Leases are nice. Lease renewals are even nicer.
Indeed, we have found that the biggest expense a property has tends to be turnover. In higher tax states, it might be property taxes. But where we are and for most, I expect, the biggest expense is the combination of fixing up a unit after a tenant moves out and the loss of rent in between tenants.
Luckily, there are two ways to mitigate this expense. The first is by speeding up your turnover process. The second is reducing the number of turnovers you have, which will be the subject of this article. Or in other words, increasing the number of lease renewals you can get.
Before the Lease
Having success with lease renewals requires being proactive and thinking ahead. This includes being proactive even before the original lease is signed.
Oftentimes, it’s not how good or bad something is that makes the difference (although you should definitely try to make it good). What really does the trick is whether or not someone’s expectations were met. Even if your service is good, the person might be upset if they were expecting great service. On the other hand, if the person thought it would be a disaster and you end up being mediocre, they will likely be happy or at least satisfied.
So, before you sign the initial lease, make sure the tenant is fully aware of what your policies are and what is likely to happen. We sit them down for a full hour and explain every nook and cranny of the lease. Make sure they know your rules and policies, especially regarding pets, so they don’t get mad at you because what they assumed didn’t turn out to be true. I would go so far as to tell them the rent will likely go up next year. If they expect it, you won’t disappoint them when they get the rent increase and they will be less likely to move.
After the (Original) Lease
During the course of the first lease, the absolutely most important thing you can do is provide consistent and quality maintenance. This is the one time you are interacting with the tenant other than when they are paying you rent. (And paying rent isn’t a particularly enjoyable experience.
Quality maintenance is your best form of tenant retention you have. And while it’s outside the scope of this article, it’s important to make it a priority.
Before the Renewal Date
We like to begin asking tenants about renewing their lease a full six months before the lease ends (but only for good tenants who pay on time, of course). We offer to lock in the rent increase at something like $25 more if they renew immediately. If they wait, it might be higher. It’s always nice to get a few renewals early in the process.
Then, a few weeks before the lease is 30-days from expiring (the date they need to renew or give their notice to leave) we reach out again. It’s important to be proactive here. Some people will leave your property over small issues that you can easily fix.
Indeed, if they say they are leaving, we always like to call and ask why. Every once in a while, it is a small thing (say a maintenance issue they never called about) and we can convince them to change their minds.
We also like to offer a renewal gift. This is a tip from Jeffrey Taylor (i.e. Mr. Landlord). He offers some sort of improvement to the property to get the tenant to stay. It could be a ceiling fan, storm door, accent wall or whatever. But this small cost is a big psychological boost to the tenant and actually improves your property. These actions will substantially increase the number of tenants who renew.
Lease renewals is an essential and underdiscussed aspect of property management. Turnovers are expensive in terms of both repair costs and vacancy. Don’t leave lease renewals to chance. Be proactive and focus on providing quality maintenance and actively trying to get your tenants to renew and the number of renewals you get will increase dramatically.