Tenants Are Your Real Capital Asset

For almost two decades, I’ve been teaching folks that it’s better to be wealthy than rich.  And to be wealthy, you must own capital assets that provide you with mailbox money.  Mailbox money is money you make while you sleep.

In my opinion, the best capital asset for the average American to own is rental property.  After all, what other investment vehicle can be purchased for 40-cents-on-the-dollar, provide incredible tax breaks, be financed with a long-term note, generate monthly mailbox money, and as a bonus, be paid for by someone else (your tenants)?

Well folks, last week, after talking with David Tilney, I learned that there was a fundamental flaw in my thinking!

David Tilney has owned and managed rental property since 1978.  He’s one of the best, most knowledgeable and creative landlords in the country.  David has been one of my primary real estate investing teachers since 2004.

Over coffee, I said that rental property was a great capital asset.  David smiled and then asked, “You sure about that, Bill?”  Yes, I was sure about that.  David followed up with: “What if you have a great rental property, but no tenant?  Is it still a great capital asset?”

Wise men like David are wise not just because of what they say, but also because of the questions they ask.  In this case, I wanted to say, “Yes, it’s still a great capital asset,” but I knew better.  If a rental property is vacant, then it’s nothing more than a bottomless money pit.  It’s no more of a capital asset than is a brand new car.

David’s next question really got me.  “Since a vacant rental property is nothing more than a money pit, what is the real capital asset?”  I thought for a minute then slowly answered, “The tenant.”  David smiled, gave me a knowing wink and then went back to his coffee.

Landlords, have you ever thought of your tenants as capital assets? Here’s another important question: If you suddenly begin to treat your tenants like they are your primary capital asset, would it have a positive or negative effect on your landlording business?  Would you have more or less vacancies?  Would you be more or less choosey about which capital assets (tenants) you work with?

David’s incredible insight opens up a whole new way for us to look at tenants and rental property. 

Here’s another thing David taught me: When choosing a tenant, don’t think of a tenant as a tenant.  Instead, think of him as an employee.  After all, if you have a business, you wouldn’t just let any so-and-so go to work for you, would you?  Wouldn’t you be focused on hiring the very best person you can?  Wouldn’t things like honor, integrity, attitude and dependability be way up there on the list of qualities you want in an employee?

Investors, these are just two of the money-making lessons I’ve learned from David, and there are hundreds more!  David will be teaching his two-day landlording course in Atlanta in November and be speaking at Atlanta REIA on November 5th.

Bill & Kim Cook are a husband and wife real estate investing team. They live in Adairsville, Georgia and have been investing in real estate since 1995. They specialize in buying single-family homes, mobile homes and mobile home parks. They also run North Georgia REIA and teach folks how to successfully invest in real estate.