Tenants: Asset or liability?

Question

Do you view your tenants as an asset or a liability?

I'm curious whether folks here view their tenants as an asset or a liability? I'm sure many will say "both" but if you had to choose, which would you pick?

Some starting thoughts:

Asset perspective:

- They are your customer for whom you provide a service and receive revenue.

- A good tenant treats your property as their own, takes care of it.

- You want a good tenant to stay.

Liability:

- They can be demanding and constantly be asking you to improve the place.

- They will squawk at every small rent increase even if you're just trying to keep up with costs.

- Tenants with below market rents are difficult to get rid of or raise the rent on especially in rent controlled areas.

Thomas S. · Answer

Truth be told the property is the asset, tenants are a necessary inconvenience.

Pat L. · Answer

A friend has a saying on his wall 'all I have I owe to Real Estate'.

In fact all he has he owes to 'good tenants' paying on time & that's how it has been for us over 40 years.

Many are assets, a few have been 'catastrophic loss' deductions.

Allan Smith · Answer

I think most people would say why are you asking? They are neither. They are people. I would say asset if anything, but if you explain the background on your question we can help more.

Robert Biggerstaff · Answer

They are totally an asset. If I have bad tenants it’s because I did not screen properly.

Kevin McGuire · Answer

@Joshua Dorkin thanks for the additional guidance.

@Thomas S. my property manager is new to the role and I am training him. My comment about good tenants being custodians is not that I am reliant on them, but that better things happen. The value of my property is my biggest asset and risk exposure, the rent is kind of inconsequential by comparison. Perhaps if I had 100 units instead of 7 I'd take an approach similar to yours.

Account Closed So far I've had great tenants and I view myself as lucky. But I also know that part of it comes down to my property manager being an excellent judge of character.  That said, I remember when I was a kid, my dad had some low-end rental properties, definitely the first row of the Monopoly board! I remember tenants trashing the place, stealing cupboards and even once a toilet. Who steals a toilet?!  That completely turned me off being in the rental game for the longest time. I hope I can, through better tenant selection and management, reduce the chance of such nightmares.

Account Closed · Answer

Something I find really surprising is how often people are so focused on investors or the deal and neglect to think of who their customers are. Tenants are customers and they are also stakeholders in this business. Housing can be a very emotional decision and as investors we monetize our tenants' need for housing.

I hope it goes without saying but we need to treat tenants fairly. With that said, I think all tenants would more likely be an asset since they provide income to you. They become a liability when your relationship goes south. Always be straightforward, decisive, and friendly and you'll manage expectations well 90% of the time.

Thomas S. · Answer

"I do view them as my customers"

What you view them as or what you call them is nothing more than a name game. They are tenants, nothing more or less and as such everyone knows what a tenant is.

Too many new landlords like to define the business in a warm and fuzzy way attempting to include tenants as some extension of a partnership. Nothing could be further from the truth. Tenants may be viewed as "customers" only if you understand that they have zero interest in your business and should never be viewed as influencing any business decisions.

Good tenants MAY be an asset, bad tenants MAY be a liability. Unfortunately a very large number of landlords have no idea what a good or bad tenant actually is. Throw "customer" into the mix and a new landlord becomes dazed and confused in making business decisions.

A business may have customers a landlord does not. Landlords manage tenants not customers.

Kevin McGuire · Answer

@Loren Clive you wouldn't be the first to accuse me of overthinking something! I do actually keep a professional distance from my tenants: I have a property manager in the middle, most of them I didn't meet until recently, one I still haven't met. They are not my friends and I agree one needs to have a clear professional relationship with the tenants. But, we can still be friendly. My comments about win-win were around my personal approach to life, the set of principles which I try to apply to everything I do. "The 7 Habits of Highly Effective People" by Stephen R. Covey is a great book on that. That includes win-win. I believe that good deals are mutually beneficial. You have a place to sell, I want to buy a place; we have differing views on price, if we can come together on it then great we both win. Similar as a landlord: you need a place to live, I have a place that I'm looking to get rent from. Being a landlord though I can affect their lives in even more positive or negative ways. For example, I replaced a furnace that was old and acting up in the fall because it suxs to not have heat in the winter in Ottawa (where that property is). I could've waited until it broke. Then again, it would've likely been an emergency call which would've cost me more. Win-win! My personal belief is that every life I interact with I can leave a little better or a little worse through my interaction; I choose. Some of those interactions happen to be financial. You may choose different.

@Thomas S. I disagree that viewing them as a customer isn't important. The problem with being a tenant is that their choice is "sticky" because it's a pain to move. If tenants were to suddenly become highly mobile and you found yourself being afraid, then you've discovered that you were over-reliant on those barriers to mobility. It's like the cabby industry: for the longest time they were able to keep their markets locked and could deliver poor value as a result. The companies and drivers got lazy and thought of the person in the back as a "fair". Then along came Uber. In the end, customers win because they vote with their money, and industries filled with dissatisfied customers are ripe for disruption.

Jason D. · Answer

@Kevin McGuire neither... Tenants are customers, or clients. Assets produce income, they are things. Customers and clients purchase your product, they keep you in business.

Thomas S. · Answer

From my perspective they are a asset. I ignore demanding tenants requests and don't care if they dislike rent increases.

However because I operate in a rent controlled market long term tenants (over 3 years) are definatly a financial liability. Tenant turn over is a plus for us.

Tenants: Asset or liability?

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