{"id":88307,"date":"2017-05-02T15:32:06","date_gmt":"2017-05-02T21:32:06","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=88307"},"modified":"2021-03-16T12:24:59","modified_gmt":"2021-03-16T18:24:59","slug":"tenant-turnover-solution","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/tenant-turnover-solution","title":{"rendered":"Tenant Turnover Can Wreck Your Profits: Here’s the Simple Solution to This Costly Issue"},"content":{"rendered":"

Turnover is when one tenant of a rental property moves out and the next one moves in, sometimes with time in between. Whether you own one rental or a thousand, A-class or D-class properties, one thing that all rental real estate has in common is turnover. Most, if not all, rental owners will agree turnover can be the biggest operating expense. A bad turnover can literally wipe out years of profit in a real estate investment. If turnover is something every rental owner deals with and is such a huge factor of investment success, don\u2019t you think it would be a good idea to figure out 1) how to minimize turnover and 2) how\u00a0to make it as efficient as possible?<\/p>\n

When a rental property turns over, the owner has to fork up the cash to do all needed repairs and updating to the property to make it rentable and desirable again. This can include catching up on any deferred maintenance, cleaning\u00a0the entire property, freshening up the landscaping, advertising the unit, answering inquiries, showing the property, screening applicants, signing leases, getting fees to property managers, and watching the days tick by as your property sits empty with\u00a0zero rent coming in. It can be painful if you don\u2019t know how to minimize this profit-draining event.<\/p>\n

Why Am I Writing This?<\/h2>\n

Before I jump right into the how to of the article, let me tell you a little about why I am writing this and my own experience. When we first started in real estate, we bought C-class single-family homes to rent out. Like many, we didn\u2019t want to pay the 8-10% property management fee, so we decided to self-manage. With our background in construction, my education in sales and marketing, my partner’s real estate license, our available time, and our desire to build a real estate investment company, we thought it will be good to learn how the process worked while also keeping our costs low.<\/p>\n

All went well\u2014we made mistakes; we adjusted and continued to grow. Like many investors, we hit a ceiling at about 20 units, where the property management began to take up\u00a0too much time. It was interfering with continuing to grow the company and portfolio. Because of this, we took the typical route\u2014we decided to start looking for professional property management companies to hire. The big difference was that we didn\u2019t look on Google and call the sales department of the property management company. Instead, we looked on Zillow, Apartments.com, Craigslist, etc. We looked for listings similar to the properties we had, and we called the listings as if we were prospective tenants. We wanted to see how the property managers were actually handling the real world process of leasing rather than just hear from a sales rep in their main office.<\/p>\n

The results were dismal. Phone calls were ignored and emails not responded to. We witnessed unprofessionalism on the phone and even blatant breaking of the Fair Housing laws. After weeks of bad results, we decided not hire outside management but instead took the processes we had learned and vertically integrated a management company and staff into our business to oversee our portfolio. I am pleased to say that with over 200 residents currently living in our properties and hundreds more over the years, we have never had an eviction and we have never paid someone to leave. We run between a 95-100% economic occupancy. And most importantly, we minimize turnovers and make them as efficient as possible when they do happen.<\/p>\n

While reading this article, think of some of the landlords or property managers you know. Maybe if you self-manage your rentals, you can even self-reflect.<\/p>\n

The reason we started to look for property management companies by calling listings as if we were prospective tenants is because we knew that the life blood of our investments was the customer service from our property management and our resident’s overall experience while living in our homes. What we found was other property management companies and landlords, especially in C-B class properties, obviously did not feel the same.<\/p>\n

I don\u2019t know if the term “landlord” makes people feel like royalty and like\u00a0their tenants are peasants or what. In almost every other privately run company, the terms \u201ccustomer experience\u201d and \u201ccustomer service\u201d always are always in the topic of conversation, but hardly ever do landlords and property management companies even think of their residents as customers. Unfortunately, it’s more like “get them on the lease and hope you never, ever hear from them again.”<\/p>\n

This is a huge mistake on the part of the average landlord\u2014and a tremendous opportunity on your part. Business is business. Call them whatever you want\u2014tenants, residents, customers, whatever\u2014but these people are the life blood of your investment, and if their\u00a0overall experience is good, they will stay longer. If it is bad, they will leave sooner. If their customer experience is good, when they do leave, they will typically leave with respect for your business.<\/p>\n

