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My Favorite Way to Get an Apartment Filled

by Tom Sylvester on February 10, 2014 · 24 comments

  

As a landlord, life is usually good when your units are rented and your customer’s are paying.

Now, granted, you may be dealing with other issues, but at least your assets are bringing you in money every month.

Life is not so good when you have a vacant unit, or worse, when you have a occupied unit that is not being paid for.

Some landlords use a “Cash for Keys” program, where they pay their non-paying tenants to leave.  I personally would never pay a tenant who had potentially lied and not paid rent, but this post is not about that.

In this post, I would like to introduce you to my program, “Cash for Tenants”, which is a program where I LOVE to pay my tenants!

Cash for Tenants

This is one of my favorite methods for getting a new tenant.  Whereas some landlords prefer to reward tenants who do not pay them by giving them “Cash for Keys”, I prefer to reward my good and paying tenants by offering them “Cash For Tenants”.

When we know we have a property that will be coming vacant in the future, the first thing that we do is to notify our existing tenants that the property is available and we will give them a $50 gift card if they refer a tenant to us who we end up renting to.

At first I had difficulty selling this idea to my partner.  Why should we pay extra to find a tenant?  It turns out that there are several reasons and after explaining them, this program is now part of our marketing strategy.

1. It Costs Money to Advertise

One of my marketing professors once told me that when sales are down, advertise more because you are not bringing enough people in.  I always think of this when looking at vacancies.  Without advertising, no one will know about or be interested in your property.  So it makes sense to spend money and get the word out as quick as possible to as many people as possible.

Depending on your market, free options like signs in the yard and Craigslist might work.  In other markets, you may have to purchase a newspaper or online ad.  Even in the rural area that we live in,   it costs is ~$15 to advertise in the small local paper.  A few weeks of this advertising method will equate to that $50 referral bonus.

2. Vacancies Add Up Quickly

This is a hidden one that people often miss.  Let’s take one of my units that rents for $650.  Now let’s take an average of a 30 day month.  $650/30 days = $21.67.  This means that each day your property is sitting vacant, it is costing you $21.67.

Where as it took 3-4 weeks of my newspaper advertising to equal the cost of our tenant bonus, it only takes 3 days of vacancies to exceed that $50 bonus.  If paying a tenant $50 gets a property rented a few days faster, the it was worth it.

3. Good Tenants Will Often Refer Other Good Tenants

When getting a random assortments of applications from our website, yard signs, newspaper and Craigslist advertising, we never know the quality of the applicants that we are getting until we go through screening them.

What we have found (and I believe that it will hold true for most people) is that existing tenants that are good will often refer other good tenants.  Obviously you still should screen these tenants, but we have found that more often than not we end up liking the referred applicant and end up renting to them.

This is even more true if the unit is in their building.  No one wants to live next to someone that they won’t get along with.  So if our existing tenant is quiet, they will probably refer someone that is quiet.  If they are a little louder and have occasional parties, they will most likely refer someone who is ok with that.

Not only does this dramatically cut down on the complaint calls that we get, it also reduces turnover from tenants since they often have friends living close by.

Do you offer tenants money?  What has your experience been with having tenants refer other tenants?
Photo Credit: DarthNick

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{ 24 comments… read them below or add one }

Adrian Tilley February 10, 2014 at 10:58 am

Thanks for the good post Tom. Solid, actionable information.

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Tom Sylvester February 10, 2014 at 5:56 pm

No problem Adrian. That’s what it is all about.

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James Pratt February 10, 2014 at 12:02 pm

A smart post. The only thing I personally do different, because of the time and money saved is offer a $100 or $50 and a dinner. The dinner they will remember a long time. Over the years, had some awesome renters. When I fell off a roof and lost my elbow, most of my renters did the repairs on their places at no charge to me for at least 6 months.

The best thing about having good renters filling the vacancies is NO phone calls and very few showings. That’s the part I hate the most, answering calls and “no shows”.

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Tom Sylvester February 10, 2014 at 5:58 pm

James – That is a great point on adjusting the amount, especially depending on the area. agree we get less calls when we do this, especially because the tenants know each other and usually work out any issues themselves.

That is a great story about your renter’s reaction when you were injured. I’m sure most people reading are jealous.

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Aly February 10, 2014 at 1:32 pm

These are great suggestions, but we’ve had no success with them. Our great tenants have recommended maybe one or two friends over the years. One that we ended up renting to was a disaster and cost us nearly $600 in damages in the 10 days they were there before agreeing to leave with a full refund of their security deposit. We were just relieved to get them out. The referring tenant was a model tenant, and was just as shocked as we were about her friend.

As she said herself, knowing someone as a friend is very different than knowing them as a tenant. I’ll take my chances with online advertising.

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Tom Sylvester February 10, 2014 at 6:02 pm

Aly – That is unfortunate to hear. We have not rented to all of the referrals, but we have had great success with the ones that we have rented to.

You are right, knowing someone as a friend as different than a tenant. But what are you losing by offering the program? At a minimum it is getting you additional applications, and you may have better luck with another tenant. We still do our other forms of advertising, this is just a supplement that doesn’t cost us anything additional if we don’t end up renting to them.

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Sharon Tzib February 10, 2014 at 8:46 pm

Hey Tom, not to be the spell checker police, but in your last sentence in the “Cash for Tenants” section, I believe it should say “this program is now part of our marketing strategy” instead of “not part of our marketing strategy.”

