Episode 39: Investors know: Tenants are PART of the ASSET!
Summary
Have you ever thought about a home value for just the building? In your rental business, a home or duplex IS the value of the building, but is that the end of the value? In rentals, the answer is NO. Your VALUE is in the lease, and that lease is set up with a GREAT screened tenant, who is calm and behaving. Sound too good to be true? In today's episode, we talk about what a tenant IS, what a tenant is NOT, and then why the TENANT is the KEY to the rental asset.
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Full Episode Transcription
Welcome to my life as a landlord where we untangle all things housing and educate the curious. If you're
looking for some entertainment with some honest, awkward conversations, you've come to the right
show. I'm your host, Dr. Jennifer Salisbury. This is my life as a landlord. Welcome to it.
For those of you watching on YouTube at my life as a landlord, thank you so much. My YouTubers. I'm excited you're
here. Oh, my goodness. This is so much fun for me to do. And I love being your teacher, your guru and I
have heard you. There are many of you asking for different guests instead of me just chatting at the
microphone. And so guests are on their way. We're going to do some guest stuff. So it's not just me
barking at you. Here we go. Today is episode 39. Real estate investment tenants are part of the asset.
Tenants are part of the asset. What a novel concept. Last week is a real estate developer. We talked about
renovations and beginning with the end in mind and next week is another Salisbury adventure. You never
know what you're going to get into with that. My podcast is my life as a landlord, and while some of you
listening may be real estate investors who are also landlords, comments to me indicate that most of you
are landlords that are not always real estate investors all the time. Right? And chances are, if comments
to me indicate that most of you are landlords that are not always real estate investors all the time. Right?
And chances are if if you are also a real estate investor, you are also aware of many other resources for
real estate investment, specifically including other podcasts. There's many other podcasts that that's all
they do is real estate investment. But my life as a landlord takes the perspective of landlords and real
estate investment definitely is part of a landlord's journey. So today's episode is called The Tenant is part
of the asset and by tenant means long term tenants, not just short term people, which I call vacationers,
long term tenants. Tenants are there for the long haul, not vacationers. And what do I mean by this,
especially through the lens of investing? So here's what we're going to do. Tenants are part of the asset is
the name of the podcast episode. And so we're going to do three things. We're going to talk about what a
tenant is, not a tenant is not things, and we're going to talk about what a tenant is and then why the tenant
is the key to your rental business as a landlord. So there's your three points. Here we go. What a tenant is
not a tenant is not a one time customer. It is not a drive through by a Starbucks coffee kind of a customer
client. It is not a transaction only person. It's not somebody who's staying temporarily, short term tenants.
I find short term visitors, guests again, call them vacationers. They have a different mindset then
somebody that is staying longer. Um, a tenant is not somebody who can just bring anybody they want
into a place and to either a hotel room or a short term rental so that they have a place to sleep. This is not
party central. It's not a frat house. You see where I'm going with this? You can see what a tenant is not.
And oh, by the way, there's no fluctuation in the price of what a tenant does or what a vacationer does
during a stay, which anybody who stayed in a hotel, you can go, hey, Friday night cost $200 Saturday
and cost $300 Monday night cost $100. Right. So that's that. So there's many varieties of what housing
and transactions as a customer to a business, but a tenant doesn't fit any of those things. No. Okay. So
let's talk about what a tenant is. And of course, you might be rolling your eyes at me saying, Jen, I'm a
landlord. I know what a damn tenant is. Okay, well, really, let's talk more about it. Okay. So this is a
person staying in one of your units for more than a temporary stay. Temporary stay can be defined in
different locations. I have rentals in the US, in Hawaii, and also have rentals in British Columbia. So I've
got rentals on both sides of the border. A long term stay can vary based on where you are now. Most of
the time. Most of the time it is six months. It is six month stay and they say it has to be a six month lease
or longer to qualify as a long term tenant. But there are other places that it is a year. It is a year. It's not
some place. I've heard that you've got to have at least 90 days. And that's very specific programs, though,
like 90 days for traveling nurses, for example. They can be still considered tenants because of their
employment. So it's different, right? Maybe you've never had a traveling nurse in one of your units and
so you didn't know that this is part of it. But a person is staying in one of your units for more than a
temporary stay. Okay. And this person, this tenant is a pre-cleared prescreened person or persons who
agree. Ready? First of all, they have to play by the rules. They have to abide by the local Housing or
Tenant Act or code. That's the first thing that they they're going to play by the rules. That includes them
paying the rent on time and behaving according to the lease to the lease. There's got to be a lease. There's
got to be an agreement of some kind. Even if you're going to do something that is employment based,
there will still be a lease involved. A tenant must have permission to stay, right? You must have
permission to stay. And they've got to enter into a written agreement. They pay deposits as a part of that
agreement. See how this is not just driving through Starbucks for coffee, Right? I no, you know this of
your landlord, but maybe if you're new to this, maybe this is different for you. Okay, keep going. What a
tenant is. I really had to brain dump this to get what a tenant is. Good communication with the landlord
on the State of the Union. I realize not everybody's a good communicator. I know landlords are not good
communicators. No willful damage and a tenant can expect periodic rent increases according to their
local housing code. Okay, so this is somebody who is basically going to be housed in one of your units
and agreed to pay and to be safe to play by the rules. Okay. All of this is very structured, right? Like
when you walk into a target and you buy a shirt, the cashier isn't going to say, Hey, wait a minute, who
are you? Do you have a credit check? I may not be able to take your money. It's very transactional, right?
