SS164: Tenant Retention

SS164 Tenant Retention

Lowering turnover is among the multifamily industry’s most important critical success factors. In this episode, Charles discusses tenant retention and its importance to the success of your property.

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Talking Points:

  • Lowering turnover is among the multifamily industry’s most important critical success factors. When a resident moves out, it costs both the resident and the landlord.  Let’s review some of the major costs associated with that turnover and some strategies we use to improve turnover and lower costs.
    • Vacancy Costs: When a resident moves out, there’s typically a vacancy period before a new resident moves in. During this time, landlords miss out on rental income, which can be a significant financial loss. Our typical downtime is 3 weeks, similar to the industry average.
    • Marketing and Advertising Costs: To fill a vacant unit, landlords must invest in marketing and advertising to attract new residents. This includes expenses for creating property listings, online advertising, and hosting the website and social media platforms.
    • Maintenance and Repairs: It’s common for units to require maintenance and repairs after a resident moves out. These costs can include repainting, cleaning, fixing damages, and ensuring the property is in suitable condition for the next tenant. Typically, this costs us $2-5k per unit.
    • Administrative Costs: Administrative costs are incurred in processing applications, conducting background checks, preparing lease agreements, and other paperwork related to onboarding a new resident.
    • Turnover Management Costs: Managing the logistics of tenant turnover, such as coordinating move-ins and move-outs, scheduling inspections, and conducting walkthroughs, also requires time and resources.
    • And at the end of all that, you typically have a $3-5k bill as the landlord, and the resident has probably spent $1-2k on moving. It’s an expensive decision that many folks don’t consider carefully enough.  We need to do a good job helping our residents to understand the true cost of leaving so they can make wise decisions.  It’s also why getting the right people in the door on the front end of the equation is absolutely critical.
  • The industry average resident retention is about 58%. That means 42% of properties will turnover annually (on average).  The bottom quartile properties have a 50% retention rate, and the top companies/properties have a 65% average resident retention rate.  We’re currently sitting just about 60% and our team is working to increase this daily.  Here are some key factors in providing a better resident experience, which leads to higher retention.
    • Exceptional Customer Service: Providing excellent customer service is crucial. Promptly addressing tenant concerns, being responsive to maintenance requests, and maintaining a friendly and respectful relationship with residents can significantly improve retention.
    • Regular Communication: Keep an open line of communication with residents. Regularly check in with them to see if they have any concerns or needs. Addressing issues promptly and effectively can help residents feel valued. Again, being available when onsite and giving residents the confidence that we’re paying attention to what’s going on (and are addressing problems as they arise) is extremely important.
    • Lease Renewal Incentives: Offer lease renewal incentives, such as a rent discount, a free month’s rent, or an upgraded unit, to encourage residents to stay. Knowing that it costs us about $4k/unit to turn, we’re happy to give a small lease renewal incentive to offset that savings in turn cost.
    • Community Building: Foster a sense of community within the multifamily complex. Organize events or amenities that encourage social interaction among residents. A strong sense of community can make residents more attached to the property. We like making holiday events, grab-n-go breakfasts, ribbon-cutting welcomes, contests/prizes, etc.
    • Prompt Repairs and Maintenance: Ensure any maintenance or repair issues are resolved quickly and efficiently. A well-maintained property is more likely to retain residents. Finding caring maintenance staff is tough, but it’s worth being persistent to find the right team!
    • Customized Amenities: Tailor amenities to your residents’ specific preferences and needs. For instance, consider adding a playground or childcare facilities if you have many families. We usually add a dog park to all our properties.  It is easy to add, and it’s relatively inexpensive.
    • Fair Rent and Transparent Policies: Keep rent increases reasonable and transparent. Unpredictable rent hikes can lead to tenant dissatisfaction and turnover. We aim to contact our residents 30-60 days before their renewal date to discuss renewal plans.  Waiting too long allows the competition to step in and plant seeds of doubt!
    • Security and Safety: Ensure that the property is safe and secure. Residents are more likely to stay in a place where they feel safe. Several of our sites require security personnel – but it’s well worth the investment to maintain a higher caliber resident demographic.
    • Survey and Feedback: Regularly survey residents to gather feedback and suggestions for improvement. Use this feedback to make continuous enhancements to the property. We’re just starting to do this as we roll out our resident retention program.
  • Achieving above-average resident retention in multifamily housing requires excellent customer service, proactive management, and creating a community where residents feel comfortable and valued. Consider this: if it costs $4,000/unit in turnover, even if the rent you charge your tenants is $300 per month under market rent, it is still a better decision to renew that tenant (or leave them month-to-month) than turning over the unit; $3,600 vs $4,000. Of course, in 12 months, you might now be $350 under market rent, and you are digging your self a hole, until the tenant moves out and you can reprice the unit to market rent.
  • When I self-managed my properties, we would only raise rents to market when old tenants moved out and when we re-rented it. Most of my tenants stayed about 2 years, so there were never times when I charged majorly under-market rent.
  • I have found that the best solution is modest annual rent increases. Most tenants expect an annual rent increase, and they must see this as an annual event however, I would not be dramatically raising rents if you want to retain the tenant.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and today we’re going to be discussing tenant retention.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

