At some point in your real estate investment career, you’ll have to decide how serious you are about your assets. Are you just renting something out to earn a little bit of monthly income or are you interested in really building a portfolio that can establish financial security and wealth?
In our professional Colorado Springs property management experience, we have seen a lot of investors fail. We have also seen investors succeed. Those rental property owners are successful because they’re willing to treat their investment property like a business.
If you’re renting out a home you once lived in or you have strong emotional ties to the property that you’ve recently purchases, it can be difficult to create a sense of space and distance between you and the home. You might worry that tenants are never going to take care of it the way you would. Or, you may become too friendly with those tenants and let things slide like on-time rental payments.
Treating your rental property like a business is essential. It earns you more money and perhaps more importantly – it protects you from risk and liability.
There are a few things you can do to make sure you’re earning as much as possible on your investment property and treating it like the small business it is. Here are some of the most important things we recommend you consider.
Business Decisions Must Override Emotional Decisions
If you decide to rent out the home where you grew up, it can be difficult to think of it as a business investment. Maybe you’re renting out the place you were living in when your children took their first steps. This can create some tension when others are moving into the home and you’re forced to see it not as your home but as your business.
Don’t think about that property as your home.
As soon as you decide to rent a property out to tenants, that rental property is no longer your home or your family member’s home. It’s a business and it needs to be treated like a business, otherwise you’ll lose money and set yourself up for some terrible disputes with tenants, neighbors, and vendors.
You cannot get upset if your landscapers cut the grass shorter than your great-grandfather would have liked, for example. You cannot let your tenants make repairs themselves because they seem really nice about it. You can’t show up unannounced asking to look around. All of these things will get you in trouble, and they’re the result of emotional thinking rather than business thinking.
Be consistent and professional with the way you treat tenants, set up some policies and procedures that are easy to enforce, and then follow those systems you put into place. Trust that they will work.
Leasing Like a Business
We have taken over the management of properties from owners who choose a tenant based on instinct or intuition instead of screening and background histories. You aren’t looking for a tenant that you like. You don’t want to screen for a new friend. Not only is this a potentially bad business decision, it can also get you in trouble with fair housing laws.
You’re looking for a resident who meets your rental criteria. Set up some criteria that considers:
Financial history and stability.
Income and employment.
Criminal and eviction histories.
Rental history and landlord references.
The tenant you place will have a huge impact on your rental experience, and it’s easy for owners to become sensitive or emotional when choosing a resident. Don’t go with your gut and don’t trust your instincts. Put together a fair and rigorous screening process and choose the Colorado Springs tenant who meets all your requirements.
Maintenance, Rent Collection, and Lease Enforcement
You’ll need to be responsive and accessible when repair requests come in and maintenance issues need to be addressed. If you are renting out a home that you once lived in yourself, you’re probably aware that the dishwasher door needs an extra nudge in order to seal shut or there’s a window that doesn’t lock properly. Maybe you lived with these minor inconveniences for years and never bothered to fix them.
Tenants, however, are going to want an appliance in excellent condition. They’re going to expect you to fix all the minor things that never bothered you while you were living there. This type of maintenance response is part of treating your rental property like a business. You have to take care of these complaints, or you’ll risk losing that business.
You also have to be willing to improve and update your property.
Even if your property is fairly new and in excellent condition, you need to keep up with the Colorado Springs rental market. Pay attention to what tenants are looking for, and be prepared to meet the demand. This may mean upgrading to energy-efficient appliances when yours start to deteriorate. Many tenants want security systems and video doorbells. These improvements don’t have to be expensive; you can make cost-effective updates to ensure your property is competitive on the market.
A good business owner is proactive with collecting the money that is due to them.
Rent collection has to be consistent and timely.
If you let a tenant pay late because you feel sorry for the financial troubles they’re having, you’re going to find yourself losing money. Every tenant who is late with rent will have a pitiable story, and while you can be compassionate and empathetic, you still need that rent to be paid. Set up a payment arrangement or an agreement if you are willing to do that, but make sure they understand that you will enforce all consequences of late payment up to and including eviction. This isn’t to frighten them; it’s to ensure your business continues to run profitably.
Enforce your lease agreement
Charge late fees when the rent is paid late, and demonstrate to your tenants that you’re serious about the policies you have in place. Saying one thing and doing another will make it hard for tenants to trust you, and they’ll quickly learn exactly what they can get away with.
Your Business Requires Reliable Data
Before you buy, sell, or rent out a property, you need to know your numbers. If you want to treat the acquisition of a rental property as a business, you have to let data and information lead the way instead of emotions and instinct.
For example, forget purchasing an investment property that you want to buy because you’d like living there yourself. That’s not nearly as important as buying based on expected rental value and ROI. You have to be willing to take a clear and objective look at your income, expenses, and investment goals in order to have a profitable and successful rental experience.
Make sure you know where to find the data you need. When you’re establishing a rental value, you need to use comparables from the immediate neighborhood, and the data you’re using must be from homes that are similar to yours. Don’t scan the Craigslist ads and pick a rental price that looks good to you. In treating your rental property like a business, you have to be strategic with these decisions. The rental price you attach to your property will impact everything from vacancy time to the types of tenants you attract.
Implement Consistent Systems
Leasing and managing a rental property can be catastrophic without a set of systems and processes in place. Things can get quickly disorganized, you can lose track of necessary maintenance, and if you’re not treating every tenant consistently, you could be accused of discrimination.
Make sure you have a procedure for:
The list goes on. Knowing how you’ll respond before you have to respond is part of being a responsible business owner.
Work with a Colorado Springs Property Management Company
Anyone who runs a successful business surrounds themselves with smart, competent partners who can help them achieve the goals they’ve set out for themselves.
You should do the same.
Don’t try to do everything yourself; it’s an excellent way to get frustrated and fail. Make sure you have a good team of real estate agents, property managers, brokers and lenders, insurance experts, and legal authorities when you’re renting out property. You need a team of vendors as well. Surround yourself with experts so you know exactly who to contact for help and support.
We would love to work with you on meeting your investment goals and treating your rental property like a successful small business. We have experience working with investors and rental property owners at every stage of their investment career. We know that each new step can be a little bit stressful, and we’re here to make your success easier. Please contact us at Empower Realty Team. We lease, manage, and maintain investment properties in Colorado Springs, Monument, Castle Rock, Parker, and Aurora.