This is being a tenant is not like this. They are still paying customers. But you have got to make sure that
you know who you are doing business with in your rental business. Okay. So we've talked about what a
tenant is, not what a tenant is. And then three, So let's talk about why the tenant is the key to your
landlord business. The tenant is the key. It's not just part, it's the key As a part of your business, there's
two times that a landlord is stressed the most two times in your landlord business. Ready? If you're a
landlord and you've gone through this, you'll agree wholeheartedly. The two most stressful times is when
you are trying to get the right tenant in and the wrong tenant out. That is your most stressful time. Those
two things. So what you want to do is you want to screen the crap out of your tenants going in. You got
to know who you're doing business with. You have to know this. So you want to confirm that they can
pay the rent, right? That they can pay the rent that you want to confirm that they've demonstrated good
behavior in past rentals, that they are being transparent. They're not lying on their application. They're not
just saying whatever just to get this rent. Remember, a potential tenant is on their best behavior to get
into a rental and then it can go to crap. But you've got to know who you are working with. They they've
got to submit a full application, including all of the government picture income verification. And if they
are retired and they no longer have an income or maybe it's an investment account or they're they live off
a trust fund or something, you have got to be able to see with a company letterhead, bank statements like
you have got to be able to see this. You can also ask for tax returns. Now, you don't want their social
insurance number or Social Security number shown, but you've got to be able to know that they can pay
the rent further. They have got to disclose all beings, all pets, all service animals, Anybody that is going
to reside in that unit, you have to know who is their you. It's your business. Your insurance company is
going to want to know who's there. If the building burns down, you need to know. Okay. And here's a big
thing. A landlord is a lender. They've got to demonstrate that they have made good payments by either
landlords past or a credit check or both or both. Do a credit check on just about every one of my tenants.
In. The last thing is, is that you want to make sure that when you are working with a tenant or potential
tenant that the space works for them. Right? If they are a night sleeper and they are living next to a
elementary school and it's going to be loud all day long when they're trying to sleep, maybe that's not
going to work. I recently had an applicant who couldn't go up and down stairs and couldn't be anywhere
near cigarette smoke. Well, guess what? One of my properties has staircase mailboxes and laundry are
upstairs and several of the tenants smoke outside on the back deck right next to where this vacancy was.
It's not going to work, right? It's not going to work regardless of what they say. It's not going to work.
Okay. Let's keep going into why the tenant is the key to the landlord business. Once you have a tenant in
a tenant in and settled, the property is then considered stabilized. That is what your lender is going to say.
