Owning and managing a rental property is a common strategy for building wealth. Not only do you get the value of recurring cash flow as you collect rental income in excess of your expenses, but you also get to benefit from appreciating property values over the years. If you work with a property management firm, you can keep it as a truly passive income source, investing only a minimal amount of your own time and effort.
However, part of your success is contingent on your ability to keep tenant turnover low. But what exactly is tenant turnover, and how can you reduce it?
The Value of Low Tenant Turnover
Let’s start by emphasizing just how valuable it is to reduce your tenant turnover.
Lower tenant turnover means your tenants will continue occupying your properties for a longer period of time. That means fewer months of vacancies and more incoming revenue. In other words, the lower your tenant turnover is, the more money you stand to make.
Lower turnover is also good for increasing consistency. Instead of having several months on, several months off, and unpredictable time sequences between tenants, you can rely on your loyal tenants to continue paying rent every month. This can make it much easier to budget effectively, and could potentially set you up for retirement.
Let’s face it. Marketing your properties and finding new tenants are downright painful. With lower turnover, you’ll have fewer headaches, and your properties will require less maintenance.
Reduced burden of expenses.
You’ll always face expenses as a landlord, but you’ll usually have rent payments to counteract those expenses. When tenants leave, your costs become more evident—and they can compromise your finances. Lower turnover prevents this from affecting you too much.
Strategies to Reduce Tenant Turnover
Use these strategies and tips to reduce your tenant turnover as much as possible.
Improve your property.
Tenants are much less likely to leave a property if they’re happy with it. Improving your property with renovations and additions can greatly decrease your tenant turnover. For example, you can renovate the kitchen and bathroom to make the property feel more luxurious, or spend more time landscaping to boost curb appeal. Anything you do to make the property more appealing to tenants is likely to make them stick around longer.
Take your time to find tenants.
Not all tenants will be equally likely to stay with you for an extended period of time. Accordingly, it’s often better to take your time finding quality tenants, as opposed to taking applicants as quickly as possible. Screen your tenants, and try to find qualified people who can prove they’re going to pay rent consistently—and possibly occupy this property for a long time.
Change the terms of your lease.
One straightforward way to get your tenants to stay longer is to extend the terms of your lease. Instead of asking your tenants to sign a 6-month lease agreement, ask them to sign for a year. There are some disadvantages to this approach, but it will generally help you find more long-term tenants and retain them.
Build rapport with tenants.
Next, spend time building rapport with tenants. You don’t have to be their friend, but you should be on friendly terms. Have conversations with them, and check-in with them at least occasionally. If your tenants like you and trust you as their landlord, they’ll be much more likely to stick around.
Respond to requests promptly.
Inevitably, your tenants will have requests for you—it could be a maintenance request, an emergency repair, or a situation in the neighborhood they’re concerned about. When you receive these requests, respond promptly. Even if you can’t fix the issue immediately, you can demonstrate that you care about the issue and are working on it.
Be transparent when communicating.
When communicating with tenants, try to be as transparent as possible. If you can’t get to a repair, try to explain why. If you plan to change or improve the property, let them know and tell them your motivation for doing so. They’ll appreciate it.
Reward your loyal tenants.
When you do have tenants who always pay rent on time and have been with you for a long time, reward them in some way. Consider extending a discount, sending them a gift, or just leaving them a thank-you note. It goes a long way to secure their loyalty for the future.
Limit inconveniences and annoyances.
When possible, limit the inconveniences and annoyances your tenants face. These are often little things, but they can add up over time and force tenants to leave.
Lower tenant turnover means more income, more stability, and less stress while you build wealth with your rental property. Work actively to incorporate these strategies, and preserve the value of your investment.