Not releasing to a good tenant who wanted to renew so she could sell the property turned out to be a huge loss for her. Davis learned a lesson: “It’s not worth it [to end the lease] when you have a good tenant that wants to stay.”
As a rental property owner, you want to maximize profits and decrease expenses. That’s just basic business sense, right? However, you don’t want to focus so much on increasing profits that you forget who is really making that mortgage payment – your tenant. Keeping each tenant happy is the key to getting more renter lease renewals.
So, what are the costs of turning over a rental and how can you improve your chances of keeping good tenants?
Expenses To Replace A Tenant
Exact costs to replace a tenant will vary by property, location, and state of tenant unhappiness upon move-out, but includes:
- Remodels and updates to make property competitively appealing
- Basic utilities so pipes don’t freeze in the winter and lights stay on to keep trespassers out
- Deep cleaning to present a sparkling appearance.
- Marketing and advertising to acquire prospective new tenants
- Showings to prospects to get one up over the competition
- Security checks or alarm system installed/activated if vacant for too long to prevent vandalism
- Processing applications/screenings so you get a great renter
- Possible property management fees
- Full mortgage payment for each month vacant (ouch!)
Let’s face it, vacancies are costly. Save time and money by retaining good tenants. Here are some ideas for getting more renter lease renewals:
Moving is never fun, but if you think that your good tenant isn’t shopping for other rentals, you’re kidding yourself
Licensed Associate Real Estate Broker Michael Shapot, Esq. of The Shapot Team at COMPASS in New York City believes that keeping rent increases at reasonable amounts is essential in tenant retention. Others, including Davis, agree and do not rent for above market value.
Davis explains, “I follow the average, or below, percentage increase during lease renewal of the local market.” She may opt to use a lower-than-market increase when the tenant has been in the property for a while and she’s flexible if the tenants request a month-to-month lease renewal.
Ron Humes, owner of numerous rental properties and a former real estate broker, states, “Moving is never fun, but if you think that your good tenant isn’t shopping for other rentals, you’re kidding yourself.” Price your property right so good tenants are not tempted to move.
Use Quality Vendors
The more you can build into the rent price while staying within market pricing of similar rentals, the more likely you will get a tenant to stay longer. Adding extra services shows goodwill. Depending on the property type, you could handle landscaping, pool service, and pest control. The tenants will feel like they’re getting a bargain.
Without quality vendors, adding the expense of their work may backfire. For instance, “not having a pool company that was good, in one case, recently caused aggravation for a tenant,” reports Jeff Lichtenstein, owner and founder of Echo Fine Properties in Florida. “That can escalate to [the tenant] just wanting out.”
Research all vendors for their customer service, work quality, trustworthiness, and honesty. A good rule of thumb is that if you wouldn’t want them working on your personal home, don’t use them for your rentals.
Act quickly on whatever issues and repairs you have the power to fix and stay in touch with the tenant at every step
Maintain Good Communication
“Check in with each tenant quarterly,” states Lichtenstein. “Good communication typically undercovers the problems.” Tenants are quicker to tell you about a maintenance issue or a problem with a neighbor if you make it a point to talk with them at regular intervals. Act quickly on whatever issues and repairs you have the power to fix and stay in touch with the tenant at every step.
Similarly, Justin Pogue, author of Rental Secrets, suggests establishing positive relationships with your residents. “Greet them when you pass them on the property and engage with them at resident events,” Pogue says. “Your conversations must be about more than rent payments and maintenance requests. This relationship ensures you’ll be able to negotiate from the best position possible.”
Keeping rent the same for a renewal period is perhaps the best incentive. Check your budget for feasibility. If a tenant likes the property, chances are high they will want to stay on if the rent doesn’t go up.
Depending on your market, other incentives to consider at lease anniversary with renewal are:
- Local gym membership
- Carpet or home cleaning
- Older appliance replacement
- Inside or outside repainting
- Care package of home essentials
- $100 off one month’s rent
Build Rent Increases Into The Lease
You could increase the rent a small amount if necessary. An increase that won’t force the tenant to leave at lease expiration, yet one that is in line with your state’s, region’s or municipality’s laws regarding rent increases. Many property investors suggest a 1-3 percent increase.
Lichtenstein suggests: “I write the [rent-increase-upon-renewal] option into the contract, typically with a 3 percent escalator (again, check local laws). People don’t like to move and deal with the cost of moving. If the negotiation and thought process are settled in the original lease, most won’t ever get that far.”
Practice The ‘Golden Rule’
None of the above ways to retain a good tenant matter if you are a bad landlord. Show your human side. Aside from speedy upkeep of each property, treat all residents with fairness and respect. Humes reminds us to “use the Golden Rule to ask yourself how a landlord or property manager might retain you if you were the tenant.”
“Small touches, like sending holiday cards and birthday cards – ideally with a personalized note – go a long way,” notes Shapot. Humes suggests mailing tenants “notifications for time changes, garbage schedules, and maintenance tips.”
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