As real estate investors, when we buy a property that we intend to rent to others, we’re doing so with the goal of receiving a return on our investment. Ideally, of course, we’d like to start receiving said return as quickly as possible. But what happens when, for whatever reason, the property doesn’t immediately draw a tenant? Or when we already have a quality tenant, but she’s thinking about moving out? What do we do?
If you answered, “cry softly,” “pitch a fit,” “pray,” or “consider a new line of work,” to that question, there’s good news: you’re not the first — and you won’t be the last — to think along those lines. Having a piece of property languish on the market without a tenant is not a fun position to be in. A vacant property is a property that’s costing you money, and it’s not just the rental income. A property that sits vacant still needs upkeep. You may have to spend money marketing the property. Property taxes and other miscellaneous expenses that are common to every property seem can become a much greater burden when there’s no rent money coming in to pay for them.
So what can you do to prevent these kinds of headaches — or to at least lessen their impact? That’s what I’m going to talk about today. Here in Memphis and in Dallas, we have developed a few techniques to help properties get occupied quickly and stay occupied longer. While their is certainly nothing unique in how we do it or the steps we take, every thing we do is designed to keep an investors’ renters in their rental properties and cash in their pockets!
Don’t Let Them Become Vacant in the First Place
If your rental property already has a tenant, you’re off on the right foot. If you have a quality renter who pays his rent (and pays on time), takes care of the property, and doesn’t do anything illegal or annoying to draw unwanted attention from the authorities or the neighbors, then this is a person you want to retain. With the progress the housing market is making, such tenants might be tempted to buy instead of continuing to rent. If someone has her mind set on making that kind of change, there may not be much you can do about it. But if she’s still on the fence, it makes a lot of sense for you to do what you can, within reason, to keep her around.
At our property management companies, being proactive is one of the best ways to retain great tenants. Starting 90 days out you should reach out to your tenants and ask a simple question: What can we do to keep you as a tenant? So many times we have been told that this is a bad idea. The naysayers always bring up the negative side like – what if they ask you to reduce rent? Or – What if they ask you to fix something that is wrong? Or – what if they ask you to repaint a room or clean a carpet? My response is always the same…So what? At least now you know exactly what it will take to keep that tenant and in almost every scenario those simple requests will cost less than a vacancy and prep for a new renter. And what if the repair they are asking about is minor but left unchecked could lead to something major. Is that not something you would want to fix as an owner or property manager?
Offering rental incentives to quality tenants to keep them around is one way to reduce the chance of having a vacant property. Doing so can seem a bit counterintuitive; after all, you want to bring money in, not dole it out. But if the cost of the incentives is less than the cost of the expense of dealing with a vacant property, then it can be a smart move.
Whether it’s a rent reduction (for a limited time), “X” months free rent, or painting rooms and cleaning carpets or even making minor repairs that may not seem major to you, but mean something to the tenant. Incentives can let renters know you’re serious about keeping them around. This kind of incentive is a win-win: Your tenant gets something nice that positively affects her quality of life, and you get a perk for your property that can be an additional selling point to draw in future tenants. Tenants love properties that are kept up to date and don;t show signs of a ton of deferred maintenance.
Use Existing Tenants as a Marketing Tool
As you probably already know, referrals can be a valuable marketing tool. Why not use your current tenants to draw in potential tenants? In addition to offering incentives for retaining existing tenants, you can also reward tenants who bring in new renters. You’d basically be employing your renters as bird dogs. Instead of looking for quality properties, though, they’re searching for quality tenants, and they’ll be rewarded for their work with various incentives. If you are a good property manager or landlord, offering a quality property and timely response to tenants request, then asking them to help you find tenants will be a no-brainer. They will want to help you for two reasons. First, they like you. They will appreciate the way you treat them and the way you treat the property. Second, they will be appreciative for the opportunity to get a reward for promoting your company.
Of course, there have to be stipulations. You’re looking for good tenants, so prospective renters still need to pass muster with a successful background check and interview. And you’ll need to decide what conditions need to be met for the incentives to be rewarded: how long of a lease the prospective renters will need to sign, how long they’ll have to actually be in the property before you reward the incentives, etc. But if you do it right, utilizing existing renters to market to potential tenants is a viable strategy.
With renting, as in any other form of “selling” the easiest “sale” to make is to an existing client. Keeping a current tenant is no different. The second easiest “sale” to make is to a referral. These two strategies for getting properties occupied and keeping them occupied are the most cost effective and easiest to produce results. They can help you as a property owner or as a management company to extend your average length of occupancy and in the end, put more money in your pocket!
Have you offered rental incentives to keep your properties occupied? Have you found being proactive and using incentives as a good strategy with your rentals?
Photo: Jeremy Brooks