Creating a rental unit that not only lures tenants but also attracts the best kind of long-term renters can be a challenging task. Long-term tenancy reduces the vacancy rate, improves your cash flow, and profitability. For the homeowner, it creates lesser hassle by saving time and effort in finding new tenants. Tenant turnover and vacancy rate directly impact your top line.
The tenant turn over rate is calculated based on the rate at which the tenants vacate the property and do not renew their lease. For example, if 10% of your tenants move out of the property this year, your turnover rate is 10%. For the US, the national multifamily turnover rate is 47.5% in 2019 according to CBRE.
Depending on the condition the tenant left the house in, it takes anywhere from 8 hours to 10 or more days to bring the rental apartment back to proper condition. Turnover also causes extra expenses in terms of cleaning, painting, and bringing the house back up to mark before renting it again. Depending on damage and the capital expenses required, this can cost anywhere from $500 to $5000 per unit. In and of itself, it only communicates one part of the problem.
Vacancy rate tells the other side of the story. It shows how long the rental unit remains vacant. This is the period for which the landlord does not receive rent, impacting the topline. The chart from the Census shows the national vacancy rate at about 6.7% for 2019. That's approximately 25 days in a year.
The median asking rent for vacant rental units is $1,041. The exact amount varies by geography. For Silicon Valley, where HomeKasa is based, the median rent is $2,790. By keeping the house empty for 25 days, the loss is $868 in the US and $2325 in San Jose.
By looking at both the turnover expense and the vacancy costs, you can map the total costs for your location. Very quickly, this eats into your cash flow and reduces your margins. In expensive cities, when the landlords choose to focus on appreciation instead of cash flow, this implies more monthly loss. Therefore, as a landlord or a property manager, you want to rent out the unit as quickly as possible to reduce the vacancy. Even better, if you can keep your current tenants for a longer time, you can reduce the turnover rate.
Okay, you get the picture on the impact of vacancy and turnover now. What can you do to reduce them? Here are some tips:
Start with the right foot##
If the unit is vacant, some landlords allow the tenants to move in a couple of days early even if the tenant doesn't pay rent for those days. This gives the tenants some time to move things to the new home and clean up the old home.
When the tenant moves in, provide them with a welcome kit. This will have clear documents on what's allowed and what's not allowed in the unit. You can use HomeKasa to send these documents to them electronically. Also, include a few goodies like toilet paper, energy bars, etc., to bridge the gap while people are still unpacking their belongings.
Conduct a move-in inspection##
This helps you to give the tenants the lay of the land and also allows you to document the condition of the house with the tenant present. You can use our free online move-in and move-out checklist to accurately capture the condition of the house.
Maintain a positive relationship with tenants##
Never underestimate the importance of the human factor when it comes to the rental business. Tenants will be more likely to stay long-term, if you are friendly, and treat them and your house with genuine concern. This relationship building is a recurring process when you want people to pay you every month.
It is vital to be timely with your responses. Maintaining open communication will avoid misunderstandings and create a lasting tenant-landlord relationship. HomeKasa makes it really easy to communicate with tenants and keep records. If a tenant feels at ease with the landlord and the house, they wouldn't want to leave and go experiment with a new landlord, who may not turn out to be as good.
Address maintenance issues##
As the tenants settle in and uncover any issues, address them right away. This creates a good experience for the tenants and keeps your house in good order. Here are some tips to prepare your home for the new generation of tenants. Also, find out about who pays for which repairs so that you don't take them all on your own.
Keep the exterior of property appealing##
If the property is well-maintained and has a good curb appeal, a tenant wouldn't want to trade it for a different place. Select low maintenance plants, and perform regular upkeeps as necessary to the exterior of the building. Help the tenants to make the rental property feel like their own home.
Increase in rental price should be agreed beforehand##
A tenant is always looking for the best price and value. As the owner, you want to maximize returns. We have some tips here on how to set rent and considerations for increasing the rent. Work with your tenants to agree on a rent increase. Setting expectations, keeping the rent slightly below market rate, etc., allow you to take financial considerations out of the equation. The tenant will likely consider the cost of moving and balance that with the rent increase. However, if you agree beforehand on the rent increase and they know what to expect, it would be good for both parties.
Reward good behavior##
Conduct property inspection periodically. If the tenant takes good care of the house, you can reward them with updates and upgrades. This further incents the tenant to stay in the house. For example, if an appliance in the rental home needs new parts and shows a constant pattern of breakdown, it might be better to get a new appliance. The tenant will be happy with a new appliance and you can reduce your headache caused by frequent repairs. It will help you to keep your property relevant and competitive in the market. Such incentives also help the tenant to take better care of the property.
Landlords know that it is essential to choose durability over style. With regular use by tenants, normal wear and tear is expected. Some upgrades also help to add value to the house and retain tenants. For example, if updating the kitchen countertop costs about $1,200 it's an expense worth considering as this is about the same amount that would cost in the vacancy rate. You'll likely end up retaining the tenant for a longer time. You can read more about kitchen and bathroom upgrades for rental properties.
Get your property re-painted##
Scuffs in paint are a normal part of the wear and tear. Painting is a great way to freshen up the space. Re-painting, after some years, will hold the visual interest of tenants and make the place look and feel nice. We have tips on recommended neutral paint colors - we recommend keeping it to one color for the walls for the home across all properties.
Plan your expenses in advance##
As an owner, the reason for keeping the rental property is to earn from it, not spend on it. However, certain expenses are investments in order to gain better returns in the form of higher rents. If you plan in advance, decide how much and when to spend on property updates and upgrades, it will help your budget. Proactive maintenance and update is good for the house. Not only will it save you from unexpected expenses, but also make your tenants stay for long if they know you are going to keep up the property.
It's for your own benefit too##
Finally, well-maintained property isn't only a way to attract long term tenants, but it is also a good way of keeping the property value up to par in the market. Timely maintenance of the property also inspires the tenants to take good care of the home and reduces the likelihood of any major repairs.
Attracting long term tenants is all about giving people a comfortable place where they feel like home. When they are satisfied with the house they live in, they are more likely to stay longer.