No, this has nothing to do with The Last Airbender or giant blue humanoids on another planet. A tenant avatar is the description of your ideal prospect. If you could have just one tenant, then this would be the tenant you want. Having an avatar allows you to focus your marketing efforts, and more importantly, purchase the type of property in which they want to live.
Too often, especially for investors new to the game of real estate investing, properties are purchased based on price and not having the end user top of mind. The upside of this is the return-on-investment (ROI) often looks amazing. A cheap house with good rents = great returns. However, if you don’t focus on the end use from the beginning, that type of tenant profile that you want may not be the one that you get. This is why I think it’s important that before you buy your investment property, you should define the type of tenant you want then aim at purchasing a property that would attract that tenant. This is where a tenant avatar comes in.
Here are a few questions to ask when creating your tenant avatar:
- How old are they?
- What is their marital status?
- Where do they want to live?
- Any kids?
- Do they have a pet?
- How far did they go in school?
- What is their job/how do they make a living?
- What is their household income?
- How long have they been working at their current job?
- What are their personal goals?
- What are their business goals?
- What are their family goals?
- What problem do they have and how can you solve that problem?
The idea is to create a personality profile of your ideal tenant. With this in mind, you can build your whole investment strategy to catering to and attracting this particular tenant.
Let’s try an example:
- Age: 30-35 years old
- Marital Status: Married less than five years
- Wants to live in a nice newer home in a good neighbourhood in close proximity to an elementary school
- Children: Two kids
- Pets: Small dog
- Schooling: Both couples have post-secondary education
- Work: relatively new to the work force but both have good professional jobs; both are corporate accountants
- Household income: $150,000+ per year
- Working at current jobs for five-to-seven years
- Personal goals: pay off student loans, buy their own home
- Business goals: establish their careers and climb up the corporate ladder; possibly start their own business
- Family goals: raise their two kids well and not get divorced
- Problem you can solve: Looking for a nice new home in a good neighbourhood close to elementary schools where they can rent while they save up to purchase their own home.
Based on all this information, create a short story about your avatar to better flesh out your idea. Don’t be afraid to use names and get into the nitty gritty. An example of a story based on the above information might sound something like this:
Jake and Melissa both graduated from the University of Alberta four years ago with accounting degrees and were lucky enough to each get hired on by one of the Big Four out of an office in Calgary, Alberta. Jake got in with KPMG and Melissa got hired with Ernst and Young. Jake completed his CMA designation last year and is now focused on climbing the corporate ladder, while Melissa also got her CMA last year but is now working on her CFA (Certified Financial Analyst) to hopefully work for a hedge fund in a few years.
They’ve been working hard and are almost finished paying off their combined $120,000 of student loans. Now that they’ve almost completed their first goal, they’re looking forward to their next one–starting a family. As much as they love living in their two-bedroom high rise apartment in downtown Calgary, which is within walking distance of their favorite coffee shops and restaurants, they’re going to need more room. Besides, their building doesn’t allow pets and they want to get a dog next year.
Being busy paying off their student loans, they haven’t had a chance to save up for a down payment for a place of their own, so they’re going to have to rent for now. Scouring Rentfaster and Kijiji, they come across a house for rent in the neighbourhood of Tuscany in the west of Calgary. It is $2,100 a month for a 2000 square foot home with an attached front garage and an unfinished basement. “Not bad at all,” thinks Melissa. It’s more than the $1,800 they’re paying now for their downtown condo, but they’ll have a ton more room and a yard for their future dog and kids. There’s even an elementary and junior-high school in the area.
With each of them making over $80,000 a year, they can easily afford the rent and still have enough left over to save up for a place of their own in a couple of years. In the meantime, they can take their dog and young one to the park and not worry about them finding a used needle or being run over by downtown traffic. Perfect.
Reading that story, you’d almost think Jake and Melissa are real people, and that’s exactly what you want to do. You want them to be so real to you that you can understand their wants, needs and frustrations, and then you solve their problems by providing them exactly what they’re looking for.
Once you know who you’re looking for and in what and where they’d like to live, then it really helps to narrow down the areas in a city in which for you to buy. By focusing on a smaller area, you can really dig into the pricing of the area and you will more easily be able to recognize what is considered a good deal and jump on it right away.
A portion of this article is an excerpt from the book Real Estate Side Hustle for Investors by Phil Wong.