What Came First, the Chicken or the Egg?
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What came first, the chicken or the egg? The egg. No, the chicken. No, the egg. No, the chicken. I am getting dizzy trying to solve this riddle. Scientists have concluded that many moons ago, there was a chicken-like bird. This chicken-like bird laid an egg and a rooster-like bird fertilized it. The combination of this over millions of years created what we now know as a chicken. Riddle solved, or at least I think so…
So, how does this riddle have anything to do with investing in real estate? The real estate version of this riddle goes something like this: What comes first, the perfect property or the perfect tenant? The property. No, the tenant. No, the property. No, the tenant. Feeling dizzy again?
In most cases, riddles can only have one solution; however, the investment riddle has no right or wrong answer. Both are correct. The perfect property could come first. Alternatively, the perfect tenant could come first. In saying that, I do have a preference. I prefer to build a perfect tenant profile first before looking for the perfect property.
As a buy and hold investor, I have found that finding the right tenant for the property often works better than finding the right property and ending up with a so-so tenant. Most of us use this approach in our daily lives when making new friends, enjoying co-workers, participating in hobbies, and making income and lifestyle choices. We surround ourselves with like-minded people. We do this because we feel comfortable and at ease in these settings.
Profiling your perfect tenant before putting an investment property in the mix will solidify the standard you are looking for in a tenant, give you more confidence in your tenant selection, and most importantly, you’ll find the perfect tenant. From my perspective, there are many benefits when selecting a tenant through this process, but I feel as though the biggest benefit is that the tenant will feel privileged, resulting in a better tenant in the long run. In addition, they will often refer their friends and family to you when you have other properties available.
Profiling, or making a wish list of the perfect tenant, is so important. In a sense, it is almost like dating and finding that significant other you want to spend the rest of your life with. The key is to get as detailed as possible in finding your perfect tenant. Here are some sample questions to ask yourself as you build your perfect tenant profile:
- What is their age range?
- Single, in a relationship, married?
- Gender and ethnicity?
- Individual or combined income?
- Level of education?
- What line of work or industry: self-employed or salary position?
- Work remotely or on-site?
- What do they do for fun? Hobbies, pets, TV watchers, social drinkers?
- Do they eat the majority of their meals out or cook in?
- Where do they like to eat?
- What do they drive or ride?
- What is their political compass?
- What DISC personality profile are they?
We could add many more questions to our list of what makes the perfect tenant; however, it is important to remember that tenant profiles vary for each investor—there is no right or wrong profile. Your perfect tenant and mine might be completely different.
Step number one out of four, which is creating a perfect tenant profile, is the most crucial step for a long-term approach to investing in real estate. You now have a standard for a tenant and the confidence to seek and find the perfect tenant for your investment properties. Now you can move to step number two: finding the perfect community and neighborhood. After that, step number three is finding the perfect property that will match your perfect tenant.
Here is an example of the steps played out:
- What is their age range? 55+
- Single, in a relationship, married? No preference
- Gender and ethnicity? No preference
- Individual and combined income? $60,000-75,000
- Level of education? No preference
- What line of work or industry: self-employed or a salary position? Employed, office, admin, non-trade worker, clean job
- Work remotely or on-site? No preference
- What do they do for fun? Hobbies, pets, TV watchers, social drinkers? Enjoy grandkids, have a small pet, TV watcher, social drinker, pride in their possessions, fitness
- Do they eat the majority of their meals out or cook in? They make most of their meals
- Where do they like to eat? White Spot, Tim Hortons, Boston Pizza type of places
- What do they drive or ride? One car, value is approximately $15,000-20,000
- What is their political compass? Right-wing or conservative
- What DISC personality profile are they? “S” for a steady and warm personality
From your perfect tenant profile, search for the community and neighborhood that best matches your perfect tenant and then search properties that would best match your tenant and your investment goals.
The last piece of the puzzle is attracting the perfect tenant. When being so specific in selecting the tenant, the community/neighborhood, and the property, you need to find the right marketing channel to make the process easier. In the example above, we can select marketing channels like Facebook (age, location, likes), senior blogs, senior clubs (hiking, walking, golf), senior magazines, and community centers.
The real estate riddle of what comes first, the tenant or the property, may not have been solved; however, visualizing and defining your perfect tenant first, then the city/community, and finally, the property type brings better investment results.