This single method should net you thousands over a 5+ year period.
If there is one thing I have learned with rental property, it’s that there many ways to get to the same destination. Everyone has their own strategies and ways of business. I find it fascinating to learn how certain investors do things and see what I can pick up to add to my own strategies. I have managed for all types of investors and had a front row seat on how crucial decisions have played out. This has given me a unique perspective and shaped how I manage my own investments. Now by no means am I re-inventing the wheel here, but there is one question I ask my self every time there is a decision to be made:
What decision will make me the most money over a long period of time?
It’s a very simple question, but what it does is completely removes me from the moment and allows me to get a macro level view, versus the in the moment micro level view. When we can zoom out, many times we can see the entire picture a little clearer. What is my goal, make the most amount of money this month, or over a 5, 10, or even a 20 year period? This perspective forces me to make good, solid, long term decisions that will serve my investment well. Let me give a few examples:
- 20 year old AC breaks and needs a new compressor. In the moment thinking says replace the compressor for $1000 rather than replace the ancient unit for $4000. That saves money now and helps that given year’s return. But is that the wisest choice? Is putting $1000 into an old unit that will inevitably have to be replaced anyways down the road a good call? Does having a newer, more efficient unit keep my tenant happier and promote long term tenancy? Will it allow me to get a higher rent? Let me tell you, I’ve rented to tenants who were moving due to high utility bills, constant issues with their AC, and I’ve lost tenants due to the same. I’m with you, it sucks to dump $4000 into a new AC unit, but it does improve the product and can be argued quite well that it is the best long term decision.
- Tenant causing problems in a multi-unit building. It’s hard to kick out a paying tenant, and many investors put up with way too much sometimes to avoid the dreaded vacancy and loss of rent. Most of the time they don’t consider the collateral damage they will inevitably incur by keeping the problem tenant. When you take my approach and zoom out, it makes it really easy to remove the problem tenant. You deep down know they are not a long term fit, you know they will end up running off your good tenants, so rip the band aid off and get it over with. From a long term perspective, it is the right decision every time.
- It’s a little slow renting a unit and a risky applicant applies. This scenario is where I see most investors get into trouble. They are completely immersed in the ‘now’ and end up making a poor choice that ends up costing them thousands. Many times it is because they are charging a rent that is too high, and in turn don’t have the quality options to choose from. So rather than let their property sit vacant, they take the chance. On the other hand, if you ask yourself the golden question, will this decision make me the most money now, or the most money over the next 5 years? The answer becomes quite clear and you can avoid the high risk tenant that quite frankly, is not worth the risk.
- Send the plumber or handyman on a tub leak. I’m all about the handyman on minor things, but one thing I’ve learned is when there is a shower valve, or any other slightly more complicated plumbing issue, the plumber is the way to go. Short term thinking says go with the handyman, I’ll get a better deal. The experienced, long term question of ‘what will net me the most money over the long haul’ says use the plumber. Yes, it costs more, but my experience has proven that the problem goes away for good. When you get the handyman tackling issues like that, it always seems to come back at some point. This is a minor example, but still holds true to the philosophy and approach.
This approach will help guide the right decisions in most cases. I see far too many investors relying only on short term money decisions, which differed maintenance, less quality tenants, and ultimately costs them thousands over time. Most of us bought rentals for the long term benefit, so make the decisions now that will best serve that original plan.