How to Minimize Turnover (and Lost Income) in Your Rental Properties
Posted by Gary Ashton on Thursday, April 14th, 2022 at 9:26am.
Investing in commercial real estate (CRE) is a lucrative opportunity as real estate is a tangible asset that holds value over the long term. Commercial real estate rentals also provide stable passive income, thanks to the long leases and higher average rent prices. However, one of the challenges many investors face with CRE properties is keeping their vacancy levels down. If you want to be successful as a commercial property manager, keep reading to learn how to reduce tenant turnover and keep consistent income levels.
Why Is High Tenant Turnover So Costly?
A loss of rental income is the primary reason high tenant turnover is so costly. However, it's not the only reason. Every time a tenant moves out, owners have to clean/repair properties, advertise listings, show available properties, vet potential candidates, go through the approval process, run background checks, and construct new leases. Going through this process frequently equates to significant amounts of money spent.
Not taking an active role in keeping tenants happy and rental space occupied is essentially leaving money on the table. This is one situation where sometimes it's better to spend a little to net a solid ROI. To reduce tenant turnover levels, landlords and owners can take active steps to keep their properties filled. The following tips can help investors optimize tenant needs, reduce high turnover, and keep a steady rental income.
Strengthen Tenant Screening
Seasoned property managers perform tenant screening before selecting an occupant for a vacant apartment, home, or business space. It can be tempting to choose one of the first people who apply to jump-start the rental income stream again, but this can be a grave mistake for owners who don't take the time to vet potential tenants thoroughly. Performing more vigorous background checks, conducting interviews, and getting to know candidates can ensure the best and most reliable tenants are chosen. If this is too time-consuming, many legitimate tenant screening services are available to help ease the burden.
Offer Modern Amenities
Like any other consumer, tenants want to get their money's worth. An out-of-date rental space isn't going to be attractive. This is an area where injecting money into properties can yield a good ROI because tenants are kept happier. Depending on the location, it may enable owners to charge better rents. Office trends that attract tenants can include:
- Updating LED lighting
- Swapping tired carpets for quality durable flooring
- Upgrading appliances
- Offering storage space
- Opening a package holding area
- Installing new countertops
- Refinishing dingy cabinets
- Upgrading bathroom sink and vanity
Essentially, any improvement that adds energy efficiency, water conservation, easy maintenance, and convenience is worth the effort to keep tenants happy. Continuous improvements and investments in CRE properties go a long way.
Keep Open Communication
Like any other business, good customer service matters. Owners who ignore tenant contacts or questions establish a poor foundation in the landlord-tenant relationship. Offering several communication channels, such as texting, phone, and email, is helpful and lets tenants know their landlord is reachable for their needs (and responses are timely).
Absentee or non-communicative landlords are more likely to lose tenants. Owners who cannot maintain communication or a presence should consider hiring a property manager who can handle day-to-day communications, requests, or maintenance issues. Plan routine visits to allow tenants to address any concerns or, for multi-tenant properties, consider holding a monthly meeting.
Respond to Tenant Issues ASAP
No tenant wants to live or work in a place that experiences breakdowns or unaddressed issues. Long waits for maintenance or non-responses to problems spells disaster for an owner's brand reputation. Landlords, or the property managers they employ, should prioritize responding to any tenant complaints, no matter how minor. This goes a long way towards establishing trust, mutual appreciation, and ensuring no bad reviews are left online. Owners can be proactive and schedule routine maintenance and inspections to avoid problems, so any potential issues are identified quickly.
Avoid Excessive Rent Increases
Tenants expect annual commercial rent escalation. However, sometimes landlords who struggle with vacancies or have other financial issues may try to push some of those losses onto tenants. Doing so is a big mistake because tenants, either residential or business, will not put up with excessive rent increases. Focus on making modest and reasonable increases with every lease renewal and invest efforts into finding why spaces become vacant. This will help create a steady pipeline of tenants and avoid a situation of mass exodus, further worsening turnover issues.
Offer Tenant Incentives
Offering quality incentives for tenants is a great way to justify increased rent. To keep tenants interested and happy with their rental situation, owners can offer them incentives to stay, especially those willing to sign long-term contracts rather than annual or short-term renewals. Ideas include:
- Discounted rates for longevity
- Small cash rewards for renewals
- Basket of goodies
- Gift cards
- Discount vouchers for local businesses
- Handwritten thank-you note
- Birthday and holiday cards
The goal of any incentive is to let the tenant know that they're valued. Let them know they're important and their loyalty is appreciated. Chances are they'll better appreciate their landlords in return.
Solicit Tenant Feedback
One of the most effective ways to decrease high tenant turnover is to solicit tenant feedback. Send out semi-annual surveys, emails, or other ways to encourage tenants to offer the great, good, bad, and ugly about their rental. If using automated surveys, such as Survey Monkey, Google Forms, or another digital method, ask pointed questions and leave an open-ended response where they can type their feedback that may not have been covered.
Alternatively, solicit feedback through personal interaction. Conduct exit interviews with tenants who opt to leave and why—then personally thank them for the time they spent in the rental and for their business (this is good for online reviews and leaves the door open). Also, meet with tenants who have decided to renew by doing a "stay interview" to learn what's being done right or what issues they do have—even though they're renewing, this will further deepen the landlord-tenant relationship.
Happy Tenants Make For Lucrative Investments
Property owners who make an effort to identify the reasons for high turnover (it's not always the landlord's fault!) and emphasize good customer service, building relationships, and being attentive are more likely to see a boost in longevity for tenants. Making tenants feel valued is an inextricable part of keeping a steady rental income.
The Ashton Real Estate Group of RE/MAX Advantage
The #1 RE/MAX team in the World!