Charles:
Lowering turnover is among the multifamily industry’s most important success factors. When a resident moves out, it costs both the resident and the landlord. Let’s review some of the major costs associated with that turnover and some strategies we use to improve turnover and lower costs.

Charles:
So number one is vacancy costs. When a resident moves out, there’s typically a vacancy period before a new resident moves in. During this time, landlords miss out on rental income, which can be a significant financial loss. Our typical downtime is three weeks, which is similar to the industry Average two is marketing and advertising. To fill a vacant unit, landlords must invest in marketing and advertising to attract new residents. This includes expenses for creating property listings, online advertising, hosting website, and social media platforms. Third is the maintenance and repairs. Now it’s common for units to require maintenance and repairs after a resident moves out. These costs can include repainting, cleaning, fixing damages, and ensuring the property’s in suitable condition for the next tenant. Typically, this costs us about $2,000 to $5,000 per unit. Fourth is administrative costs. Now administrative costs are incurred in processing applications, conducting background checks, preparing lease agreements, and other paperwork related to onboarding a new tenant.

Charles:
Five is a turnover management cost. Now managing the logistics of tenant turnover, such as coordinating the move-outs and the move-ins, scheduling inspections and conducting walkthroughs also requires time and resources. And the end of all that, you typically have a 3000 to 5,000 bill as a landlord, and the resident has probably spent upwards of $2,000 on moving. It’s an expensive decision that many folks don’t consider carefully enough, and we need to do a good job helping our residents to understand the true cost of leaving so they can make a wise decision. It’s also why getting the right people in the door on the front end is absolutely critical to the success of the property. The industry average resident retention is about 58%, so that means 42% of properties will turn over annually on average. Now, the bottom quartile properties have about a 50% retention rate, and the top companies and properties have a 65% average resident retention rate.

Charles:
Now we’re currently with our portfolio sitting right around 60%, and our team is working to increase this daily. So we have a lot of work to do as well. But here are some of the key factors in providing a better resident experience, which leads to higher retention. So number one is exceptional customer service. Providing excellent customer service is crucial, promptly addressing tenant concerns. Being responsive to maintenance requests and maintaining a friendly and respectful relationship with tenants can significantly improve retention. Number two is regular communication. So keep an open line of communication with residents regularly Check in with them to see if they have any concerns or needs addressing issues promptly. It’s a huge one, and effectively helping residents feel valued. Again, being available onsite and giving residents the confidence we’re paying attention to them is also great. So even if you don’t have onsite management having your management be present typically the larger the property, the more present they will be. But even with a smaller property, if you never show up or your management never shows up, it’s gonna be count against you. So number three is lease renewal incentives. So offer lease renewal incentives such as a rent discount, a free month’s rent, or an upgraded unit to encourage residents to stay. Knowing that cost about $4,000 a unit to turn, we’re happy to give a small lease renewal incentive to offset that savings in, in turn.

Charles:
Now, forest Community Building. Now foster a sense of community within the multifamily complex. This is gonna be mainly for a larger complexes where you can organize events or amenities that encourage social interaction among residents. A strong sense of community can make residents more attached to the property, and we like making holiday events grab and go breakfasts, ribbon cutting, welcomes, contest prizes, et cetera. Even if you have a smaller complex, you can still instill some of this in there. Maybe getting discounts from local retailers, businesses, restaurants and offering them to your tenants. Number five is prompt repairs and maintenance. This is a, this is a huge one. It’s very simple too. It’s really just making sure that they can contact you easily. It’s not difficult to submit the request and then making sure that it gets done quickly. So ensure any maintenance or repair issues are resolved quickly and efficiently.

