Successful Landlording Is No Accident
Being a successful landlord doesn't require a lot of hard work, but it does require planning. For every hour you spend before you buy the property and/or rent it to someone, you will save ten hours later. There are certain simple steps to follow that will make the job easier, and we'll go through them in the course of this book, devoting a chapter to each one, from picking the right properties to getting the best possible price and terms when you sell.
THE RIGHT PROPERTY ATTRACTS THE RIGHT TENANTS
You can't go fishing without the right bait. Everyone knows that. And the fight bait to attract the tenants you want is the right kind of property. Put yourself in the tenants' position and ask yourself what you would look for. You want tenants who want to be upwardly mobile and you want them to feel that renting from you is a step up, a step in the right direction. Therefore, you have to buy property with the future tenants in mind.
Our tenants are resident managers who work practically for free. They clean the properties they live in, they paint, and they even add patios, decks, and porches at their own expense. They do all this because they think of our properties as their homes. We encourage them to feel this way and we pick the kind of people who like to work on their homes and improve them. We Successful Landlording Is No Accident believe in spending a lot of time and effort before we rent to people, not afterward.
We select our tenants carefully and then we patiently explain our rules and regulations. We have an eleven-page rental contract and we go over it with prospective tenants line by line. We spend an average of an hour and a half going through the rental agreement with prospective tenants and we have them initial every page. This way, there are no misunderstandings later.
Renting from us is a special privilege; we don't rent to just anyone. We look for a certain type of tenant, someone who's looking for a home, not just another rental situation. If people are just looking for any place to rent, there are plenty of places out there. If landlords are just looking for any tenants to rent to, there are plenty of them out there, too. We are looking for a special few.
The tenants we want are family-oriented blue-collar workers who would like to buy a house but can't afford it. They rent from us because it's the next best thing.
Don't Buy Rental Property in Rental Areas
The ideal is to buy all your rental property in areas where most residences are owner-occupied. The neighbors may not love this idea, but your tenants will. This is the first principle that you should keep in mind. Everyone wants to step up in the world, not down.
It is said that the three most important things in real estate are location, location, and location, and location is just as important to prospective tenants as it is to buyers. Our tenants prefer to live in areas that are primarily owner-occupied, because they are nicer, more prestigious, and better places to raise their families. If an area is mostly tenant-occupied, there will be a lot of transients and a lot of tenant turnover. It's harder to get to know the neighbors and establish long-term, stable relationships when people are moving in and out all the time. If your tenants are stable family people, this is not what they want for their children or for themselves.
It is not really what you want for yourself, either. Areas that are mostly renter-occupied have higher vacancy rates. If your Successful Landlording Is No Accident tenants decide that they're not happy where they are living, they can easily pick up and move. They can meet with other tenants and organize or just compare notes about rents, conditions, and other subjects. This can lead to trouble.
Owner-Occupied Areas Are Stable
Owner-occupied areas have less turnover and lower vacancy rates. They are better places to live in and raise their families. They are also better places to be a landlord.
Better tenants and a lower vacancy rate mean fewer problems. Problems take time and energy that you could use in other ways, such as making money. So this is the first thing to think about when you think about becoming a landlord: where to look for suitable properties and how to find them. You have to decide what you want in a rental property and what type of people you want for tenants. Then you have to actively seek out the types of properties that will appeal to the tenants you want.
How to Buy and Manage Rental Properties is based on this simple principle. We stick to single-family houses and small income properties, because we feel they give us more control. Smaller properties are generally more desirable to live in. They are often located in better areas and they attract a better class of tenants.
It's Hard to Think of One Hundred Units as "Home"
Large apartment buildings and complexes rarely have a homey feeling. The bigger they are, the more impersonal they seem. Unless they have luxury features, such as recreational facilities, the units generally rent for less than comparable units in smaller buildings and attract a different type of tenant. We like family people as tenants, and high-rise complexes are not generally good places for families. They are rarely located in good owneroccupied neighborhoods. When you find one large apartment complex, you generally find a lot of them. Home owners don't want large apartment buildings in their neighborhoods; in fact, large buildings are usually excluded from the better areas by zoning laws.
Rental homes and even small apartment buildings are more desirable because they create less congestion and population density and thus face less opposition. Therefore, they are often found in the better areas, among the owner-occupied singlefamily homes, where people are eager to rent.
YOU WANT TENANTS WHO ARE EAGER TO RENT FROM YOU
Tenants who really want to rent your place are not likely to give you trouble. Nor are they likely to move as soon as they find a "better" deal somewhere else. We have good relations with our tenants because we do our homework before we rent to them. We find out what people want and then we give it to them at a reasonable price. In return, we insist they maintain the properties in good condition and take care of all minor repairs themselves.
