Landlords: reducing tenant turnover
February 1, 2009
Even if they leave it perfect, a vacancy will cost you at least a month’s rent. That’s if you live in a hot market and the property rents right now. If your market is slower, you could be out two months’ rent or more. It would seem to behoove landlords to try to keep their units full. After all, the fewer the vacancies the more income, assuming that your tenants are prompt with their rent and take reasonable care of the property.
The chart on this page shows the methods that owners and managers of different kinds of properties use to keep presumably good tenants. (If they’re trying to keep the bad ones, I don’t suppose there’s any help for them.) It shows some interesting trends.
What was most interesting to me was the number of owners of single-family rentals who made no attempt whatsoever to keep tenants: 54%. Their rental market is either so good that they don’t have to worry about vacancies, because nobody moves, or their rents are so high that losing a month’s rent is of no consequence.
Apparently none of that is a consideration with the larger apartment complexes, because only 18% of them don’t try to slow down turnover. In fact many have regular programs for tenant retention, starting from the first day the tenant moves in.
The second figure that interested me was “Rent Concessions.” Single-family rental owners resort to that method 31% of the time, a figure about equal to those for redecorating, increasing maintenance and improving Services. Even small-plexes will make rent concessions only 25% of the time, preferring to use other methods to keep tenants. That means either that rent concessions don’t work as well as other methods for keeping tenants or that other methods are more profitable.
As a matter of fact, looking at the figures, large apartment complexes will do just about anything except make rent concessions to keep their residents. Part of the reason for that is the attitude of owners who do not manage the properties, but simply look at the bottom line and hand down orders to their managers. They say, “Don’t reduce the rent, try anything else to keep residents.” As a matter of fact, many owners of large apartment complexes simply raise the rent every year, regardless of how the market is, then leave it up to their resident managers to keep the places full. The owners realize that rents are their income and they aren’t about to willingly reduce their income.
Owners of single-family rentals and small-plexes usually take a more hands-on approach to their rental properties. In fact they may pay too little attention to options that will keep tenants. Too many small landlords simply figure that vacancies are an inevitable part of the business and you just deal with it when it happens.
The other side of the coin is that hands-on landlords are more in touch with what each of their properties need and demand. However, we can always learn from the people who make a study of the business. Sometimes their ideas will work wonders for us if we just tweak them a little.
With that in mind, if you are a small landlord, here’s an exercise for you to do. How many of those ideas could you use to keep your tenants right where they are instead of lowering the rent or giving a free-month’s rent? Once you’ve made your list, figure out how much each of them would cost you. Could you bundle those into a package that would make your tenants almost beg you to keep renting from you without your making any rent concessions? Would that cost you less than the rent concessions you were considering? How many other small landlords offer the same kind of tenant retention programs? In fact how many other landlords offer even similar move-in packages?
See if the figures you come up with could improve your bottom line and take you away from having to make rent concessions.
The most important thing that we, as landlords, can do in tenant retention, though, is to make sure we have a program in place. Vacancies are not inevitable, any more than bad tenants are. You just have to know how to avoid them.