Landlording & Rental Properties

Have Top-Notch Tenants? Here’s How to Keep Them

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good-tenants

When it comes to property management, the most important thing you can do is to screen well. You need to make sure you are putting the right people in your properties, otherwise you will be in for a world of hurt both financially and emotionally.

After putting the right people in your properties, the next most important thing is to keep those people. This can be done through quality customer service—which is, for the most part, just quality maintenance. But it also can be done by having a lease renewal strategy and executing it effectively.

Don’t just leave things to chance. Actively pursue lease renewals with your quality tenants.

How To Keep Quality Tenants

Most property managers just sit around and wait until it’s time to renew before asking their tenant if they would like to—at a higher rent the tenant didn’t see coming. Others put in a sneaky clause that automatically renews the lease for a year if the tenant doesn’t actively opt-out within 30 days of their lease expiring.

As you might expect, this clause can lead to some very upset tenants. (And perhaps upset landlords, as you might accidentally renew a lease at under-market rent.) These clauses are weasely and bound to justifiably anger your tenants—who are your customers, after all.

And what's the point? To trap someone in a lease who will now hate you? They will probably just try to sublease it. You may save a little vacancy time but it's not worth it in terms of the emotional hassle and reputational dings you will likely take.

That tenant won’t be leasing from you in the future, nor will they be sending any referrals your way. Don’t use those clauses.

Related: 6 Unacceptable Landlord Behaviors (And How to Fix Them for Higher Returns)

Before the Initial Lease

What you should do, however, is to actively pursue the lease renewal. And the time to begin is when you sign the lease at the very beginning. This is where you should set the expectation of a rent increase in 12 months' time.

For the most part, tenants are not angry about rent increases. They get angry when their expectations aren't met. (This is true for just about everyone regarding just about everything.) So let them know their rent will likely go up in a year. Blame it on inflation or the Fed if you must.

During the Lease

Then, during the lease, make sure to provide quality maintenance and answer their concerns and questions promptly as they come up. I have heard of other property management companies trying to actively engage their residents on social media or with various mailers or whatnot. Some offer coupons. The HOA at the condominium complex I live in had a monthly barbeque for all the owners.

We have tossed around the idea of offering a small reward for residents who pay their rent on time each month for 12 consecutive months or putting every resident we have who pays their rent on time into a raffle to win some prize, but we haven’t pulled the trigger on any of that.

While I think that stuff is fine, it’s all extra fluff and not particularly important. Other than good maintenance, which is essential!

Near End of Lease

For good residents—the ones who pay on time and don’t cause a bunch of hassle—we start our renewal pitch at about the six-month mark. At that point, we offer them a “locked-in rent price” if they renew early. For example, we will offer an increase of only $25 or something like that. We always try to increase the rent some, even if it’s just $10, so residents don’t lose the expectation of rental increases each year. We may try again at nine months in, as well.

Then, a couple of weeks before their lease is 30 days from expiring (i.e., the point they are supposed to renew by), we reach out again with as many options as we can to fit their needs. This includes a two-year option for good residents, which locks in the rent for a second year (perhaps with only a small increase) or a month-to-month option.

We don’t generally like month to month and do not offer it up front; it’s harder to raise rent and there’s less stability with month-to-month leases. But upon renewal, we do offer it—but at a price. We demand a premium of about $100 extra per month on an apartment unit and $150 on a house.

It’s important to reach out and ask tenants about their plans and try to convince them to stay if possible. We have even had residents who were planning to move because they thought they had to after their lease ended. “No, no, no! We want you to stay!”

Related: The 5 Most Common Reasons Tenants Leave Your Rentals

If they are leaving, that doesn’t mean you should just forget about them. Perhaps they really enjoyed their stay but a job transfer out of town requires a move, or perhaps they are buying a house. If so, this would be a good time to ask for a Google or Facebook review. Most of the time, only angry tenants leave reviews, so property management companies get hammered unless they actively request good reviews from satisfied residents.

You can also ask if it’s OK to show their unit to prospective tenants while they live there to shorten the length of vacancy. Or you can offer a small payment for vacating early. We offer $10 a day for each day they’re out before the end of their lease. This allows us to get a jump on the turnover and reduce the amount of time the property is vacant.

Just remember that if you do something like this, you have to refund the prorated amount of their monthly rent if you lease the unit to another party while their lease is still in place. You cannot lease the property to two separate groups at the same time—even if one has physically moved out.

And if the resident does say they are leaving, that doesn’t mean to give up. Don’t be a pest, but ask again if they have changed their mind. Or maybe even throw in an incentive.

How To Offer Lease Renewal Incentives

Incentives can be a great way to get people to stay. The king of this approach is Jeffrey Taylor, or Mr. Landlord, as he likes to be called.

