If you’ve watched some of our other blogs or spoken to me, you’ll know that part of my investment philosophy is that the only way to be successful is to eliminate vacancy and turnover to create long term tenants. This is how we operate our management company.
Achieving Desirable Turnover Rates
I started this philosophy with my own portfolio over 20 years ago. It must work, because my average tenancy on single family homes now exceeds seven years and my average tenancy on my duplexes is between three and five years.
I begin my methods in the following way: I only use materials that last. They should look good and hold up over long periods of time. When I do my screening, I look for tenants who are looking for a home. My ideal tenants want to remain there, and not just move on to the next property after a year. Within reason, we do everything we can to make the tenants happy. We want them to be happy with us as the property management company and with the property itself. We take every opportunity we can, starting from the move in day, to reinforce in that tenant’s mind that this is their home for a long period of time.
Discussing Lease Renewals with Tenants
We’ll take opportunities throughout the tenancy to discuss with residents the option of renewing their lease. Here are some examples.
We had a tenant who moved into a beautiful house and after she was there for seven or eight months, we received a notice that she would move at the end of the lease. We immediately called to ask why. We were surprised because the home needed very little maintenance, it was a beautiful home and we had been responsive to any of her needs. She admitted she was happy with us and wanted to move to one of our other houses. We found she liked the house but there had been two break-ins on that street in the last two months and she didn’t feel safe. We came up with a plan. If the owner would agree to install an alarm system, she would pay for the monthly monitoring and that would make her feel safe. The owner immediately agreed. He saved $900 a month in vacancy costs, turnover costs, and leasing fees. As it turned out, the alarm company put in the system for only $99 since the tenant signed a 12 month agreement. He saved himself at least $2,000 or $3,000 just by having a $99 alarm system and a renewal fee equal to half a month’s rent.
Another example is a tenant who contacted us the month after she moved in asking if she could paint the bedrooms a different color. We took this opportunity to discuss the option of renewing her lease for another 12 months. The discussion centered on our desire that she feel like the house was her home and she would be a long term tenant. We use one paint color for the properties and it would be expensive to repaint it, but she immediately agreed to the longer lease, and the owner had a 12 month extension all for the cost of a half month’s leasing fee. Another huge savings.
Both these tenants were extremely happy with the end result. It was a win for all sides. Many property managers feel that getting a renewal should be a cheap fee because it takes no effort. I wonder how many of those property managers take every opportunity to create a renewal. Or, do they secretly hope the tenant moves out so they can make more money on turnover costs and leasing fees?