452: How to Prevent Tenant Turnover

SHOW NOTES FOR EPISODE 452: HOW TO PREVENT TENANT TURNOVER

Finding ways to avoid tenant turnover and prevent vacancy in your rental property is crucial to success, and understanding the trends that impact the average tenant turnover rate is a key piece of the puzzle. In this episode, Bill shares the causes of tenant turnover and 9 tips to prevent it and attract long-term tenants to your rental property.

Word of the Week

• Accredited Investor – The definition of an accredited investor is as follows: To qualify as an accredited investor based on your annual income, you must have had an annual income of $200,000 or greater (or $300,000 or greater combined income with your spouse) for the prior two years and have a reasonable expectation of the same or greater income in the current year.  To qualify as an accredited investor based on your net worth, you must have a net worth of $1 million or more. To calculate net worth, you add up all of your assets and subtract all of your liabilities. You are not allowed to include the value of your primary residence as an asset in the calculation.

How to Prevent Tenant Turnover

It’s no secret that keeping your rental occupied means keeping a steady stream of rental income flowing.  Getting your tenants to renew their lease year-after-year is critical.  In fact, some experienced landlords even go so far as to say, you don’t ever really make any money on your rental until the SECOND YEAR.  Longer-term tenants tend to be stable, pay their rent on time, and minimize the costs and maintenance efforts associated with tenant turnover.

Tenant turnover costs can range anywhere from $1,000 to $6,000, but estimated averages are somewhere in the ballpark of $2,500 – that means, for most renatls with a mortgage, you just lost your cash flow for the year!

But there are also other costs: loss of rent while it’s vacant, extra work, extra phone calls, property visits, rental advertising, staff time in showing and financial transactions really mount up.

When your rental sits empty between tenants, you have to invest time and money into maintaining the property, marketing the unit to new potential tenants, keeping the utilities turned on for showings, and screening new potential tenants — all while sacrificing rental income. Tenant turnover can kill profitability, costing landlords thousands of dollars per month.

Finding ways to avoid tenant turnover and prevent vacancy in your rental property is crucial to success, and understanding the trends that impact the average tenant turnover rate is a key piece of the puzzle.

Landlords and property owners are frequently found scratching their heads, wondering how they can improve their retention rates and decrease their vacancy. Although it’s imperative to respond to maintenance and repair requests in a timely manner, data suggests that external variables apart from your management may also play a larger role in tenant turnover.

Research shows that both low median age and high job growth areas correlate to lower retention rates in cities across the United States, while rent growth seems to have no effect on turnover. Certain amenities can persuade tenants to stay, while others have little to no bearing on the decision. 94% of renters in apartment housing, for example, are looking for available parking, while 94% of renters in single-unit homes prioritize high-speed internet.

Finding a good tenant is one of the primary keys that can increase landlord profitability.  We see that the average tenant turnover rate costs $2,500 per month as long as that the property remains vacant. Landlords and property owners incur a multitude of expenses during tenant turnover, which cost not only money but also time. Once the unit is vacated, they must clean the property and repair any damage, which usually entails new carpeting and a fresh coat of paint. After it’s been restored, they need to create ads—often times on paid-for sites or classifieds. To expedite tenant turnover and fill the space as quickly as possible, they need to host frequent open houses and schedule back-to-back showings for potential renters. Each renter who does apply must be processed and screened, so as to reduce tenant turnover in the future.

Furthermore, tenant turnover decreases as people inch closer to forty and “settle in,” but increases in areas that people experience frequent employment opportunities. Although this may vary by city and demographic, one factor appears to remain consistent: higher costs of rent does not appear to affect turnover rate. A Property Management Insider analysis shows that the annual rent growth spans from 2% in New York and Indianapolis to 10% in San Francisco and Denver, but retention rates remain north of 47%.

A 2017 Trans Union SmartMove survey revealed that 53% of landlords across the United States report experiencing lower than 10% of tenant turnover—with the exception of the Southeast, where 63% of landlords experience such stability. But what about the other portion of landlords (the 47%) who deal with a larger average tenant turnover rate?  Research suggests that in order to avoid tenant turnover, they need to upgrade their rental properties with in-demand amenities such as on-site washer and dryer units. They also need to keep rent fairly priced, maintain the property, and respond to tenant requests in a timely manner.

One of the best ways to lower your average tenant turnover rate is to run comprehensive screening on each of your rental applicants. The more you know about your prospective renters, the easier it is to land a long-term tenant. Thorough tenant screening processes can help you get a higher quality tenant with a longer average tenure in your rental unit. TransUnion SmartMove, which has been advertiser on the Old Daw’s Network and I service I personally use,  offers detailed landlord credit check and reports that include a credit history check, eviction history check, and rental criminal background check so you can find the right fit for your rental property.

