Are you setting your rental property up for success? Landlords fall into specific categories. I came upon this realization when my husband and I ran a property management business for almost five years.
There are 5 categories of landlords and two levels of profitability that fit into what I call the Landlord Profitability Meter. Let me tell you a bit more.
Five categories of landlords
Category 1 – the traumatized landlord
These landlords entered the rental business with good intentions and the golden rule; “do unto others as you’d have them do unto you”. Unfortunately, they didn’t treat their rental business as a business and encountered professional tenants who don’t have the same value structure. Subsequently, they’ve lost money and confidence in their rental business and their ability as landlords.
Category 2: the reluctant landlord
The reluctant landlord wants to sell their house/condo, but can’t for any number of reasons, so they decide to rent. They have no knowledge of a property rental business because they never wanted to be a landlord, but circumstances have dictated otherwise.
Category 3: the newbie landlord
This was me when I bought my first rental property. I didn’t know what I didn’t know. When I started having issues with tenants, I was daunted by the amount of information I needed to learn about landlording.
Category 4: The newly educated landlord
These landlords are a very rare breed indeed! Before buying an investment property, they have educated themselves about the ins and outs of the operations side of landlording. They know the landlord/tenant legislation and are ready to take on a landlording as a business built on their foundation of knowledge.
Category 5: the experienced landlord
As the name suggests, experienced landlords have been taking care of their rental property business for many years. They understand landlord/tenant legislation, know how to communicate with their tenants, and have learned how to maintain and manage their properties at a profit.
Two levels of profitability
Level one – limited knowledge, high vulnerability = low profits
Level one landlords follow a predictable cycle. Jump in, buy a property, and wing it with piecemeal knowledge and skills. When issues occur, react by looking for immediate solutions. Unfortunately, the people in the landlord’s immediate circle may or may not provide them with accurate information. With every new crisis – it’s rinse and repeat.
Eventually, one of two scenarios plays out.
- They become worn out and decide to get out of the business altogether
- They turn their rental over to a property manager which may not resolve their issues and in some cases, creates more
Without knowledge of the landlord and tenant laws[GD1], a thorough tenant screening process, the know-how to validate landlord and work references, or the expertise in running and interpreting credit checks, maintenance checks, and providing the correct legal documentation; traumatized landlords, reluctant landlords, and new landlords are in a vulnerable position. Without tenants, there’s no business. With bad tenants, a rental business bleeds money. Inconsistency in management processes or a lack of processes, prolonged or frequent vacancies, and damage control quickly run a rental property into the red.
Level two – expert knowledge, low vulnerability = profit
On the second level, the newly educated landlord and experienced landlord have the skills, knowledge, and expertise to implement efficient systems and processes that make their properties profitable. They recognize the importance of educating themselves in landlording and continually updating their knowledge and skills. Their processes allow them to repeat good results and remain profitable. Level two landlords put themselves in the driver’s seat of their business to ensure success.
To boil things down to the simplest equation, when you’re at the first level and skip the landlord education process, and allow random events to control your time, money, and nerves, everyone is in control of your rental property. Everyone except you.
When you’re on the second-educated level, you are in control because you have the knowledge, education, and processes in place to rinse and repeat your successes. If you do veer off track, you have the expertise to right your course.
What’s the cost to you?
The landlords who choose to “wing it” by skipping landlording education on the front end, pay for costly repairs, maintenance, vacancies, and evictions on the back end. By investing time and energy on the front end, the landlords who educate themselves pay low or no costs on the back end and understand how to keep their properties profitable.
Learning is a progression. If you’re not where you’d like to be, the good news is, whichever category of landlord you currently fit into, or whatever level of profitability you’re in, there is support to move you through to a higher level of competence. An investment in your education ensures success.
Where are you on the Landlord Profitability Meter? I’d love to hear about it Nelda@Neldaschulte.com
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If you can see where you land on the landlord profitability meter and you’re not where you’d like to be, take my 45-minute online micro-course Find the Best Tenants.
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