Charles:
Now, a well-maintained property is more likely to retain residents and finding caring maintenance staff is tough, but it’s worth being persistent to find the right team, the right team that people don’t mind having at their apartment. Asking questions. Not someone that they’re just want ’em in and out as fast as possible. Number six is customized amenities. And obviously this is for larger properties as well, where you’re tailoring amenities to your residents. Specific preferences and needs. For instance, consider adding a playground or childcare facilities if you have many families. Usually adding a dog park is great and we try to add that to all of our properties. It’s easy to add and it’s relatively inexpensive to to add and to also maintain. Seven is fair rent and transparent policies. So keep rent increases. Reasonable and transparent, and this is one thing when I was a tenant in apartment buildings many years back this is one thing that’ll always get me is that everything was moving around great, and then you would get a 15% rent increase or something like this, and that’s something we, we avoid on our properties.

Charles:
Unpredictable rent hikes can lead to tenant dissatisfaction and turnover. You know, if you try to raise somebody’s rent that high, they’ll probably just leave on principle even if they can afford it, even if they like it. So it’s one of those things that keeping everything transparent and have the rent hikes be in line with not only in the market, but also just have them be fair. And we aim to contact our residents 30 to 60 days before the renewal date to discuss renewal plans. Waiting too long allows the competition to step in and kind of plant seeds of doubt, right? Where they’re saying, Hey, you get a month over here for free, or two months for free over here before you are able to have the conversation with tenants. Number eight is security and safety now ensure that the property is safe and secure.

Charles:
Residents are more likely to stay in a place where they feel safe. Several of our sites require security personnel, but it’s well worth the investment to maintain a high caliber resident demographic. And with smaller properties. How this can be done is number one, with like a lot of lighting and lighting’s inexpensive. There’s sensors forward, keeps the cost down. It’s once they’re installed, the maintenance on it. It’s very minimal. This was one big thing I learned from my father. And when I started, when I started buying multi-family properties myself that was one thing I always added because of that you know, having a lot of lights especially, you know, for having, you know, female tenants is especially important and it gives a sense of security, but also allows people to live on the property with not knowing that, hey, if I go out to my car, there’s gonna be an issue or there might be an issue, or it’s dark in the back when I’m putting my trash out, or whatever it might be.

Charles:
So having security and safety can be used and can be implemented into properties from, you know, one unit all the way up to hundreds of units. And it’s something that if done correctly, it won’t be that expensive. And it’s something that when tenants come and see your property, especially if they’re coming after hours from work and they start seeing lights go on and everything’s well lit it’s gonna give a lot of great feedback. Number nine is survey and get feedback from your tenants. Regularly survey residents to gather feedback and suggestions for improvements. I mean, use this feedback to make continuous enhancement to the property. I mean, we’re just starting to do this and roll us out in larger, larger ways with our properties, but it’s something that once we’ve done it, you, you get a lot of of feedback back and it’s, it’s not a all negative, you get a lot of positive feedback in and you get things that might be minor changes.

Charles:
And when you start seeing that from a number of tenants, that’s when you can really figure out exactly how you’re gonna implement that. Because just, just reducing your tenant turnover just one unit or two units here or there it makes a huge difference to the bottom line. So achieving above average resident retention, multifamily housing requires excellent customer service, proactive management, and creating a community where residents feel comfortable and valued. So consider this if it costs you $4,000 a unit turnover. Even if you rent and you charge, your tenants say $300 per month under market rent, it is still a better decision than to renew a tenant or have that tenant leave. Keep them month to month and turning over the unit. So $3,600 versus $4,000. Of course, in 12 months, you might now be $350 under rent, market rent and you’re now digging yourself a hole until a tenant moves out and you can reprice the unit to market rent.

Charles:
When I self-managed properties, we would only raise rents to market when old tenants moved out. And when we re-rented, most of my tenants stayed about two years. So there were never times when I charged majorly under market rent or got too much behind that lost lease. I have found that the best solution is modest annual rent increases. Most tenants inspect an annual rent increase, and they must see this as an annual event. However, I would not be dramatically raising rents if you want, retain the tenant. So I hope you enjoyed. Please remember to rate, review, subscribe, submit comments and potential show topics@globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs at syndicationsuperstars.com. That is syndicationsuperstars.com. Look forward to two more episodes next week. See you then.

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