By Don R Campbell
Governments obviously won't as they aren't fans of landlords. Tenants won't because the system seems to work for them.
In fact, in today’s real estate investment market, it is not only a smart move, it is quickly also becoming a strategic business move that will help us all 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 - we are in the business of real estate investing to make money. I can honestly say, without hesitation, that anyone investing in real estate that 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. In fact, our business is truly no different from most any other business. The big mistake is in thinking that it is different. We have witnessed what that mindset has done for full industries in the past. Remember those shops called 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 and likewise 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 as 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 become extinct like the dinosaurs (and 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 (and a key shift in thinking) into our own industry.
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. Now, your new job description must also 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 very important as the wave begins to hit 2016.
Sure our product is unique (housing), and sure it is regulated (Landlord & Tenant Laws) but more importantly, it requires us to put our customer first, as other long-term successful businesses do.
Keep in mind that 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 other business that is one great customer, one that deserves to be treated very specially. And, like in any other business, the customer does not care what your “costs” are. Rather, 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.
When you change your thought paradigm from “tenant” to “customer” you also begin to open up a whole new world of marketing and business management opportunities that are not usually associated with rental properties. You can immediately start modeling other successful businesses (in any industry) once you have made this shift.
Create Customer Loyalty and Eliminate the Focus on Rent
At one time or another we’ve all been customers of businesses that we enjoy and became loyal to. We felt special, we enjoyed the product, and 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 have or currently stick with out of convenience or the experience they have provided you even though there are many other options. Our job as landlords is to make our rental property the “it” 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, and 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, apply 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 budgets with which 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. On the revenue side of things, 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.
Don R. Campbell began his investing career in 1985 with a house purchased in Mission, BC. He is Founding Partner and Senior Analyst at The Real Estate Investment Network and currently owns nearly 200 doors in BC and Alberta. A seven-time best-selling author, Don’s expertise and passion for teaching Canadians how to create wealth through real estate are far-reaching and have made an impact on the lives of thousands.