I have said it before and I will say it again, positive cash flow is king in the landlording business. My goal as a buy and hold investor is to try and maximize my cash flow. Over the years I have learned that there is one item that kills cash flow more than any other:
When talking about tenant turnover killing cashflow, I am talking about all of the processes and costs involved in moving a tenant out of an apartment, fixing it up and moving another tenant in it. These processes and costs include:
- Administrative costs – The time and effort it takes to process tenants out and process new ones in.
- Advertising costs – Depending on your market, you may need to run print and web based classified ads, put up signs, hold open houses, etc.
- Showing Costs – Someone generally has to field the phone calls, set showing appointments, drive to the property and show it to potential tenants.
- Application costs – You have to run credit and criminal background checks, verify work and income information and process the application.
- Repair costs – Could be a biggie. Ideally you would be able to immediately re-rent the unit. But that rarely happens. There is always some amount of repair costs.
- Lost income costs – Of course when your apartment is vacant, it is not generating any cashflow at all, much less a positive cashflow!
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Avoiding Tenant Turnover
All of these costs can add up quickly. So what can you do to keep tenant turnover as low as possible?
- Avoid yearly jumpers – Some folks, for what ever reason, just like to move around a lot. They will change addresses every year or so and you can see this on their application. If you can, try to avoid these folks. You really want people who will stay long term.
- Respond to tenant requests – Probably the number one complaint of tenants is unresponsiveness of the landlord to their requests, especially repair requests. To keep good tenants long term, you have to be responsive and communicate with them. You have to do your best to fix things.
- Maintain your properties – Very few people are looking to rent from a slumlord. Keeping your grass cut and the common areas clean are part of the business. Don’t skimp here.
- Keep rents well within the market – Some would say that you need to raise rents every year. I would argue that you may not be making what you think with rent increases if they cause your tenants to move.
There is not really much you can do if your tenant is determined to or has to move due to life circumstances. At that point, another whole process comes into play in order to get your property back as close to rent ready condition as possible. But that is a subject for another post. For now, use these tips to keep your turnover as low as possible.