Real Estate Expert Scott McGillivray’s Tips to Help You Become an Income Property Boss
Education and Careers Income property boss, TV host and handyman Scott McGillivray knows what it takes to successfully market short term and long term rental properties.
In the past 10 years, what changes have you seen in the rental landscape?
Interestingly enough, one of the most impactful things I witnessed in the rental market was about 10 years ago now because I have been an investor through the early 2000’s. I was learning a lot about being a landlord, managing tenants, the onboarding process, the lease agreement, the amendments and the eviction process. You used to learn all that stuff in the early days, and then in 2008, when the housing market for the most part took a bit of a dive, it really changed the way that a lot of people invested. For me, it reaffirmed that realty investing is less about real estate values and more about where the stabilizing factors are in the market. It was an interesting time because everybody was talking about how terrible the real estate market was, but the truth is that 10 years ago, the rental market was pretty solid.
It was unbelievable to me that even though the real estate crisis had gone down, the rental rates went up. It showed me that the market for investing was based on rent and not property value was key. You have to make sure that you have great tenants who treat your places well… and who are going to be your stabilizing factor as an investor. I really started to appreciate 10 years ago how important it is to focus on the rental marketing to ensure that your tenants are having a good experience, and that’s when I started doing the shows on HGTV.
There are a few things that people are always asking me when it comes to tenants because people seem scared of tenants. The first thing that I do is no matter the price point or class or caliber of the housing market, I’m always looking for the best tenants, and the best way to find the best tenants is to have the best property. The first rule I’ve been using is that the caliber of your space will dictate the caliber of your tenant. No business that treats their customers poorly ever does well, and no landlord who treats their tenants poorly has success. It’s easier to be a good landlord than it is to be a bad one.
Do you think after the housing boom, people were afraid to buy? That it was safer for them to be a renter?
I think people were obviously fearful, and no doubt people lost money in real estate. For me. it was a major holding pattern through 2008-2009, but by 2009 I started purchasing properties again. The good news is that the properties I bought in 2004-05 are worth more now because I didn’t sell them during the recession. I didn’t have to because my tenants didn’t go anywhere, so the costs were covered with rental income. When you look back 10 years, that was a very interesting time and a huge learning experience for a lot of investors.
Do people feel more emboldened to rent their space now in the age of Airbnb?
I think it’s happened with the exposure I don’t want to take too much credit for it, but when I started the show “Income Properties,” everyone was like “who cares about rental properties.” It was the first show about renters, and there was a lot of pioneering to be done in terms of selling this idea to people as a good investment, and then it kind of exploded into this almost acceptable form of securing your financial future — by considering the option of renting out your house when you’re not there.
Is the average person ready to bring people in and know what to do?
The short answer is no, they don’t. They don’t know what they’re doing. You can watch tv shows and Youtube videos, and it’s not going to teach you necessarily everything you need. It’s not like you need to go to a university and get a college degree to be a landlord. But there are certain protocols, and if you follow them, you are insuring a better experience financially, legally and liability wise and for you and your tenants.
The truth is a lot of people stumble into this, and they figure it out as they go, make a couple of mistakes, have a couple of bad tenants and if it goes really bad, it unfortunately turns into a bad experience for everyone involved. For a lot of people, they troubleshoot, they solve, they make a few small mistakes and then they figure out how to rent a basement apartment or a room in their house. To me there is some basic training that should be done. You should never say, “Let’s see what happens,” because you will make mistakes that can cost you $5,000.
Are they going to expect to pay more with insurance or are they going to pay more local fees because they are renting a property out?
For the most part, your homeowners policy will not change significantly or may not change at all if you have a tenant in your house. I would just make sure there are no exclusions for having tenants in your house. But it is important for tenants to have their own insurance because in most states, you can’t insure a tenant’s belongings. They have to insure their own belongings. And then you want to make sure your policy has a liability clause in case the tenant hurts someone on the premises or whatever. You never want to put yourself in a vulnerable position. But it’s not to the point where it’s going to be a deal breaker. You’re just talking about a very small fee in order to make these things happen.
