OPERATIONS
TENANT TURNOVER
Why Real Estate Investors Must Change Their Mindset About Tenant Turnover IF YOU FOCUS ON BUILDING STRONG RELATIONSHIPS WITH YOUR RESIDENTS, YOU CAN REDUCE TURNOVER, INCREASE PROFITABILITY, AND BUILD A SUSTAINABLE BUSINESS.
By Nick Farquhar
nyone involved in the rental industry can see there is
because of market instability and economic crises. Although most non-homeowning Americans strug- gle to find stable accommodation, the rental market is characterized by impermanence and managerial neglect. Poor management of properties, lack of communication, and the absence of a dedicated customer experience all contribute to the tenant retention problem. Communication is one of the biggest gaps in the industry. Because real estate investors, property managers, and tenants have fragmented relationships and inefficient processes, much information can be lost or misplaced. Fragmentation also results in reactive rather than proactive decisions. On top of that, incentive structures tend to increase conflict between you as an investor and your property managers. Property managers tend to generate most of their revenue from tenant turnover, including placement fees and maintenance charges. Within this structure, why would they prioritize tenants’ well-being over gaining fast revenue? This, in turn, subsidizes and encourages “bad tenants,” those who don’t contribute to a long-term community.
4 STEPS TO IMPROVED TENANT RETENTION
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a real problem with tenant turnover. Relationships between investors and managers are broken, communication is faulty, operations are inefficient. All these issues lead to bad experiences and tenant instability. For real estate investors, losing a tenant means needing to fill a vacancy and often completing many costly main- tenance checks and upgrades. It also often includes having to rehabilitate the unit back up to market standard. Painting, cleaning, removing junk, and replacing appliances are all tasks that take lots of time and money. Not to mention, the longer a property sits on the market, the more profit is lost. Conversely, the longer people stay, the more likely they treat the property as their home, look after it, maintain it, correspond promptly about problems, and invest in it as a long-term space. That’s why tenant retention is such a big part of build- ing a successful investment portfolio.
When thinking about how to build a successful investment portfolio, you may find yourself considering incentive strategies rather than prioritizing your tenants them- selves. However, repairing these relationships is the first step toward creating better long-term portfolios, reputations, and communities. Here are a few tips to help you get started: NO. 1 NOTICE THE LINK BETWEEN RELATIONSHIPS AND PROFITABILITY. The market may want to convince you that being nice to tenants is a fool’s game, but it is important to recognize that all these measures you’re taking to build community and a sense of home are for the purpose of profitability. The point is not to be overly lenient but firm, communicative, and kind. Good relationships lead to better accountability for bill pay, maintenance, and long-term management, with fewer rent gaps and miscommunications. NO. 2 DIFFERENTIATE WITH RELATIONSHIPS. Reducing turnover is about making a property feel like home. A little bit of a human touch
WHY IS TENANT RETENTION A PROBLEM? Why do we have a problem with tenant turnover? It’s not all
68 | think realty magazine :: september – october 2023
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