\"best-tenants\"<\/p>\n

So, How Do We Minimize Turnover?<\/h2>\n

This gets me started on my first key point. How do we minimize turnover? So often we hear more about how to make a bulletproof lease, as if the goal is to lock someone into your property. I have news for anyone renting out B, C, or even D-class properties: If your resident leaves, it’s usually not even worth the time and cost to take them to court to recoup whatever your \u201cbulletproof\u201d lease says they owe you. Even\u00a0then, there is the strong possibility they don\u2019t have anything to take. So rather than trying to lock people into your homes, why not make it so they enjoy renting from you, prefer it, and\u00a0want to be there paying\u00a0for the product and service you provide?<\/p>\n

You do this by creating a positive customer experience for your residents. Every other industry has this figured out, but for some reason, we royal landlords can’t get this. Even hotels and high-end rentals are pros at customer experience. Think about the last hotel you stayed in. If you checked in, signed the papers, and went up to your room to find a flickering light bulb, TV remote batteries missing, and a chirping smoke alarm, you would likely call the front desk. If they didn\u2019t answer the phone or told you the paperwork you signed says that they don\u2019t have to fix that, do you think you would be hanging around for long? Of course not. You’d walk over to the next hotel. Now, if those issues never existed or were promptly addressed, you would continue to stay at that hotel. Your rental property is no different.<\/p>\n

Related:<\/strong> Raising Rent (& Risking Tenant Turnover) vs. Playing it Safe (& Missing Out on Rent): Which Wins Out?<\/a><\/em><\/p>\n

This shows us that the answer to how we minimize turnover is simple. All we have to do is create a good customer experience for our residents. The million-dollar question is how do you do that in a financially feasible way for your investment and\/or company?<\/em><\/p>\n

The good news is that the typical management company or landlord has set the bar so low that it doesn’t have to be extremely time-consuming or costly to provide a customer experience that shines brightly above all others and leaves your residents knowing they are important.<\/p>\n

Here are few ways you can make a big difference to your resident’s customer experience.<\/p>\n

1. Welcome Gifts<\/h3>\n

So often after the lease is signed, the vibe often goes to \u201cgotcha,\u201d and those in charge of property management think their job is done. A very simple way to start your customers’ experience off on the right foot is a welcome gift. We can get this done for under $10 while also having other positives. You can even brand your company and build rapport with your residents.<\/p>\n

Let me get specific. It\u2019s a little cheesy, but place items in the unit before the resident moves in and put little tags on them with phrases. Some examples would be placing a few bottles of\u00a0waters or sodas in the fridge with tags on them that say, \u201cIt’s so refreshing to live in a [your company name] property.\u201d Or place a bag of candy on the counter with a tag that says, \u201cIt’s sweet to have you as our resident!\u201d Or leave a plunger in the bathroom with a tag that says, \u201cStuff happens. If you have a maintenance request, call 555-5555 to schedule a [your company] trained maintenance tech to assist.” Or you could put a dog bone out for your residents with pets that says, \u201c[Your company] even loves our furry residents.\u201d We have many more, but you get the point. These are very minor things that cost so little but can start the customer experience off on the right foot and get you on your way to minimizing costly turnovers. I would rather spend $10 on this than $3,000 on a turnover.<\/p>\n

2. Quarterly Checks<\/h3>\n

Going into your property a few times a year to check on things is a must! You have to keep an eye on things, but instead of busting in like a S.W.A.T.\u00a0team and pointing out everything that’s wrong, why not check smoke detectors and change furnace filters while you are there? You can call it\u00a0“quarterly safety and energy efficiency maintenance.” While you or your staff is there, compliment your resident on something\u2014how the unit is kept, the nice picture of their family, the newer-looking couch. Even ask them if there is anything else you can do for them. These are not groundbreaking tips, but for some reason, the norm is more like a quarterly raid.<\/p>\n

3. Anniversary Presents<\/h3>\n

What do most landlords do when their resident’s lease is about to expire? They send them a notice to renew the lease or call them and notify them of their contractual obligations for notice.<\/p>\n

What if instead you sent them a letter at month 10 of a 12-month lease that generally says, \u201cCan you believe it’s been 10 months? Time flies when you\u2019re with people you like. To thank you for being one of our favorite residents and ensure we are continuing to provide the best living experience we can for you, we would like to celebrate your (XX) year anniversary with a gift. Feel free to select one of the following items, and we happily take care of it on (xx\/xx\/xxxx)”? This date will land shortly after their anniversary (lease expiration). After they make their selection of gift, then follow up with the new lease. The point is to make the lease another positive of living at your property, not a bulletproof contractual jail cell they will have to abide by\u2014or else.<\/p>\n

Those anniversary gifts can be whatever you want, but we offer items\u00a0that add value to both us\u00a0and our\u00a0residents. A few specific examples are:<\/p>\n