Tenant Turnover Can Wreck Your Profits
By Pierre Mouchette | Bits-n-Pieces
Turnover occurs when a rental property tenant moves out and the next moves in, sometimes with time in between. Whether you own one rental or a thousand, A-class or D-class properties, one thing that all rental real estate has in common is turnover. Most, if not all, rental owners will agree that turnover can be the most significant operating expense. A bad turnover can wipe out years of profit in a real estate investment.
If turnover is something every rental owner deals with and is a significant factor of investment success, do you think it would be a good idea to figure out the following:
When a rental property turns over, the owner has to invest cash to provide all needed repairs and updates to the property to make it rentable and desirable again. It can include catching up on any deferred maintenance, cleaning the entire property, freshening up the landscaping, advertising the property, answering inquiries, showing the property, screening applicants, signing leases, paying fees to property managers, and watching the days tick by as the property sits empty with zero rent coming in. Yes, it can be painful if you do not know how to minimize this profit-draining event.
Business is business. Call the residents whatever you want tenants, residents, customers, whatever. But these people are the lifeblood of your investment, and if their overall experience is good, they will stay longer. If it is terrible, they will leave sooner. If their customer experience is good, they will typically go with respect for your business when they do leave.
So, How Do You Minimize Turnover?
Most residential management companies and landlords talk about ironclad leases as if the goal is to lock someone into the property. But the reality is that if anyone renting out B, C, or even D-class properties wants to leave, it is usually not even worth the time and cost to take them to court to recoup whatever your ironclad lease says they owe you. Even then, there is the strong possibility that they do not have anything to take. So rather than trying to lock people into your property, why not make it, so they enjoy renting from you and want to be there paying for the product and service you provide?
You can do this by creating a positive customer experience for your residents. Every other industry has this figured out, but landlords do not understand. The answer to how to minimize turnover is simple. All you have to do is create a good customer experience for your residents. The real question is how to do it in a financially feasible way for your investment.
FYI: The good news is that the typical management company or landlord has set the standards so low that it does not have to be time-consuming or costly to provide a customer experience that shines above all others, letting your residents know they are essential.
The following are a few ways to make a big difference in your resident’s customer experience.
Welcome Gifts - so often, after the lease is signed, the vibe often goes to finished, and those in charge of property management think their job is complete. A simple way to start your customers’ experience off is a welcome gift. You can accomplish this for under $20 while also having other positive effects. You can even brand your company and build rapport with your residents.
To be specific. It is a little cheesy, but place items in the unit before the resident moves in and put little tags on them with phrases. Some examples would be:
Quarterly Checks - going into your property a few times a year to check on things is a must! You have to keep an eye on things, but instead of busting in like a S.W.A.T. team and pointing out everything wrong, why not check smoke detectors and change filters while you are there? You can call it “quarterly safety and energy efficiency maintenance.” While there, compliment your resident on something, such as how well the unit is kept and the lovely picture of their family. Even ask them if there is anything else you can do for them.
Anniversary Presents - question, “What do most landlords do when their resident’s lease is about to expire?” They send them a notice to renew the lease or call them and notify them of their contractual obligations for notification.
What if you sent them a letter at month 10 of a 12-month lease that says, “Can you believe it’s been ten months? Time flies when you are with people you like. Thank you for being one of our favorite residents and ensuring we continue to provide the best living experience we can for you. We want to celebrate your (XX) year anniversary with a gift. Feel free to select one of the following items, and we will happily take care of it on (xx/xx/XXXX)”? This date will land shortly after their anniversary (lease expiration). After they make their selection of the gift, follow up with the new lease. The point is to make the lease a positive event of living at your property, not an ironclad contractual jail cell they will have to accept.
Anniversary gifts can be whatever you want, but offer items that add value to both your residents and your company. A few specific examples are:
Another small tip would be to include the anniversary gifts for five or ten-year residents on the list. It could be appliance upgrades, complete home painting, and more. It will have residents already thinking of years 5 and 10 at your properties. Of course, this is all relative to your resident base. Do what fits your business and your residents. However, the point is that lease renewal can be a fun thing, something exciting, something that even builds your resident’s positive customer experience.
These are just a few unique examples of building a positive customer experience for your residents and minimizing turnover. Of course, there are many more, including more obvious examples such as being responsive to maintenance requests, upkeep of common areas, and more. By keeping the customer experience in mind, you will minimize turnover and, as a result, increase your bottom line.
You will have turnovers no matter how well you create the best customer experience for your residents. Life happens! People have children or children move away, jobs transfer, and so on. Still, all you have done to give a good customer experience will pay dividends now. When residents respect their landlords, they are far more likely to provide adequate notice of moving, not break leases, and leave the property as clean and rent-ready as possible.
Even then, turnovers can be expensive. There is still a time when that unit is not making income, and you still have fixed expenses. Normal wear and tear and outdatedness will need to be upgraded or repaired. You will likely need to clean, list, and show the property and screen and sign new tenants, which takes time and money. Because this process is inevitable, it is a good idea to get as efficient at it as possible. Get your timing down to a rhythm, know who does what, order suitable materials at the right time, and get the unit filled to produce income as soon as possible.