update on how your property is looking across the country anyway. Any good manager will do that for you. 3. Proximity to Employment Let's face it, very few people like to commute! So proximity to employment centers is very important to good tenants. You can have a great, move-in ready home zoned to great schools, but it won't matter if your tenant has to drive an hour to work each day. As you look at potential properties, think about where your target tenants are likely to work and how close the property is to that area. Proximity to things that everyone needs - like proximity to a good grocery store or a Walgreens or other drug store - that's helpful too. We're talking about the fundamentals of what your tenant wants today. That's your customer. The last time Rich Dad Advisor Ken McElroy was here, we discussed what the newer amenities are that tenants want today that they weren't so much asking for 10-15 years ago like good wifi. Today we're just talking more fundamental. 4. Upgrades Some inexperienced investors subscribe to the myth that your investment property needs to be good enough for you to want to live in it yourself. I'm telling you - depending upon your standards, that's flawed. You're really limiting yourself if you think that way. I'm telling you, every rental property that I own - I can't think of an exception to this right now - if I lived there, it would be a substantial downgrade to my quality of life. Now, on the other side, you might think that that your unit just needs to be "good enough for a rental." Therefore, you purchase starter homes with cheap finishes and maybe vinyl flooring that's thin and peeling them at the edges and then you rent them to marginal tenants and get limited results. That can almost work in some markets but this is likely going to hurt you with tenant retention. When that tenant starts doing just a little better financially, they're going to move out. So don't do that; instead, purchase homes that have strategic upgrades that move the needle with the better calibre of tenants that you want: vinyl plank flooring, even granite countertop in some markets, black or stainless appliances - not so much white ones, covered patios, things like that. You know how I talk about how it's not about what you want, it's about what your tenant wants. It's about putting your desires aside. For example - and I know that I'm different here - I've never understood people's desire for hardwood laminate flooring or vinyl plank flooring. To me personally, carpeting is just so much more comfortable. On top of that, when people move into a place that has the laminate flooring that they desire, what's the first thing they do? The first thing they do is find a big area rug to put on top of their laminate or vinyl flooring. Ugggh - I just don't get it. And then the area rug doesn't have any padding underneath it so it still isn't nice & soft. People say that laminate flooring is easier to clean - not really - not when you've put a big area rug in the middle of it - now you've got that rug to clean plus you need to use the Swiffer dry on the perimeter where the fake wood is - it just doesn't make sense to me. Plus in cold climates, the laminate feels cold on your feet. I've just never understood Americans' desire for these cold, hard surfaces. But this is where I have to put aside what I want. Most people - tenants included want cold, hard surfaces for whatever reason. I just don't get it, but I don't have to - you need to understand what the customer wants and give it to them. ...and I'm happy to give their cold, hard, vinyl plank to them because it's more efficient for investors in the long run - it rarely has to be replaced. -We're talking about how to find and retain great tenants today. 5. Neighborhood Quality Now, neighborhood quality is kind of different from safety. Neighborhood quality determines the quality of your tenants' life. Think about the community you live in—the neighborhood amenities probably played a major part in your decision to live there. Your lifestyle is different in a neighborhood with running and bike trails, community pools, tennis courts, a gym, etc.? Quality tenants care about neighborhood quality. A community doesn't have to have ALL those amenities, but if it's got a few, that's better. Access to Transport & Basics Access to modes of transportation and basic necessities like grocery stores, restaurants and shopping is very important because it affects other important factors such as commute to work and lifestyle quality. When you're looking at investment properties think about: How easy is it to get to the main highway/park and ride/public transportation? Are there basic services within easy reach? 6. Rent and Price Last but not least, your investment is ultimately a business decision for you as well as your prospective tenant. Your tenant will be concerned with the rent, and you will be concerned with the relationship between the rent and the price you pay for the property. Make sure the projected rent isn't so high that it limits your tenant pool and so low that it lowers the quality. good tenants pay their rent on time. That's a baseline. Great tenants go well beyond on-time payments. They treat the property with respect, seeing it as a home versus a rental, and they treat you as the owner and provider of that home with respect also. So, there I've discussed six items that attract excellent tenants to your property. Retention You know what, if your tenant wants to paint the inside of their property, I say let them. It makes it like home to them, and when it makes it like home to them, you're going to retain them. They're also more likely to a pay rent increase. They've invested their time in painting the place, plus it feels like home. Conversely, what if they ask to paint the place and you tell them "no"? How long do you think they'll feel like staying? It can be written into the lease that they have to paint it back or whatever. So let them paint it. Let them make it feel like it's theirs, and they'll probably take better care of other parts of your property too. Another way to retain excellent tenants if that you should ask for tenant referrals. Birds of the same feather flock together. You are the average of the five people that you spend the most time with. If you ask your excellent tenant who their friends are and offer them a $100 gift card or even $200 gift card - that is so worth it for another excellent tenant. Something else that helps with retention - and this is where the power of hiring out professional management really helps you - is that your manager should respond to maintenance requests promptly. A good tenant will get sick of dealing with that leaky faucet, with that pilot light that keeps going out in the water heater. If you're a full-time job worker, it's a lot easier to defer - to put off - handling that maintenance request if you're your own manager. Again, think about how you would want to be treated. Think how your tenant is thinking. If their bathroom door hasn't closed properly for three weeks after they've first told you about it, #1, they won't be happy and #2, they sure aren't going to refer their friends. When it comes to maintenance requests, a 24-hour answering service for your tenants makes them feel better even if your manager doesn't get to it right way. Ultimately, what you want are happy tenants. When you have happy tenants, you're probably meeting that ideal that we talk about here where you're providing housing that's - you've heard me say it many times - clean, safe, affordable, and functional. I'm coming right back with more. We're going to talk about perhaps the most stealth way that real estate investing makes you wealthy. Something that definitely does not qualify as "common sense" at all. First - and I didn't know whether I wanted to mention this earlier or not, but, while I'm talking to you my heart is rather heavy today because my Grandma Weinhold - my father's mother passed away. I actually tried to do the show here earlier and I wasn't quite ready, but you know, I found some more strength when I realized that Grandma would have wanted me to do it. You know that I've sort of affectionately referred to my Grandma Weinhold as Grandma Yellen on the show before for her loose physical resemblance to Federal Reserve Chairwoman Janet Yellen...so, I thought you just deserved to know. She was also my last surviving grandparent so from my perspective, I've lost an entire generation of my family today. You know, at best, when something like this happens, I like to think "Don't be sorry that it's over. Be glad that it happened." Especially when she was 95 years old - just weeks from 96, she still lived in her own home by herself, and I just two days ago I talked to her on the phone as she was in her Lancaster County, Pennsylvania home and, you know, I could talk to her just l…
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