Taylor is probably the most creative mind in property management today and has brought many of the concepts of the hospitality industry to property management. For example, from his great book The Landlord’s Survival Guide:

“When residents move in to one of my properties, I welcome them into my 3-Star Resident program. It doesn’t cost them anything and they get perks by being a part of it. Their ‘anniversary’ becomes a time of celebration. Every year, I give them a choice of property upgrades (costing between $25 and $75 each) for paying rent on time. Some landlords wonder why I reward people for doing what they’re supposed to do anyway. I regard my residents as business partners and vital members of my success team; giving rewards helps our relationship work. It also encourages them to stay longer than one year. To avoid vacancies, I’m glad to give a property upgrade that costs $75 or less. Too many times, landlords try to be cheap and step over dollars to save nickels. This isn’t rocket science; I’ve proven that people stay longer when I offer upgrades!”

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These upgrades are upgrades to the property, as well, so it’s a win-win for both you and your resident. Taylor’s “3-Star Program” also offers a rebate on the deposit of $100 a month or so on each “anniversary” if they renew. After six years or so, the entire deposit is refunded to the resident. Taylor claims the average length of stay for a tenant nationwide is about two and a half years. For him, it’s six.

For us, it's about four. But we're catching up, Mr. Landlord!

Conclusion

It’s rather simple. More lease renewals equal less vacancy. Less vacancy equals great profitability. Greater profitability is good.

Thus, actively and wisely pursuing lease renewals is a key component of property management. Don’t just lie back and see what happens. The proactive approach is the way to make lease renewals, as well as property management and real estate investment in general, work best.

What incentives or rewards do you offer good tenants?

Tell us how you’re keeping your tenants happy in the comments.

Andrew Syrios has been investing in real estate for over a decade and is a partner with Stewardship Investments, LLC along with his brother Phillip and father Bill. Stewardship Investments focuses on the BRRRR strategy—buying, rehabbing and renting out houses and apartments throughout the Kansas City area. Today, they have over 300 properties and just under 500 units. Stewardship Properties on the whole has just under 1,000 units in six states. Andrew received a Bachelor's degree in Business Administration from the University of Oregon with honors and his Masters in Entrepreneurial Real Estate from the University of Missouri in Kansas City. He has also obtained his CCIM designation (Certified Commercial Investment Member). Andrew has been a writer for BiggerPockets on real estate and business management since 2015. He has also contributed to Think Realty Magazine, REI Club, Elite Daily, Thought Catalog, The Data Driven Investor and Alley Watch.
    Ken Munson
    Replied about 1 month ago
    Andrew and Phillip, always love the information you provide and you gave me some great ideas today. I'm just not too sure about the binge watching though...
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied about 1 month ago
    Thank you Ken, I'm glad you found it helpful! But the binge watching is essential and highly recommended.
    Todd Mitten Investor from Phoenix, Arizona
    Replied about 1 month ago
    Great ideas here! One of our favorite ideas is sending out gift cards once a year to our tenants. Maybe $50 or so to a local restaurant inside a card reminding our tenants they’re a blessing to us, and we hope we are a blessing to them. We also promptly repair any maintenance issues that arise showing we care about their concerns, and we also care about keeping our properties in great condition.
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 28 days ago
    Things like that are great to do. It's important to make sure your residents know you consider them to be your customers (or even clients) and not just someone who pays you once a month.
    Marina Kedrub Investor from Oakland, California
    Replied about 1 month ago
    I liked the idea of offering $25 to $75 property updates. Any ideas on what these amounts can be used for? I have properties in the Bay Area where things cost a fortune
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 23 days ago
    I think you're going to have increase the price you're willing to pay for such things in the Bay Area. Jeffrey Taylor's book was written over a decade ago and he lives in the South I think. So it's less expensive there. In the Bay Area today you'll probably need to spend more like $100 - $250 or so.
    Dan DeLeo Flipper/Rehabber from Fayetteville, NC
    Replied 29 days ago
    Good article. I think the key is to really be up front with tenants. Explain prior to lease signing, and then again in a welcome letter, that your role is to be responsive and give them a quality property to live in. And communicate that their responsibility is to care for the property and pay rent. I explain to them that it's a partnership and I want to ensure they have a great experience. I like to send Christmas (holiday) cards with a handwritten note. Also, if they pay rent on time all year I offer an incentive (that in reality benefits both parties) such as an appliance update, carpet cleaning or a thorough house cleaning on my dime; I always let them know why I'm doing this (because they paid rent on time and I'm grateful) as it incentivizes them to stay the course. One item that's changed for me, and I'd be curious about what others are doing, is the lease term during Covid. With eviction moratoriums in place I've let all my existing tenants roll to month-to-month and I've put new tenants in month-to-month out of the chute. While historically not ideal I think this is prudent given the current environment, even with good tenants, as it could be a saving grace should an unforeseen issue arise.
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied 21 days ago
    We've found that first meeting to be extremely important. When we've skimped on it, we get lots of complaints over policies and things in our lease. Much much less when we sit them down and explain everything in detail up front.