December is a great time to be a landlord - if you have a tenant. But if you are looking to find a tenant, it can be a big problem. Few people are looking to move around the holidays, and finding time to show apartments to prospects can be a big burden in this already busy season.
Why Avoid Turnover?
According to a National Apartment Association report, the cost of a turnover is approximately $3,000 in Utah. At 60% turnover (a very conservative estimate), that equal 3 turnovers per rental unit every five years at an average cost of $1,800 a year. Wow – that’s a lot of money lost to something as simple as not asking your tenants to renew their lease.
What are Turnover Costs?
There are two elements of turnover costs. First are the actual expenses of turnover. These include things like labor, advertising, cleaning, maintenance and any money you spend getting the rental ready to rent. The second element is vacancy loss, or the lost income for sitting empty. In Utah the market is good right now, but even in a good market units can sit empty for days or weeks. In a bad market things could sit open for months. The lost rent while vacant is a significant cost.
Why Do People Move?
Studies indicate that only 30% of renters who move had to. For instance, they were transferred out of state, got married and consolidated households, or bought a home. The other 70% of renters that moved, moved from one rental unit to another rental unit usually within 25 miles of the last. When asked why those renters moved, most indicated that dissatisfaction with the current place was the reason they moved. The top reasons for tenant dissatisfaction were:
- Landlords weren’t reliable (didn’t follow through with commitments)
- Landlords weren’t responsive (didn’t return calls)
- Landlords were not respectful (didn’t treat them like a customer)
Note all three of these are caused by landlords not doing their job. This is good news! It means landlords like you that do want to retain people and treat them like customers, can keep people longer just by being more reliable, responsive and respectful.
Tips for Retaining Renters Longer
- Treat renters like a customer not an inconvenience. Find ways to express appreciation like cards/gifts on birthdays, seasonal presents (flowers in spring, turkeys on thanksgiving, etc.). Go above and beyond to convince them you like them and value their business.
- Convince them you treat them better than they would be treated anywhere else. When you fix things quickly, point that out. When you do upgrades or make improvements, emphasize how nice you are making the place for them. Consider showing them costs of similar rentals, to illustrate how much they are saving by staying with you.
- Communicate regularly with your residents. Make a point to reach out to them and not just wait for them to contact you. Send emails or letters with helpful articles, tips, coupons, etc.
Making Renewals a Priority
One mistake some landlords make is that they let renters go month to month after the initial lease expires. STOP THIS. If someone is month to month, they can move when it is inconvenient or costly for you. For instance, someone with an August to August lease could go month to month and move in December, a month that is really hard to find a replacement. They also can move if “life happens” like a crime next door, a new complex down the street offering move-in specials, or a negative life event like the break-up of a relationship. If you had locked them into a lease they would more likely have gotten over their reason for moving by renewal time and stayed longer.
Renewals don’t just happen – you need to manage the process and encourage them. Following are seven tips that will help you reduce and manage turnover:
- Have a month to month fee. When the lease expires they are required to pay higher rent if they stay. This often motivates people to just renew rather than pay the higher fee.
- Create a renewal schedule and reach out to residents. For instance, at 90 days to expiration you could send a letter reminding them their lease is up and explaining the costs if they go month to month and advantages of signing a lease. At 60 days it may be a phone call to touch base with them about their plans. At 30 days, a visit. Whatever your schedule, have one and make renewing the lease a priority.
- Set aside money for renewals. If they move, you spend a lot more money than if they stay. Try to “buy” a renewal by asking them what upgrades to the rental they want. It may be a $100 screen door or a $50 ceiling fan that “buys” their renewal. Often times you would be surprised at how easy it is to “buy” their continued business.
- Have a breakdown of how much it costs to move and a market analysis. If you can show them how expensive and inconvenient moving is and point out what a good deal they are getting from you, they may be more likely to stay.
- Consider lease renewal gifts such as free carpet cleaning or repainting. Doing things that improve your apartment are better than giving cash or costly gifts.
- Consider signing longer leases. Don’t be stuck by convention. 6 month and 12 month leases are normal only because landlords are creatures of habit. Decide how long you want people to stay and when it is convenient for them to move and offer leases that length instead.
- Know when people move and limit your exposure to risk by taking advantage of this knowledge. The accompanying chart show that most people move in summer. Plan your leases to expire then. If you have multiple rentals, stagger expiration dates so you don’t have a month where multiple vacancies cause more work than you can handle and cost too much money.
Landlords and property managers who master retention spend a lot more time living their lives and have happier tenants.