The Nuts And Bolts Of Tenant Retention

Dallas Property Management Blog

Investing in a rental property can be an extremely profitable way to set up your nest egg over time. However, it can also be a fairly high-risk situation if you do not know how to perform effective property management. In order to own and manage a rental property efficiently, you may need to keep in mind that you are essentially running a business. This means that you rely on people to purchase your goods and services, so you need to know how to get them to keep coming back; or in this case, you have to know how to get them to stay.

As was once said about football, rental property management is a game of inches. If you keep patiently chugging forward, you will eventually reach your goal and score. If you keep collecting unnecessary penalties and making impulse decisions, you are not going to the Super Bowl.

This relates to property management in that you need your business to operate like clockwork. Any interruptions in the smooth execution could cost you money. These potential interruptions are often outside your control. The weather, for example, can hash up your plans with virtually no notice. Changes in government policy can turn a nice positive cash flow property into a fountain of red ink just with the stroke of a pen.

Yet, for rental property owners and managers, one of the most common disruptions in your income stream comes from the very people you most depend on to keep it flowing: your tenants. Apart from the actual purchase of the property, your tenants are the most important investment you can make as a landlord. If you have great tenants who don’t tear things up and always pay the rent on time, you are looking at a profitable rental unit. However, for every good tenant, there are also tenants that move out in the middle of the night and leave a huge mess and a damaged building behind them. If you end up renting to someone such as this, it might take you months to get things back on track and you will probably be in the red as a result.

This is what makes tenant retention the key to your profitability, with the one caveat that they must be tenants who are worth keeping around. However, you can’t get good tenants in until you get the bad tenants out. So what are the real keys to attracting good tenants and keeping them around?

The most important piece of the tenant retention puzzle is to think like a tenant yourself. You want a nice place to live in a safe neighborhood that is close to work, stores, and perhaps schools as well. You have to ask yourself how well your rental property meets an average tenant’s needs. You also have to think about how you can emphasize your property’s best features to the point where a prospective renter is prepared to overlook any downside.

Ultimately, you want your tenant to feel at home in their rental unit. Having nicely landscaped grounds, with a green lawn, trimmed bushes, and bright flowers, is one way of fostering this image. Another is to offer some extra amenities that may not be present in a competitor’s building. A welcoming BBQ area with some nice benches and a patch of lawn is a relatively low-cost way of bumping up desirability in the minds of a potential tenant.

Things like this help prospective tenants imagine their lives there. They might think about how much fun it would be to have all their friends over at such a nice facility. In reality, they might not end up using it that often, but it is more about the image of being home, and not necessarily just about having a roof over their head.

Parking is another way of increasing tenant retention. Most tenants are at least somewhat concerned about their vehicle getting broken into or damaged in some way. Having ample parking for them right outside their door is a factor to consider. The same goes for the possibility of adding some covered parking in those areas subject to bouts of severe weather, which pretty much means everywhere. A lot of tenants will even pay a bit extra for this amenity so it is not a capital loss to the building owner.

Intelligent management is another way in which to increase tenant retention rates. In many poorly run properties, tenants will tell you that they rarely get any follow-through from management when they have complaints, or they just get a token response in words only. Likewise, their primary interaction with management might be based on fear, especially if they never see a manager unless it involves some kind of complaint or demand from the management about the tenant.

These are people who do not feel welcome and might gladly take advantage of the first opportunity to leave that presents itself. Yet they could prove to be valuable and reliable long-term residents if they were merely treated a little better. This leads up to another way in which to keep tenants happy and encourage them to rent from you for an extended period of time.

Doing something nice for your tenants is one way to really make them feel at home. As mentioned above, addressing their complaints at the same speed and in the same fashion as complaints about them is one way of making it clear that they are not just some kind of cash cow to be milked every month. When the holiday season rolls around, a nice Thank You card with some kind of gift certificate enclosed can make a huge difference.

Although buying a gift card for every tenant may get a bit expensive, is not necessarily a question of what it costs. Many businesses are willing to cut major discounts to people who buy gift cards in bulk. If this works out to a dollar or two per month of rent, it is still money well spent if it encourages that tenant, or any other tenant, to stay rather than leaving before their lease is up.

The same goes for building improvements. Many tenants like the idea of having something like new windows or carpet installed, yet they also dread the idea, since they know that a bump in rent could be coming right behind it. It makes the process, however necessary, seem contrived and cynical. Separating rent increases and the building improvements they will pay for can be a good way of keeping tenants on board. Increase rent first and then announce improvement several months later. Or do the improvements first and announce rent increases in the future.

The same goes for faithful tenants who have been in the space for years. What do they think when the wrecked unit next door gets upgraded while they suffer from old fixtures, threadbare carpet, and yellowing walls? Throwing them a bone once in a while is a good idea. These are the steadiest tenants you have and are thus the ones most likely to be able to qualify for a mortgage of their own. Steady, long-term renters cannot be replaced, only grown over time.

Because these people usually represent the core of a property owner’s profitability, it is important to realize that they are in limited supply. The more of them you can acquire and hold on to, the better things will be. Finding them begins with a careful investigation of their financial background when they first apply.

Yes, it is possible for people to change or have some bad luck in their lives, but the odds are that high risks will remain as such. Since the number of low-risk tenants is limited, every property has to balance out their need for the fullest possible occupancy with the necessity of letting in some people who are potential problems.

A lot of this will come down to the professionalism and insight of whoever is actually managing the day-to-day operations of the property. No greater mistake can be made than to reach 100% occupancy with problematic tenants and then have to turn away the ones you would really want to have on the premises simply because there are no units available.

Even if it is just a question of renting out single-family dwellings, occupancy is not the sole factor in successful management. Good property management companies, such as Specialized Property Management Dallas here in the greater DFW area, have grown their business as a result of their ability to find desirable tenants, get them settled in quickly, and then keep them around through intelligent interaction.

Eric K, one of SPM Dallas’ valued tenants, stated in his review:

“We have found them to be responsive, professional, and easy to work with. They have made leasing our house a positive experience.”

Tenants who are made to feel welcome and a part of a big family are great assets. Those who feel as if the relationship is “Us versus Them” are going to move on to greener pastures with no regret. Whether you choose to handle the process yourself or to entrust it to a property management company, like Specialized Property Management Dallas, that has a long, positive track record and all of the tools and support necessary for successful management, it is still important to take care of your tenants so they can take care of you.