There's nothing really complicated about it. Tenants are people and if you treat them firmly but fairly, they will usually respond in a positive way.
We occasionally make mistakes and we have tenant problems just like anyone else. No matter how carefully you interview people and check their backgrounds, one or two problem types always manage to slip through. We've even had to evict a couple of people when they turned out to be troublemakers and/or deadbeats. But a few bad tenants out of more than one hundred people we've rented to over the last four years is not a bad track record. We know our system works.
There's more to being a successful landlord than finding good properties and choosing good tenants to rent them to. Many people never get their properties rented, because they give up. They get so tired of interviewing tenants and making appointments with people who never show up that they just sell their properties instead -- often at a loss.
We don't make appointments with prospective tenants except at our office and at our convenience. We are there anyway. If they don't show up, it's their loss, not ours. But what if you don't have an office? If you have only one or two properties to manage, you definitely don't need an office, but prospective tenants don't have to know that you don't have one.
KEEP TENANTS IN AWE OF YOU
Let your tenants think that they are dealing with a big company, even if you are a one-man operation. If you don't have an office, let them think you do. Let people come to you; never go to them. We have worked out a system for this, too. It's all part of the How to Buy and Manage Rental Properties program.
When we started out, we didn't have an office. We worked out of our home, but the tenants never knew that. They were always convinced that they were meeting us at or near our ofrice. It made sense to them that they had to come to us, rather than meeting us at the property.
Once you start meeting tenants at the property, they have the upper hand. They are taking up your time and energy at their convenience. That is no good. You should remain firmly in control at all times. You either want to give prospective tenants the keys and let them look at the property themselves, or else hold the property open for the entire world to see at one time. We have developed methods for doing both of these successfully, so that we waste as little of our time as possible. We don't like vacancies, so when we do get them, we try to fill them quickly and painlessly.
YOU MUST ATTRACT RENTERS BEFORE YOU CAN CHOOSE ONE
That means you've got to advertise. That's part of our program, too. Over the years, we've developed ads that work. They draw the tenants we want and they get the message across simply and economically.
There are many different media: TV, radio, newspapers, and others. No matter which you pick, you've got to let people know you're out there. You can't rent a place that no one knows about, no matter how nice it is. Compare prices in your area and then think about the potential impact that each medium will have on the prospective tenants you want to reach. You'll find sample forms to guide you later in the book.
YOU'VE GOT TO KNOW WHERE THE MONEY'S GOING
Getting the tenants to pay their rent is only half the battle. You have to have records so that you know whether or not they paid and whether or not they paid on time. When you manage as many properties as we do and you're home as little as we are, you have to be able to stay on top of all the details at a glance.
We can't afford to get behind in our bills any more than we can afford to let our tenants get behind in their rent. We have to make sure that all our bills are paid promptly for each property each and every month. Each time we write a check, we have to know what it's for and why. Fortunately, we've discovered an easy system for cross-referencing all the information we need.
THE RIGHT TIME TO SELL YOUR PROPERTIES
Knowing when to sell your properties is vitally important, and we have a system for that, too. We call it tracking the properties, keeping track of how quickly they are appreciating and how quickly the rents are going up. Certain properties are natural winners. The rents just keep going up and the properties keep appreciating. Others need help to reach their full potential, and a third group just aren't worth holding on to. We get rid of them sooner than the others.
KEEPING EXPENSES UNDER CONTROL
Cutting expenses is one way to increase the cash flow and make properties more valuable. We have learned where to put our money to get the maximum effect. We don't like to waste money any more than we like to waste time or effort, so we cut all unnecessary costs.
Little things add up, but not as quickly as big ones. You can increase your cash flow just so much by cutting expenses. For the really big gains, you've got to increase the rents. How do you increase the rents without alienating the tenants and driving them out? That is what every successful landlord needs to know. We have developed letters that we send to our tenants.
We have one letter for the good tenants that we want to keep and another letter for the bad tenants, the ones we want to get rid of. (You'll see copies of these later on.) We start off with rents that are slightly below the average for the areas where our properties are located. This gives good tenants an incentive to move in. If they pay their rent on time, keep up with the maintenance, and follow our other rules, we will keep their rent low. That encourages them to stay.
If they don't do what they're supposed to do, we will raise their rent more often and in bigger increments. If they pay, we make extra profits. If they leave, we get better tenants to replace them. Either way, we come out ahead.
Getting rid of all tenants without losing any income should be every landlord's ultimate dream. It can become a reality with a few simple techniques. We have some properties that we've already sold but still pay us a regular income, just like the ones we are holding as rentals, because we carry loans rather than cashing out. On the other hand, we know people who lost years of hard work and sweat equity when they sold their properties the wrong way, to the wrong people. We eliminate that problem by showing you how to do it right!
Copyright © 1986, 1988 by Mike and Irene Milin