In terms of getting that property ready, are there one or two investments a homeowner should do to fix something up or install something to make the property more marketable?
Absolutely, I’ll give you a list of a few bonus features that can really increase the rent and give you a roi. One could be like including things like cable or internet. If you include those you can usually get a premium because a lot of people don’t want to setup those accounts themselves, and if your home already has it, it could be nominal to extend it to one more person. Things like a dishwasher and in suite laundry. Those are premium for sure. And if theres access to outdoor space in some capacity where they can have a patio set or bbq… that’s a big deal for a lot of tenants. I’m going to give you a quick list of recommendations that the novice landlord, investor wouldn’t know that can give you a great help and experience with your tenant. First thing is to give them a gift when they move in. Normally what we do is a gift basket in the $20 to $30 price range along with a personalized card welcoming these folks to their new home.
Do you think long term this will stay popular or is this kind of a trend where right now people are renting out rooms?
I think this is a reality moving forward. We all need to get more cozy and comfortable with the fact that real estate is going to go up in value in the long term, and it’s going to become less and less affordable. If you look to world-class cities, that’s the future. Look at New York. Look at LA. Look at London, Hong Kong, Toronto. It’s almost unrealistic for a first-time homebuyer to be able to afford a house unless that house can generate a source of income for you.
Are people doing renovations like a better kitchen or a second bathroom? What types of things should people be doing in terms of those areas?
Absolutely. We are working on a new show right now where we are going to be doing the right improvements to get you top dollar on rental properties. If you do the right renovations on the right budget, you can more than make up for it with the rental rates that you can charge. And a lot of that is the new standard of rental properties. It’s the new normal.
How has the internet helped the homeowner in terms of pricing, listing and connecting with renters?
The internet has completely changed things. When I first started, when I wanted to find tenants, I put a classified ad in the newspaper, which seems archaic when you think about it now. Now with the power of information, even social media, if you know how to market your properties properly, there’s an endless resource of potential. It’s a global market. Rental properties are a global phenomenon right now. I have a vacation property in Florida. I rented it in a couple of hours ago to a couple in Germany. You couldn’t have done that 10 years ago. That could never happen. But now it’s like ok, this is where my tenants are coming from. And it happens all over the world. People are doing this and it’s now the norm.
Let’s go back to the idea that your tenant is in a business relationship with you. How do you make sure it’s a good relationship?
It is a customer relationship and nurturing that relationship and thinking that the customer is first is what drives the entire model now. You can rent your place and have a terrible relationship with your tenants, but you’re not doing yourself any favors in terms of repeat customers or in terms of them posting about it on social media. The better you make it the user experience, the more they share that and want to embrace it. Especially on short term properties you get the same people. They come back every year, they come back for the same block of time. It makes it very predictable. It keeps the marketing costs low. Do a good job, and it will pay off.
How do you know what rate to set it at? Do repeat tenants expect that same rate every year?
You’d be surprised, but on long term rentals, there are rate hike regulations so you can only raise the rent by certain minimums or maximums. When it comes to short term rentals, you’re not usually operating under the same terms and conditions of the landlord-tenant relationship. It’s treated more like a hotel than it is a lease when you do short term rentals. There’s a lot more freedoms in those policies. One of the beauties is during the peak season, you can charge triple the amount of rent as the low season and it’s considered market rent so there is no cap on the short-term market. You can also collect the rent beforehand in most cases so you don’t have to worry about chasing down tenants and rent checks. You pay for your 2-week block now to reserve it. You’re actually securing your income before you provide the service.
If I’m renting out my apartment how do I make sure I’m getting a good rate? How do I survey the market?
You can look at the other postings in the area, that’s one of the easiest ways to do it. If you got a 3- bedroom place, go online and look for 3-bedroom places in the area and see what they are renting for. I typically start slightly higher, mainly because you are trying to rent out nicer places and we have more to offer. If you are getting too many calls, you are under-priced. That’s a good problem to have. That’s happened before where we post properties and we get sixty inquiries for a stay. That’s when you know you have to raise your prices.