Tenant turnover expenses can quickly add up beyond the time investment required to fill a vacant property.
Multifamily Executive reported last year that renewal rates have hit an all time high with 51.5% of the nation’s apartment renters choosing to renew their leases in August 2015. This number reflects a historic high, despite rising rental rates and large levels of new supply.
Nationally high renewal rates is great news for property managers who understand the expenses associated with tenant turnover. The cleaning costs, repairs, and lost income from the turnover period can cause a serious dent in your cash flow.
The reality of tenant turnover results in a mad dash for property managers to keep their best renters happy and settled. Why spend precious time marketing a rental property when you already have rent paying tenants living in the property? Like most ideal business scenarios, however, renter retention is easier said than done.
These tips will guide you towards increased renewal rates and reliable rental income.
- Capture renewals early – Getting a head start on your lease renewals will increase your chances for securing your tenants for another year. Some management companies start the renewal process as soon as the current lease begins. While I don’t recommend approaching a tenant before they have even unpacked their boxes, asking for renewals 3 months prior to a lease expiration is a good idea.
If you approach your tenants too early, they won’t feel like they need to make a decision about moving yet and could say no. If you wait too long, they may have already started looking for a new place. 90 days gives your tenants enough time to evaluate their living situation and decide if they want to renew. Even if they consider moving, chances are, they won’t be able to find a new place that is marketed 90-days prior to availability. If they say they want to move, you can try the next steps to increase renewal rates.
- Offer Incentives – Some properties offer incentives to tenants who sign a lease renewal. Incentives may include gifts, cash or a property perk. Gifts are a popular type of incentive because they tend to be something a renter wouldn’t necessarily buy themselves. Gifts may include a new TV, tickets to a sporting event, iPad or tablet, or gift certificates. The cost of the gift is justified by the reduction in turnover cost and renewing a good, rent paying tenant.
Another popular incentive is cash or rent discounts. Beyond a cash payout for lease renewal, you could offer one month free-rent or a $100 discount. One of the most sought after property amenities are parking spots, if you live a city, consider paying for a parking permit for your tenant or offering a reduce parking spot fee. Tenants who might be shopping around for a new place are often more willing to stay put for the best deal.
- Upgrade The Property – Ask your renter what it would take to get them to stay. This simple conversation could reveal that they want a property with an in unit washer and dryer or nicer flooring. Even the addition of a new microwave, kitchen appliance or A/C unit could demonstrate the value of your home to your renters and encourage them to stay. Upgrading your property offers a double bonus – you increase the value of your investment and offer a nicer place to live for your renters, encouraging renewals.
Remember that your renters may not feel comfortable with answering a question about why they are moving. If they don’t offer an answer, don’t push it. They are completely entitled to their privacy, but if you have a friendly relationship with your renters, this simple question could help you improve your renewal rates and increase your property value.
- Emphasize Customer Service – Besides rewarding your tenants, another way to secure long-term renters is to prioritize a great landlord-tenant relationship. One of the top renter complaints involves poor customer service from property managers. You will benefit from nurturing your landlord-tenant relationship from start to finish by remembering that your renters are your customers and their reasonable needs are important.
Good service from property management includes responding to maintenance requests in a timely manner and maintaining good communication. You may find that good service not only increases renewal rates, but your referral traffic will increase from your renter’s recommendations.
- Raise Rent the Right Way – With rental rate rising across the country, you may feel tempted to follow suit. Raising your rental rates to match market is an important part of successful property management. The trick to raising rents without scaring off current renters is to do it the right way.
Consider including small elevations in your rental rates every year. And by small, I mean $10-$20/mth each year. An extra $10 a month shouldn’t negatively affect a current renter budget. Rather, this small raise will result in an extra $50/mth 5 years from now, and over 5 years that mean you will have made an extra $1800 in rental income. (Y1:$120 + Y2:$240 + Y3:$360 + Y4:$480 + Y5:$600 = $1800)
- Keep A Good Online Presence – If your current tenants start to research other places to live, you want your property to come up on during their online searches. According to Multifamily Executive, “if your property doesn’t have a good website, then you’re losing a large chunk of potential renters— mostly millennials—who prefer to start their housing search online.
”Your website should highlight property features with great photos and list amenities or perks of renting from you. Do you offer online payments? Is there a 24/7 maintenance line. If you highlight the things you offer, they will also expect other properties to have them as well. If your competition doesn’t provide the same tenant perks, your renter is more likely to stay put.
Evaluating the cost of tenant turnover against the time you will spend implementing these renewal strategies should reveal the value of even a single lease renewal. Remember that an important part of the lease renewal process is asking yourself if you actually want to keep a tenant in your unit. Do they pay on time? Do they keep the unit clean and undamaged? If they are not a good tenant or create a stressful management situation, it will make more sense to find a new and more responsible tenant.
Have any other tips for increasing lease renewals at your properties? Let us know in the comments!
Kaycee Wegener is an associate of Rentec Direct, providers of property management software. As Rentec Direct’s Content Strategist, Kaycee informs and entertains property managers and landlords who seek industry related tips and trends. To learn more about Kaycee or Rentec Direct, visit www.rentecdirect.com