Transforming Your Rental Portfolio from Painful to Profitable
By Elizabeth Schellenberg
Five years ago, my husband and I ventured into the land of real estate investing. We had joined REIN and were eager to rent out our newly purchased properties. We thought landlording would be easy. All we had to do was post our rent ad, wait for the calls to start rolling in and then go with our guts to select quality tenants. Right?
Wrong!
Our rookie year of landlording didnt bring us the effortless cashflow we expected. Instead, we had to field countless calls from people I wished didnt have my phone number. We cancelled plans to spend nights at home waiting to show our suites to people who did not even bother to show up. We also suffered from multiple vacancies, which quickly ate through our modest cash flow.
When our tenant trashed our basement suite and left us with a hefty repair bill, we found ourselves at a crossroads. What we had hoped would be a profitable endeavor had ended up being incredibly stressful, both emotionally and financially. We needed to learn how to landlord properly or quit.
What were we doing wrong? Primarily, we were disorganized and had no systems in place to help us succeed. Being eager wasnt enough to make the mortgage payments.
From that point on, we decided to learn from our many mistakes and hone the systems we learned at REIN. Soon we were back in control of our portfolio. We learned how to find top quality tenants, which means we never receive late rent, have vacancies, or suffer any damage to our suites.
So what exactly did we learn at REIN that transformed our portfolio from painful to profitable?
1) Post your rental ads on time
Posting an ad should not be an afterthought as the date of your vacancy draws near. Talk with your current tenants early. Find out if they do not plan on renewing their lease and make sure youre ready to begin marketing your property if necessary. If the lease with your current tenant ends July 31st for example, you should post your rental ad in the beginning of July. I usually have better experiences with the prospective tenants who call in the first half on the month than in the second half. These tenants are more likely to be organized and have prepared in advance by giving their current landlord the appropriate amount of notice. These are my favorite kind of tenants.
2) Write a rental ad that shows you mean business
Ive heard a many investor brag about the large number of inquiries they receive about a rental ad. But I find that in this case, as with much in life, quality over quantity is best. It is much better to get 10 phone calls from qualified tenants than 100 calls from less qualified prospects. Our rent ads specifically list all of our requirements and state that we require landlord references, and that we perform credit checks. This one step really reduces the number of calls we receive but vastly improves the quality of tenants who do call.
3) Listen to the story
A typical phone call from a prospective tenant goes like this:
Tenant: Hi! I saw your ad. Is your suite still available?
Landlord: Hello. Yes, its still available.
Tenant: Can I book a time to come see it tonight?
STOP! Booking an appointment immediately prevents you from doing some valuable preliminary screening. This is where I like to regain control of the conversation and ask some basic qualifying questions to the tenant.
Why are you moving from your current living situation?
What do you do for work?
How many people will be renting the suite?
Here is where I listen for long winded and complicated or inconsistent stories, especially those that describe battles between themselves and other landlords. This is the perfect opportunity to determine if a tenant is aggressive, entitled, or has left a trail of broken leases and broken-hearted landlords.
Take notes during your phone screening and compare these notes to what they say when you interview them in person. Do not be afraid to follow up or ask for clarification if you hear anything that raises a red flag.
4) Ask for appointment confirmation
Gone are the days where I leave an entire evening open and then drive across the city only to find myself sitting alone in an empty house. When booking viewing appointments, always ask for a confirmation call one hour prior to the appointment. This not only prevents you from wasting any valuable time but helps to show you if your future tenant is respectful of you and your time. Someone who respects you will be more likely to pay your rent on time and treat your property well.
5) Screen, screen and screen some more
I used to trust my gut. Unfortunately, my gut has been influenced by many things: sympathy, a clever storyteller or even my own desperation to fill a vacancy. Simply put, none of these instances worked out well for me. Now, regardless of how I feel, I use the same consistent methods to evaluate prospective tenants.
If possible, we call the last two landlords for references. The current landlord will be able to comment on whether the rent is paid on time; however, they wont be able to tell you yet how the tenant left the house or suite when they moved. Speaking with two landlords will give a more complete picture of the tenant. If landlord references are not available because they have been a homeowner or are a first time tenant, employment references from employers whom they have worked for more than six months are a reasonable substitute. Employers can provide valuable commentary on a persons character.
Social Media
Many people have a lot larger digital footprint than they realize. Just like employers do now, Google the prospective tenant and see what you find. If a tenant tells you they never drink and then you see that their Facebook or Instagram accounts mention being drunk all weekend, Im sure you can see the discrepancy. You can use social media not only to gauge their lifestyle but even their employment or pet situation.
I can say that since implementing credit checks into our screening, we have drastically improved our tenant profile. People who honor their debts will likely pay their rent on time. That being said, if someone does have poor credit but proves to be a great candidate in all other ways, have an honest discussion with them about it. Some people have bad credit because of poor judgment in the past or difficult life circumstances. Refer back to the point about listening to the story and put even more effort into your other screening methods. Prior to checking someones credit, always make sure you receive their signed consent to do so.
Becoming a successful investor is not just about selecting the right property. Its about selecting the right person to live in it. Doing your due diligence can seem like a lot of work up front but I guarantee you its worth it.
Elizabeth Schellenberg is a realtor with Remax Real Estate and invests in real estate in Edmonton. She has been a REIN member since 2010 and was named 2014s Top Realtor (REIN-Alberta North). Reach Elizabeth at elizabeth@jamesknull.com
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