SmartMove also provides landlords with a ResidentScore, which is a credit score built to look at the outcome of a lease.  Based on TransUnion Rental Screening analysis, bad outcomes occur 24% of residential property rentals.  Finding an applicant with a good ResidentScore could lower the average tenant turnover rate.  ResidentScore calculates a variety of factors to provide a snapshot number of one’s predicted tenant performance. SmartMove’s updated ResidentScore predicts the risk of an eviction 15% more often in comparison to a typical credit score, which helps avoid premature tenant turnover.

Although renters may come and go, influenced by age, amenities, and job availability, it is possible to improve retention rates by making sure you lease to the right person in the first place. Eviction processes are expensive, compounding on the already sizeable costs incurred during tenant turnover. Protect yourself from a potential loss of revenue by doing an extensive rental screening and sign your next lease agreement with more peace of mind.

To improve your retention rate, it’s also helpful to understand why tenants leave in the first place.

Why Tenants Leave Their Rentals

According to the U.S. Census Bureau’s Geographic Mobility Data, the three primary reasons for moving between 2017 and 2018 were related to Housing, Family, and Employment. More specifically:

Housing

• Wanting a new or better home
• Wanting a cheaper home
• Wanting to purchase a home rather than rent one
• Wanting to live in a better neighborhood

Family

• Wanting to establish their own household (e.g. moving out of parents’ house)
• Experiencing a change in marital status (e.g. getting married or divorced)

Employment

• Accepted a new job or job transfer elsewhere
• Wanting to be closer to work or have an easier commute
• Looking for new work elsewhere or lost their job

Other Common Reasons for Moving

• Frequent maintenance issues (especially if they are poorly fixed or remain unresolved)
• Problems with neighbors

9 Tips to Reduce Tenant Turnover

Although you can’t predict when a tenant will have to move for a new job in a new city or to a bigger rental for a growing family, there are certain things you can do to minimize your tenant turnover. You can encourage resident retention by:

1. Being Responsive

Responding to tenants’ requests in a respectful and timely manner will put you in good standing with your residents. Your tenants are less likely to renew their lease with you if you wait long periods of time to respond to requests, respond with hostility, or worse, don’t respond at all.

2. Handling Maintenance Issues Swiftly

Don’t let maintenance issues fall by the wayside. Also, make sure maintenance issues are fully resolved. Don’t be tempted to go for a quick fix that will provide more trouble in the long run and potentially cause your tenants to start looking for another rental. It’s also best to avoid charging maintenance request fees.

3. Providing Routine Maintenance

One way to prevent maintenance issues in the first place is to perform routine inspections and maintenance. Be aware of aging appliances and any other aspects of your rental that need tending to. Change heating filters and regularly check A/C units. Whenever you do perform routine maintenance, be sure to provide your tenant with appropriate notice beforehand.

4. Resolving Problems with Neighbors

If tenants in neighboring units are having issues, step in to help resolve those issues. There are plenty of ways you can help in various scenarios, from requiring quiet hours and enforcing rules stated in lease agreements to mediating discussions between neighbors and coming up with new solutions that satisfy all parties involved.

5. Making Sure Your Rental Is Competitively Priced

Look at rentals similar to yours in the area. See how your property stacks up to the competition. You can do this manually, but when you call also use resources like Apartments.com Rental Tools, you have access to their Rent Comp Report that gives you all of the information you need to know to determine how competitive your rental is. Keep this in mind when you’re deciding how much to increase rent as well.

6. Maintaining Amenities

Keep up with any amenities that could be seen as selling points for the rental. For apartments, make sure the pool is clean, the lawn is mowed, and the laundry facilities are all functional. For single family landlords, access to high speed Internet can be a plus.

7. Allowing Pets

The Humane Society of the United States says that 72 percent of renters have pets, yet renters often have trouble finding rental housing that welcomes their pets. Allowing pets in your rental, with minimal restrictions, affords you a larger pool of qualified applicants to choose from. Qualified applicants become great tenants who don’t want to part with their pet-friendly rental. If you’re concerned about pet damage, the change a monthly pet fee.

8. Embracing Technology

If you haven’t already, join the digital age. Start collecting rent online and taking maintenance requests online as well or via text message.

9. Select Tenants Carefully

One of the most effective ways to reduce tenant turnover is to carefully select your tenants. Don’t skimp on the application process. A detailed credit report and background check in imperative. It should also be required to ask for references from previous landlords to get a better idea of what kind of tenant an applicant has been in the past.

When screening a potential tenant, ask them pertinent questions that abide by the guidelines set by the Fair Housing Act (FHA). The FHA prohibits any housing-related discrimination on the basis of race, color, national origin, religion, sex, familial status, and disability. Make sure your standards are the same for every potential tenant.

While there are many situations out of your control that cause tenants to move, there are also many that are in your control. Ensuring that you’ve priced your rental competitively for your market, responding efficiently to maintenance requests, and embracing technology and pets are just some of the actions you can take to make your rental a sought-after place for qualified tenants for years to come.

Well that’s it for today!

DISCLAIMER:  Many of the above strategies take knowledge and have a higher degree of risk.  You need to do your research and/or work with someone who is experienced to reduce your risk.

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