What is Your Biggest Reward?
A rational investment of our time, money, and resources requires that in part we ask, “What’s in it for me?”
Some of the rewards are the ability to improve our community and help others. It is also critical that some of our rewards be financial as well. If they aren’t, we will quickly find ourselves in unsound investments.
In real estate the naïve, uneducated investor may quickly be driven out of the business by making “rookie” mistakes. I have met many beginning housing providers who think “how hard can this be”, “I can do better than that slumlord who is renting out the campus dump I lived in.”, “I found a place that I can get 10% off and it only needs a little work”, and on, and on. Everyone thinks they know better and can do better than the people who make a living doing this.
We need to be able to make money. In a free market, we can make money by doing the right things, keeping the customers happy, and providing more for less. Rising costs make it difficult to compete if we don’t raise our rents. Others in our market will also face the same increasing costs, so they will also raise their rents. (No, we are not
colluding to raise rents.)
Real estate investing is a very visible business. When you buy a property, the purchase price becomes public record (in most jurisdictions). The amount you borrow is public, the amount you pay in property taxes is public, and the estimated value is readily available. When you rent the property, it becomes quickly apparent to neighbors and the community if you made a poor choice of residents.
If you are rehabbing the property, much of your activity can be researched through permits pulled. If you don’t maintain the yard while rehabbing the property, you become a nuisance to the neighborhood. If you improve your property, people see it, and usually appreciate it – unless they are annoyed by gentrification and worried that prices will go up because something has been improved.
The media is full of programs on getting rich in real estate. Some of these programs make everything look like all sunshine and rainbows. Rehabs all are done perfectly with many costs being left out if they ever do the accounting. In reality, “Reality TV” is often far from reality. In recent times, some reality shows have moved into a mode of fixing the mistakes made by the novice who go in over their head. This acknowledges that people can get in trouble if they don’t know what they are doing.
We can do better. We must do better. We have a huge image problem. The common belief about us is that; We are in a drop-dead easy business that has many of us exploiting people as we buy, rent, and sell property. When we provide financing, we are defrauding people. When we rent property out, any repair that isn’t instantaneously addressed (whether anyone alerted us to it or not) has everyone related to our resident assuming we are a slumlord. When we buy property in a distressed situation, we are taking advantage of people, even if we go out
of our way to provide a solution that leaves them far better off.
Real estate investors and housing providers are frequently portrayed as unethical, ruthless and greedy. There are endless claims to this effect by tenant’s rights organizations, media, and legislators. It hurts all of us to be continuously fighting this image. We end up with onerous legislation. We have reporters biasing their stories to
paint a horrible picture of housing providers. (I have a friend who spoke to a reporter. In the resulting article, they superimposed his picture in front of a dilapidated property that he did not own –portraying him as a slumlord). We need to respond to these biased stories with letters to the editor, comments on social media, reporting by industry knowledgeable reporters, and even by refusing to be interviewed by the press that is biased (always research the reporter before talking to them).
Many housing providers do not raise rent to market on residents who are renewing. If you are one of the people who does this, you may want to price your renewal agreement at market rent and then offer the resident the discount you are giving them. If you do this, there will not be an assumption that you do not know what the rent should be, but instead, your concession will be known. This simple change may make your longer-term residents realize that they have saved significantly by staying put. Make sure that you also continue to make any repairs and improvements that are needed so that the condition of the property does not deteriorate.
When you are speaking to your friends or strangers, never assume that the landlord they are complaining about is automatically in the wrong, or right. You can provide perspective.
I had a friend ask me what her son could do about a roach problem in an apartment he had just moved into. She didn’t think it was fair that her son would have to deal with this. The conversation was quickly moving to – call the authorities, get an attorney, and worse. I suggested that she let me investigate solutions. I did some homework and sent her an email with suggestions. In that email, I reminded her that the apartment may have been cleaned and treated before her son moved in. But, if there were any issues in a neighboring apartment, any crumb in her son’s apartment would attract the roaches. Any solution was going to require cooperation between the housing provider and the residents. No solution would work unless a level of cleanliness was met that was probably more than her son was used to. It might be good for him. Boric acid and traps were also suggested. She thanked me for the solutions-oriented email. Lawsuits, legislation, and code-enforcement are not going to provide relief.
When talking to your friends try to provide a balanced view of the business. Some people never talk about the downside, others only talk about the downside. We all face both. Overall, there can be many benefits to investing in real estate. They vary by the legislative climate, the economy, the local market, your strategy, and many other factors.
We all face risk as well. In addition to the financial rewards, our biggest reward often comes from doing our best to help others and the community by providing quality housing for buyers and residents. That is what we need to focus on as we talk to others about what we do. When people ask what you do, tell them “I improve neighborhoods and provide quality housing for qualified residents.”
Jane Garvey is President of the Chicago Creative Investors Association.