The Secret to A Great Rental Portfolio is to eliminate “Tenants” from your life...
It is time to change the paradigm of the landlord and tenant relationship. If we don’t do it as investors, no one will. Governments obviously won’t they aren’t fans of landlords. Tenants won’t because the system seems to work for them. So it is really up to us, professional investors and quality landlords.
In fact, right here in 2014, it is not only a smart move it is quickly becoming a strategic business move that will help us strive and survive as the market cycle shift really begins to hit in 2016.
Let’s start by taking it back to a foundational truth, that we are in the business of real estate investing to make money. I can honestly say, without hesitation, that anyone investing in real estate who doesn’t change their paradigm, their systems and their strategies to match this important shift will, quite frankly struggle as the cycle changes and a new reality begins.
Tenants, As You Know Them Today, Will Be Changing Forever
The time has come for us, as landlords, to understand that we are actually NOT in a unique business, it is truly no different from any most other business. The big mistake is in thinking that it is different. We witnessed what that mindset has done for full industries in the past: Remember Video Rental Stores? Gone, like the dinosaurs.
As landlords, we are providing a product and service to the community. If your product is poor or mismanaged your income will be lower, if it is priced right and is of higher quality your income will be higher. Yes, CRA rates real estate income as passive income when treating it from a tax perspective, however the truth is that it is far from passive as anyone who has operated rental properties can attest to.
So, in order to be successful over the long term, and not be lost like the dinosaurs & video stores, the strategic investor must rely on clear and proven business strategies covering: marketing strategies, income, expenses, accounting, financing, day-to-day operations and the balancing of assets and liabilities.
Once we grasp this, we can start implementing proven business systems into our own industry. And that includes a key shift in thinking:
The Key Paradigm Shift – Eliminate ‘Tenants’ attract ‘Customers’
That’s correct, from this day forward you no longer have any tenants. You now have only customers/clients for your rental business. And, also from this day forward, your new job description must include a renewed focus on attracting and keeping quality, loyal customers who are willing to pay a premium price for your product and service.
This simple shift of mindset opens up a tremendous amount of creativity and out of the box thinking both for your marketing avenues as well as your appreciation opportunities for your current and future clients. This is not a normal way of thinking for landlords, and that is why it is so very important as the wave begins to hit in 2016.
Sure our product is unique (housing), and sure it is regulated (Landlord & Tenant Laws) but other than that it is our job to begin to treat our good customers as other long-term successful businesses do.
Keep in mind, if our customers are paying us $850 per month for our product, they are paying us over $10,000 per year. For just about any business that is a good customer, one that would be treated special. And like in any other business, the customer does not care what your ‘costs’ are, they care that they are receiving value for their dollar. It is our job as business owners to control our costs, make sure our product matches our market demand and charge the perfect price for it.
Without loyal customers you will not have a successful business no matter how hard you work or how many properties you own. When you change your thought paradigm from ‘tenant’ to ‘customer’ you also begin to open a whole new world of marketing and business management opportunities not usually associated with rental property. You can immediately start modeling other successful businesses (in any industry).
Beginning in 2016, our main customer base will begin a massive shift (just like in the video store world) and it is in your best interest to stay ahead of this big shift and thus begin to create loyal and happy customers that can fuel your business for decades. (For more research on what this shift is and why it will occur, check out this special report from our Director of Research Melanie Reuter (The Coming Renter Wave)
Create Customer Loyalty – Eliminates Focus On Rents
At one time we’ve all been customers of businesses that we enjoy and became loyal to. We felt special, we enjoyed the product, we enjoyed the experience. Once we became loyal, price quickly became a lower priority (look at what loyal Starbucks drinkers did to the cost of a cup of coffee over the years). I’m positive you can think of at least two companies that you stick with out of convenience or the experience they provide you – even though there are many other options. Our job as landlords is to make our rental property the place that our ‘customers’ want to remain loyal to.
We can all learn from our loyalty experiences by analyzing what they do to keep us as a loyal customer. I encourage you to pay more attention to why you return to the same store or service provider over and over, then begin to find ways to transfer these strategies into your rental real estate business. For instance:
- Does it seem like they intuitively know what you need?
- Do they listen to and address your concerns?
- Do they make dealing with them an experience you enjoy?
- Do they reward you with loyalty rewards or points?
- Does the business location have a special atmosphere?
- Do they do little things to thank you for your loyalty or repeat business?
- Does it feel like they appreciate your business?
Repeat In Your Own Business, Strategies That Worked On You
Now, begin to adopt those key elements that kept you loyal, only this time transfer them into your rental business.
Once you begin the process of acknowledging your best customers and finding ways in which to keep them and attract more like them, your turn-over costs will begin to drop incrementally (thus opening up further budget to acknowledge your customers).
By showing these loyal customers more respect, your operations costs will begin to decrease as a loyal customer will treat your building with more respect. Your advertising costs will lower as your loyal customers begin to refer their friends to your business. And on the revenue side, you will discover that, over time, these customers will be willing to pay a premium (think Starbucks) to rent your property just because of the loyalty relationship you have created. They’ll also look for opportunities to refer others to your business because of how you have treated them, thus reducing your vacancy factor even further.
Long term, premium-paying tenants who treat our properties well – it doesn’t get much better than that. And all it takes is a change in your thought process around the landlord – tenant relationship.
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