Whether you’re an investor, a property owner, or a manager, your rental properties are an excellent way to generate a stream of passive income. No matter the arrangement, long-term tenants are the gold standard. They stay on, give you a steady source of rental income, and save you the trouble (and additional costs) of finding new tenants to fill vacant space.
So, how does your tenant retention rate look? Ramfeld’s experts discuss some strategies below for how you can keep tenants around for the long haul. You can also contact the team for more about expert property management in Montreal and the surrounding areas.
Why Tenant Retention Matters
In business, retaining a customer is much cheaper than acquiring a new one, and the same is true for investing in real estate. Seasoned landlords well know that it’s cheaper and more efficient to keep existing tenants than to start a search for new ones. Wouldn’t you rather have a single tenant for three years and collect regular rental payments than three different tenants over three years that required relisting, vetting, and yet another contract negotiation?
Aside from cost efficiency, tenant retention makes your job easier. Losing tenants also means that your units will sit vacant, leaving you with the opportunity cost of lost rental income on top of the usual maintenance commitments. That’s no way to successfully pay off a mortgage or meet other financial obligations.
The Real Costs of Tenant Acquisition
What does it cost you to acquire a new tenant for your property? Tenant acquisition costs cross into several categories, such as:
- Property marketing
- Document retrieval
- Agent fees
- Background checks
- Cleaning fees
- Rental income losses
By contrast, the costs to maintain an existing tenant are far lower. For example, you won’t have to worry about marketing the property or running credit checks. Regular tenants also provide you with a steady stream of income and peace of mind about managing your various investments.
How To Calculate Your Tenant Retention Rate
There are several ways to calculate your overall retention rate when assessing your property’s tenant history. One method is to focus on who has come and gone over a specific period, usually 12 months.
- Add the total number of tenants you’ve had for a given period.
- Add the total number of tenants that have left during this same period.
- Divide the people moving out by the total number of tenants and multiply by 100 for the rate.
Here is a simple example of calculating the retention rate for your property’s tenants:
- You have a total of 45 tenants this year.
- In that same year, you’ve lost 7 tenants.
- Your retention rate would be around 84.4% (calculated as (45-7)/45 x 100).
Ideally, your retention rate should be as close to 100% as possible (higher than that means you are currently not renting out all of your available units). Most experts agree that a 70% retention rate suffices. However, if your tenant turnover isn’t under control, you’re losing money one way or another.
14 Strategies for Maximizing Tenant Retention
So, what’s the best way for landlords to maximize retention and keep tenants happy? Below are a few strategies to reduce your tenant turnover and enjoy the benefits:
#1 Consider Providing Lease Incentives To Sweeten the Deal
One of the most effective methods of retaining tenants is providing incentives so that they will renew their leases.
For example, tenants may stick around with a combination of the following additional benefits:
- The possibility of a rent reduction
- Tenant improvement allowance
- Rent abatement
- Free parking
- Unit upgrades (e.g., a new appliance)
- Package internet
- More flexible lease terms
#2 Be Diligent With Screening Tenants To Avoid Complications
Part of your tenant retention mission would be finding high-quality tenants. Are the people reliable? Will they pay their rent on time?
A low-quality tenant tends to give constant problems and doesn’t handle their obligation as a renter well. That’s why any screening process for tenants should include the following, at the very least:
- Background checks
- Credit checks
- Income statements
- Proof of employment
- Character references
#3 Stay On Top of Maintenance Requests To Build Trust
Maintenance should be a top priority if you’re trying to retain your tenants. A major concern for tenants is how quickly you fill maintenance requests. Being diligent about these tasks demonstrates trustworthiness and commitment on your part, whereas delays can make a tenant feel undervalued enough to take their rental income elsewhere.
From a more general perspective, prompt repairs and maintenance could also save you money. Fixing that leaking air conditioning unit now could delay a replacement or remediation costs if that leak turns into serious water damage down the road.
#4 Let Your Tenants Modify the Property Within Reason
Most tenants like to make a few adjustments to their personal space, whether it’s installing new lights or painting the walls. Why not let your tenants make some small adjustments? There are two good reasons:
- A tenant who feels more at home will stay longer
- Tenant improvements can enhance the value of your property long after the renter leaves
For example, you might want to offer a slight rent reduction if the tenant wants to make some improvements that will increase your property’s resale value. Alternatively, cover it with a tenant improvement allowance (typically between 75% and 100% of the total cost of modifications).
