Every year in December, my husband and I sit down and talk about what went well over the year and what needs improvement in the year to come. We discuss our ability to manage our children’s activities, our volunteer commitments, his career, my mortgage business, and—the big one—our real estate portfolio.
The discussions about the real estate portfolio always start with questions like:
- What is the cash flow in the portfolio?
- What is the mortgage paydown?
- What properties are strong contributors to cash flow?
- What properties may need to be renovated or sold?
- What properties gave us maintenance headaches this year, and why?
It takes a lot of time to go through these questions and make sure we’re clear on the answers.
Next, the conversation shifts to our tenants:
- Do we have any problem tenants?
- Do we have clear communication and firm rules in place with all the tenants?
- Do we have any leases that we won’t be renewing in 2018?
Ninety-five percent of the time, the answer to these questions is (play The Lego Movie soundtrack here) “Everything is awesome!” Occasionally things aren’t easy with a tenant, but when I reflect on why something has gone wrong, I realize that it is typically because I made a mistake through the process of developing the relationship with that tenant.
Over the last few months, I’ve spent time exploring and documenting how we build strong relationships with our tenants, because I want to make sure I’m getting it right 100% of the time. I believe that building trust with our tenants is essential to keeping our real estate portfolio healthy. Strong tenant relationships result in lower maintenance costs, lower turnover costs, and less time required at each property (which means we have more time to spend on income-generating activities). Truly, strong tenant relationships increase cash flow in our rental portfolio.
It Starts with the First Conversation
The very first time a potential tenant calls me in response to an ad for a property, I make sure to grab a pen and piece of paper. I keep the conversation casual but ask lots of questions in order to glean as much personal information as I can. And if they say, for instance, “My wife, Cindy, grew up close to that house,” or “Our dog, Fido, goes to a groomer near there,” I make sure to write down those small details as well. Later, I record it all in a notebook.
Before I meet the tenants to show them the property, I review the notes so that I’ve got talking points that relate directly to their personal situation. (Think about someone in your life who always remembers the name of your pet, your parents’ names, or a tidbit of your personal story. Doesn’t it feel good to know that someone took the time to remember what is important to you?)
Starting a tenant conversation this way builds trust from the very start of the relationship. And, let’s face it, we’re 100% responsible for trusting each other through the landlord/tenant lease term. For example, we need to trust that when the sink leaks, the tenants will call us before it becomes an expensive fix. The tenants need to trust that if they call us about a particular issue, we’re going to work with them to resolve it. If we enter this relationship immediately looking to build trust, there is an excellent chance of success.
Tenant screening is something my husband and I talk about all the time. The big three tenant screening checkboxes that I’ve been taught are (1) call employers, (2) call previous landlords, and (3) check the applicant’s credit. I think those three steps are imperative to properly screening your tenants, but I don’t think they’re enough. My strategy? During the showing (when I’m talking to the potential tenants about their lives and bringing up those talking points gleaned from the first phone conversation), I tell them a little bit about the process of working with me.
My standard line after I’ve finished explaining the simple application form is “Now, we’re pretty casual around here. Mostly I’m going to google your name and make sure we’re not harbouring anyone on Canada’s Most Wanted list.” This is my lighthearted way of saying that I’m going to check every social media account they own and make sure they are who they say they are.
Social media has become the number one tool I use to attract and screen tenants. Depending on the age of your tenants, you may need to navigate Facebook, Instagram, YouTube, and Snapchat.
When I find inconsistencies between what the tenants are saying and what I’m seeing on their social media accounts, I address it with them. We have honest conversations, and either the tenants can explain it or they can’t (and they therefore aren’t the tenants for me). Typically an honest conversation about what I see on social media helps lay the groundwork for a great, long-term relationship with the tenants.
The key is to remember that this isn’t an interrogation; it’s a conversation. I approach the tenant with curiosity rather than accusation.
Building trust is a lifelong job—with your spouse, with your children, with your friends, and with your tenants. The process has to be ongoing. Here’s what I do to ensure my tenants know I’m working on my end of the relationship:
- Welcome basket. I put together a thoughtful welcome basket and make sure it’s waiting at the house the day the new tenants get the keys. The card reads “Welcome home,” and I handwrite a personal message reminding them I’m available if they have questions, concerns, or maintenance issues. In that welcome basket is also a list of documents I explain and have them sign. The big one is the move-out checklist. Starting the conversation about their responsibilities upon move out must happen when they move in. Be upfront about your expectations in the relationship from day one.
- Surprises. Pick a few days a year on which you will surprise the tenants with something nice. It is thoughtful and kind, and will build on your relationship like nothing else. I plan three small surprises a year. In 2017 these were boxes of chocolates and handwritten Valentine’s Day cards in February, fresh BC apples delivered in Halloween bowls in September, and fresh wreaths for the front doors in December. The feedback I’ve received is tremendous. The cost per house? About $40 dollars in total.
- Response time. When a tenant calls and has a water leak, they need to be able to reach someone. When a tenant is locked out of the property, their garage door isn’t working, the fridge or stove quits, they need to be able to reach someone. If you want to ensure that the issues your tenants are calling you about are ones you can solve quickly and that will maintain your property, you need to always respond quickly. Maintenance issues need to be addressed as soon as possible.
When Something Goes Wrong
Despite every effort to build amazing tenant relationships, sometimes I get it wrong. Situations change, people change, and sometimes issues arise that cannot be solved. So what is my mantra when that happens? “Dissipate.” Baseball bats and seven-foot-tall “friends” named Bruno are not the answer. Yelling, screaming, swearing, texting, social media trolling, late-night phone calls, stalking the property—none of those is the answer. Don’t do it. Ever. A negative review on social media about your landlording techniques could detract from all of the hard work you’ve put in with your tenants at your other properties.
My hope always is that I’ve built enough trust over the course of the relationship that I’m able to speak with the tenant and take my half (or more) of the responsibility, and that we’re able to part ways with minimal loss of rent or damage to my property.
When this isn’t an option (and even with the best intentions, sometimes it’s not), you need to hire professionals. They are trained and equipped to remove a tenant. It needs to be done legally and quickly.
Here’s an example of why these trust-building strategies work, and why they are so important. Over the course of the last six months, we’ve been having a problem with a home in Edmonton. To determine the issue, we had engineers, landscapers, and contractors of all sorts inspecting the house. Now that we understand the problem, there is significant work going on in the yard and in the home. I’ve blocked the driveway with a garbage bin, I’ve asked the tenants to be patient with the trades both inside and outside the house, and I’ve asked for entry with short notice.
This has all been a massive inconvenience to my tenants. I’ve communicated with them throughout the process and apologized for all the disruption. These tenants pay me $2,050/month in rent. Over a six-month period, I’ve given a rent reduction of $1,000 in total. Every time the tenants speak to me, they tell me that it’s no problem at all, they ask me how they can be of help, and they express their hope for an opportunity to return the kindness I’ve shown them over the years. What!? If I had had to wait for the lease to expire and then leave the property vacant for six months in order to resolve the issue, it would have cost me over $12,000 in lost rent.
Open communication, treating my tenants with the utmost respect, and setting up a healthy, trusting relationship from the start is the success story here. I encourage you all to look at how you’re building those relationships with your tenants, or with your real estate team in general, and let me know your best strategies. I’d love to compare notes.