That's what your insurance people are going to say. It's stabilized, meaning there are leases in place and
the tenants are behaving properly and paying rent on time every time. Very simple. And ultimately on
any given day, I love it when I drive around and see my properties and they're calm. There's nobody
outside screaming or throwing or doors open and garbage everywhere. It doesn't happen. That doesn't
happen. It's very calm and we've got great tenants and the great tenant mix. But as a landlord, here's the
trick here. Fellow landlords with your real estate investor hat on, you've got to know that as a landlord,
the value of your property, whether it's single family home or duplex triplex quad plex or a building like
a commercial apartment building, whatever it is, the value of the property is not just the building on the
property. It's not just the duplex, it's not just home. Right? Like when people do comps, they go, okay,
well, that one sold for 500,000, so mine must be worth 500,000. Well, in landlords the value is in the
leases, the stabilized leases, that's the value. And so if you've got to go through let's say you've got an
appraiser coming, the appraiser is going to say, give me your leases. I want to see all your leases, I want
to see all your expenses because they are going to look at the cash flow that the rental brings in. It's not
just the building. And it's a very different concept because most people, when they grow up in a single
family home, they do comps, right? Comps, you do comps. And it's you're comparing apples to apples.
Now, for those of you who've done any kind of real estate investing or real estate education, you know
that there are many ways to appraise a property. And when you have a cash flow generating business on
the property, whether it's let's say you have a hair salon out of your house or something like that, they're
going to want to see the cash flow. Well, the cash flow in a rental business is the value of the leases.
Okay. Got it. Okay. So we talked about why what a tenant is, what a tenant is, not, why the tenant is the
key to the business. Tenant is the key to the business. So as a landlord, you're looking at your rental
business. A rental is not just a building where people pay you money every month to live. It is. It's their
home, it's their home. And if you go into a tenancy with great screening, knowing your local housing act,
knowing what you're doing, making sure the unit fits their needs, you set up a win win relationship in
your rental business. You're working with the tenant who knows that you're engaged and you know the
rules. And as a result, you are also providing a great service that that person is going to pay for, which is
amazing. It's amazing. And I enjoy my rental business. And very soon we're going to talk with another
landlady who enjoys her business as well. But as a result, once you have the setup, the tenant, the
building, the unit that they call home, along with all of the documents, the documents connecting it is the
real asset, the whole thing, not just the building. It's all of it. The home, the tenant and the documents are
the actual asset in the business. Right? So I'm going to summarize today's episode. Tenants are part of the
asset. One A tenant is not what a tenant is and why they are the key to all of this. It is tenant screening.
You have got to screen your tenants properly. I'm going to go way deeper into how we screen tenants,
how we check references. How do you do a credit check? Where do you go? How do you do all this?
There are so many of you out there who are about to either have or are about to inherit rentals and you
have never touched a rental business. Many of you have never even been in business before. And so there
is a lot that you've got to learn as potential newbie landlords and as existing landlords. If you are very
savvy and watching this, I super appreciate it and I want you to tell me how you do it. How would you do
it better? What did I miss? Right? Existing landlords. What did I miss? But if you're an existing landlord,
you've gotten yourself into a pickle. Now jump on one of the Facebook or LinkedIn groups and explain
your pickle, because I'm in those Facebook groups. I was going to start my own group. I don't need to do
that. The groups are already existing and they are going wild, which is great. And so I'm in there
commenting all the time. Okay, before I get away from myself, let me do the call to action. So I've given
you your three points. Here's your call to action. Landlord listeners out there with your business and
investment mind engage. Let's do this, replay this podcast, replay this podcast. Most people do not
consider the tenant as a part of the asset. Most people don't do that. They just look at the building and
that's it. Okay, so stop the podcast here and listen to it a second time. Go through what a tenant is, go
through what a tenant is not, and why tenant screening is so important. Okay, If you've got questions,
comments, you can always shoot me an email, learn at my life as a landlord or like said, jump into one of
the Facebook or LinkedIn groups. I'm either in there as my life as a landlord or Jennifer Salisbury. You
never know where I'm going to show up. Let's see, next week's podcast number 44 zero. Oh my gosh,
Number 40. And it's another Salisbury advancement adventure. And this time I am. I'm offering
landlord speak Words Matter. Episode 40 Landlord Speak. Words Matter. We'll see you next Saturday.
Thank you for joining us this week. To view the complete show notes
and all the links mentioned in today's episode, visit our website at www.mylifeasalandlord.com. If you're
looking for educational resources for getting into real estate investing, becoming a landlord, or even a
better tenant, then I have a page on my website to get you started looking for a solution to the pickle that
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Thank you again for joining me, Dr. Jennifer Salisbury in this episode of My Life as a Landlord. I'll see you next time.