#5 Streamline Rental Payments So That It’s Easier For You Both
Isn’t the rental income the entire reason you are a landlord? Tenants appreciate being able to make online rental payments, and it makes a difference in where they decide to live. Easy rent collection helps both parties.
Fortunately, there are countless platforms already available for successfully collecting rental payments online beyond PayPal and Venmo. For example, many listing sites now also have built-in payment portals to streamline rent payments.
#6 Be Reasonable With Your Rent Increases
Rent increases are a routine part of leasing property, and most tenants will expect a gradual each term. However, while you may be tempted to raise rents for the sake of profitability, it’s imperative to balance potential rental income gains with pricing out your tenants.
A good baseline would be to look at inflationary changes and base your rental increases on this figure, depending on how your property-related costs have changed for the year. It might mean making less rental income, but keeping a great tenant who makes regular rental payments will ensure that you reap the rewards in the long run.
#7 Work On Being a Good Communicator
At its core, tenant retention relies on the fact that leasing a property is a two-way street. Tenants need to maintain their responsibilities. Landlords need to meet their obligations.
Clear communication keeps the landlord-tenant relationship on good terms. It’s also an important factor in whether they will renew their lease when the term is up.
#8 Hire a Reliable Property Management Company
Do you have multiple properties? It is understandably difficult to manage these requests and tenant relationships by yourself. Hiring a reputable property management company like Ramfeld to handle the day-to-day minutiae could make a huge difference.
These experienced property management companies have the knowledge and resources to handle all your rent collection, tenant screening, repair requests, and much more. These professionals also know about any legal obligations and can create a more professional channel of communication to keep your tenants’ needs at the forefront.
#9 Send Feedback Surveys To Improve Your Service Delivery
Even the best landlord who promptly meets repair requests will have some tenants move. It may be because of money, family, or job relocations, so why not prepare for it? Send any tenants who are not renewing a feedback survey so that you can understand why they are leaving and what you can do better.
Landlords can take this feedback and get actionable insights. Examples of questions to include on your exit survey might include the following:
- What is your main reason for moving out?
- Are you moving locally?
- What did you like about living here?
- Is the rent reasonable?
- How would you describe your rental experience?
- What kind of changes would you like to see management make?
- Would you consider renting from us again?
#10 Prioritize Security and Privacy To Build Trust
Weather risks and property crime are two concerns tenants voice when looking for places to rent. So, installing high-quality security and surveillance systems can protect your tenants’ privacy and give them some peace of mind.
However, your tenant retention strategies should extend to digital safety, too. You have access to tenant finances and other private information people can steal. Are you protecting this digital information to help your tenants stay safe and pay rent on time?
#11 Consider Providing Move-In Concierge Options
Moving is one of the more stressful parts of renting for tenants, particularly with administrative and clerical issues. Why not get things off on the right foot by providing concierge move-in services?
A concierge service can assist your tenants with setting up utilities, forwarding mail, or even moving assistance. It gives a good impression and incentivizes tenants to renew.
#12 Be Proactive About Renewals
When renewal season approaches, the onus is on you to broach the topic of lease renewals. Don’t expect the tenant to bring it up.
Experts like Ramfeld suggest reaching out to your tenants about lease renewal about 90 days before the lease term expires. Being proactive shows renters that you are diligent and paying attention to their needs.
#13 Think About Implementing a Rewards Program
Retaining tenants requires tenant loyalty, and a rewards program is a great way to reward someone’s consistency and reliability. Your rental rewards program could work like most other rewards programs.
For example, the landlord offers cash or credit for on-time payments, lease renewals, and general property care. In turn, renters redeem credits for benefits, such as lease privileges, free parking, or amenity discounts.
#14 Don’t Forget To Inspect Your Properties Regularly
Inspections are meant to assess the condition of your property and reveal defects or repair needs. Although tenants can bring issues to you, they may not be aware of all the issues.
Regular inspections open a channel between you and your tenants. However, when scheduling inspections, give the tenants ample notification so that they have time to prepare.
Retain Ramfeld Immobilier Management For Expert Assistance With Tenants and More
In addition to higher tenant retention, asset optimization and expert project management form a key part of maximizing your real estate wealth. If you are interested in an integrated solution for property management, contact Ramfeld at (514) 745-6106 or online.