I had an employer that did this to find new hires – sometimes it worked, sometimes it didn’t – but you’re right, every tool in your toolbox you can use to fill those vacancies quickly is smart business.

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Brandon Turner February 10, 2014 at 9:38 pm

Oops! Man, who’s editing these things… ;) Fixed!

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Tom Sylvester February 11, 2014 at 3:54 am

Thanks Sharon. It’s amazing how one letter can totally change the meaning of the entire sentence.

Yeah, that is what I believe it comes down to. Put multiple lines out and you will probably catch more fish.

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Sharon Tzib February 11, 2014 at 8:34 am
Tami in Louisiana February 11, 2014 at 1:17 pm

Tom,
Great post. I do this & just last night a tenant called, “I have a friend. . .do you have anything available. . .are you still doing that thing?” He was referring to the referral fee.
I don’t have anything available, but I love that he called.
When I don’t have anything available, I still entertain the call and keep notes. I could have something available in a week or two. . .
I have another referral waiting for one of my units to become available & my properties are “back of the tracks.” People are willing to wait for a home based on the good report of a friend or family member, especially in my part of town.
When I don’t have a vacancy, I still have at least 1 call a month from a tenant referral.

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Tom Sylvester February 11, 2014 at 2:39 pm

Tami – That is awesome. We experience much of the same. We have even had people tell us they will take our next apartment that becomes available.

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Mark K February 13, 2014 at 12:22 pm

Good post and great points noted when you have several properties, but what does one do when you have only 1 property? We recently acquired a rental in the Midwest and this winter has been brutally cold. We are going on 3 months now with a vacancy and have tried several ways to bring in tenants including 1/2 of 1st month rent, lowering the rent, lower or no cost for application etc. I have incentivized my property manager by offering them a bonus if they get a tenant in by a certain time period and an additional bonus if the tenants stays past 6 months…still no luck…Any marketing suggestions would be appreciated!

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Sharon Tzib February 13, 2014 at 5:38 pm

I feel your pain. My rentals in Indy, which I’ve owned since 2007, have gone vacant over the winter a couple of times. Once was totally out of my control, and the other I could have prevented if I had been smart about it. Both times it took about three months to rent despite my property manager’s best efforts, and yes, weather was the major culprit. People in the midwest do not like moving in the winter – period!

Lesson learned, however. Now I make sure to negotiate my leases to be up in the spring/summer so this does not happen anymore. There are plusses and minuses to buying in the winter – one of the minuses is definitely getting it leased up, especially with the extraordinary weather this year. Good luck!

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Tom Sylvester February 14, 2014 at 4:39 am

Just like Sharon said, one of my biggest pieces of advice is to adjust your leases to be up during the spring/summer. Living in NY, I’ve found it much easier to rent units during this time.

Some other things to consider… is it priced too high? Is it comparable in quality to other apartments in the area? What has the PM said regarding why it can’t bet rented?

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Mark K February 28, 2014 at 8:50 am

Well I have just found a very interesting alternative “solution” to a future vacancy – landlord rent default insurance. AON Insurance provides up to 6 months rental reimbursement and $1000 towards eviction/legal fees for $250/year. If tenants leave early or have to be evicted (which was our situation in the Midwest) the insurance will cover the lost rent until a new tenant is placed. I have purchased a policy and having these policies is going to shift our concerns on vacancy and allow us to acquire many more properties!

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Sharon Tzib February 28, 2014 at 8:57 am

Mark, make sure you carefully read all the reasons they can deny you coverage. There’s a guy in the BP forums whose property manager failed to do a criminal background check (if you can imagine, time to fire that PM) and when the tenant jumped ship, AON denied coverage because of his felony background. So follow their criteria to the letter. Hope it works out for you.

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Mark K February 28, 2014 at 9:07 am

Thank you Sharon – yes we have gone through all the details and spoke to them for further clarification on some of their terms and it all seems to be applicable for our screening process. What is also nice is that they don’t qualify the tenants themselves, they rely on us or our PM to verify that the tenant is “financially capable” of paying the rental amount, credit score is not a variable they look at when determining coverage.

Mary B February 13, 2014 at 6:26 pm

Great creative method of motivation for your tenants to do promo (freebies) on your behalf.

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Tom Sylvester February 14, 2014 at 4:35 am

Exactly Mary! Anytime you can have someone else do the work but they don’t get paid until they deliver is a good thing. It aligns motivations and only pays for results.

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Mike G February 13, 2014 at 7:38 pm

I’ve found this strategy to work great with PMs If the PM manages 200 properties or more which most of them do, then the $50 bonus does help them remember your vacancy over the other landlords they manage for qualified tenants.

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Tom Sylvester March 2, 2014 at 5:34 pm

Good idea Mike. Thanks for sharing.

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Deanna February 26, 2014 at 3:54 pm

I suppose with a winter-vacant property one way would be to approach the local emergency folks (Red Cross, local fire dept, etc), &let them know that you are willing to defer the deposit for victims of a legit catastrophe (house burnt down, etc) if they are otherwise good prospects. Not IDEAL, of course, but 3 months of lost rent is worse than taking a deposit in installments, & someone who has just had their house burn down is not often in a position to put down first, last & deposit. You’d still have to screen out “loser” tenants (ie house burnt down when meth lab exploded, no job, “professional tenants” etc!).

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Tom Sylvester March 2, 2014 at 5:35 pm

Deanna – That is a good idea. Way to “think outside the box”!

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