Founder and CEO of Rentec Direct, property management software for real estate professionals.
The simplest way for landlords and property managers to decrease vacancy rates at their rental properties is to maximize renewal rates. If you’ve found great tenants who pay rent on time and respect your property, avoid the overhead and stress associated with tenant turnover by focusing on retention.
Lease renewal rates in the U.S. have been climbing steadily over the past decade, reaching record highs in 2020 as many renters were unable or unwilling to relocate due to the pandemic. If you are struggling to secure lease renewals at your rental property or are looking to up your renewal rate metrics, here are some tips to consider.
1. Prioritize your landlord-tenant relationships.
Fostering strong landlord-tenant relationships can take time, but this is likely to be a key differentiator when your tenants are considering whether or not to renew their lease (especially if they are being offered a lower rental rate somewhere else). One of the most common renter complaints is poor customer service from property managers or poor communication from landlords.
Respond to maintenance requests in a timely manner, inform tenants of any news or updates as far in advance as possible and ensure your tenants feel comfortable reaching out to you with any questions or concerns. Keep lines of communication open and touch base with your tenants on a regular basis to see if they are experiencing any issues — every few months or so is usually a good starting point. Remember, your renters are your customers and their satisfaction should be your highest priority.
2. Be open to feedback.
Keep tabs on any common complaints you’re hearing from tenants, and be proactive in finding solutions to these problems. If multiple tenants are requesting similar updates or amenities, carefully weigh the pros and cons of all reasonable requests. When tenants do move out or decline to renew their lease, create a protocol to ask them why they are leaving and/or what it would take to get them to stay. The information you learn will help you keep future tenants around longer and might even help you resolve a simple issue that will persuade your current tenants to stay.
3. Offer incentives.
What can you do to sweeten the deal for tenants who are on the fence about renewing their lease? Offering incentives like discounts on rent, parking benefits, cash, gift cards or even something like a new television often prove to be worthwhile investments on your end that lead to increased renewal rates. Your out-of-pocket costs will be justified if trustworthy and responsible tenants are persuaded to stay, saving you tenant turnover costs.
Incentives can also come in the form of added amenities or reasonable upgrades to the property. If the only thing your tenants are missing is a dishwasher or a new air conditioning unit, it might be worth considering making the upgrade. Not only will it help with current renewal rates, but many upgrades and amenity additions will also increase the value of your property in the long run.
4. Raise rent the right way.
There will come a time when you need to increase your rental rates to keep up with expenses and market value, and many tenants will use this as their reason for declining to renew. While this is an unavoidable affair, try to build in small percentage increases upon lease renewal each year, as opposed to keeping a steady rate for several years followed by a significant jump. This strategy will help you avoid losing profits while expenses increase, but keep your tenants happy with reasonable rent increases.
5. Timing is key.
If your desirable tenants are considering a move, the earlier you can reach them in the process, the better. Asking them to renew before they have settled on a new place gives you the opportunity to present any incentives or see if you might be able to meet any of their requests if they are considering leaving your property. You will also set yourself up for success by knowing well ahead of time if you’ll need to market and show any units in the near future. It’s best practice to capture potential renewals early on by approaching tenants approximately 90 days before their lease is set to expire.
In general, year-over-year lease renewal is the best way for landlords to avoid tenant turnover and keep vacancy rates low. However, an important step in the lease renewal process is determining whether or not you actually want a tenant to stay at your property. If you’re dealing with irresponsible or difficult tenants, it may make sense to find a better fit in some cases.
Your retention plan is likely to change and evolve over time as you notice strategies that work and those that do not. Increasing renewal rates and retaining tenants requires constant attention over the lifetime of a lease.