Rent Renewal

Strategies for SuccessBy: Rebecca McLean

National REIA Executive Director

Sixty percent of resident turnover is controllable (SatisFacts). So how do you determine what it is that makes residents want to stay in your building?

Are Renewals Controllable?

The foundation of every business is its customers, and in the

property ownership business, your customers are your

residents.

Other ReasonsJob TransfersLife changesFamily changesAge makes a difference, tooCost

Why Renewals should be MORE

of a Focus than Rent Ups

Myth: We can get more rent $ when a resident moves out…that’s why leasing is so important Reality: It takes 5‐7 years to pay back profit lost

for each move‐out Goal: Take great care of residents to improve

performance…everyone wins! Strategy #1: Create environment where resident

feels like #1 Since it's five to seven times more expensive to

find a new resident than it is to keep your current ones AND each turn costs you in loss of rent, your resident retention program is a serious INVESTMENT.

Myth Busting

Cost of Risk and Stress

The benefits of customer service based retention strategies are numerous, but first on the list is the lack of overhead costs and the STRESS of constantly needing to replace residents.

For every resident who chooses to move elsewhere, the reality is that there is no guarantee how quickly the home will be re-rented.

The bottom line is that move-outs hurt your bottom line!

Leasing is important. It’s very important. But a focus on customer service and retention strategies are equally as important.

Take a look at your turnover costs. Your REAL turnover costs.

The Bottom Line

Cost of Turnovers

Do you know your current average vacancy loss days?

The average number of hours it takes your maintenance team to turn a home?

The average number of hours it takes a leasing agent to lease a home?

The average advertising cost per home per day? The average cost for repairs/replacements during a

turn? Average concessions? Average commission? Do you know your real turnover costs?

Can you afford to lose existing residents?

National surveys estimate that an owner can lose approximately two months’ rent every time a resident moves out.

Costs include increased expenses because of the turn over expense and less income because of vacancy (average vacancy of 7 days)

Other costs – marketing, ads, your time for move in and move out, etc

Cost of each new resident is approximately $1000

True Costs

The cost per turnover is based on a industry survey of average turnover costs – with incentives bumped up from the previous $500 to up to two months free.

Costs of tenant turnover can be exorbitant

Thank you to Satisfacts Research and Axiometrics for the information

The average move-out cost is up to $4300, based on data provided by Axiometrics.

Even if the average cost is half of that (the home was only vacant for 20 days!), how many landlords have deposits of more than $2000? $1000? $500?

This amount is based on the possibilities of losing money from ◦ cleaning and redecorating for new residents◦ advertising expenses ◦ process ing paperwork ◦ damage to common area walls, doors, halls and so on◦ time spent showing vacant homes◦ lost income from vacant homes◦ commissions to home referral services

For every resident who decides not to renew, the home must be vacated, turned, and re-rented. None of that can happen for free.

But wait, you may say. That’s what a deposit is for: to cover those turn costs.

Covering Costs

Not so fast…

Some repairs and replacements may be the resident’s responsibility, often the repairs or replacements are a matter of normal wear and tear that can not be charged back to the resident.

What Retention Means to Property

Value and the Ability to

Resell

What Do Investors Look for In Rental Properties?

1. Often investors are not purchasing an asset they are purchasing an income stream.

2. NOI represents the return an investor is receiving on their investment ($10,000/$100,000 = 10%)

3. NOI represents the maximum amount available to service debt on the property.

4. NOI determines the value of a property when a cap rate is applied.

What does all this mean? Every move-out saved positively impacts

vacancy loss, concessions and turn costs. Resident Retention positively impacts NOI.

Estimating Effective Gross Income

Formula:Scheduled Rents (Gross Scheduled Income -assumes 100% occupied,

collected)

+ Other Income- Vacancy Allowance (Deduct vacancy, concessions and credit loss

allowances)

= Effective Gross Income◦ Gross Rent / Scheduled Rent – Total revenue which the property would achieve

upon the collection of the rents of the occupied units as well as the vacant units using current market rents for your particular property.

◦ Other Income – Income generated from sources other than rental income (late fees, vending, laundry, storage, parking, etc.)

◦ Vacancy and Credit Allowance – The downtime which an investment property is estimated to experience during the year to account for tenant turn over, the time to ready a unit for lease and the time necessary to lease the unit. This rate also includes an allowance for the non-payment of rent.

Net Operating Income Formula:Scheduled Rents+ Other Income- Vacancy Allowance= Effective Gross Income- Operating Expenses (Costs to maintain/insure ability to generate

income)*

= Net Operating Income

*Utilities, supplies, staff, repairs, maintenance, etc.

Not included: loan payments, depreciation, capital expenditures

Why Residents DON’T Renew

When residents were surveyed they stated they wanted more:

4% - More Amenities 9% - Friendly Staff 20% - Cheaper Rent 24% - Prompt Service 62% - All the Above

* statistics provided by Satisfacts

Survey says…

What makes residents angry?

Noisy neighbors Poor communication Unsubstantiated rental increase Security issues #2 - Service request issues/Maintenance

#1 uncaring attitude of landlord or staff members

Customer Service Issues

It begins with how we think about our residents. Residents are our customers.

If you don’t take care of your customers someone else will be happy to do that for you.

How quickly do you get back with your customers?

If your last customer interaction was posted to You Tube tonight, would you be embarrassed?

Residents as Customers

VALUE!! Not a number… a perception. Value begins with how “easy” it is to be a

resident in return for the amount of rent being paid.◦ How easy is it to get a response to my question or

concern… every day?◦ How easy is it to get a maintenance problem

resolved… every day? Please, thank you, I would be happy to, It would

be my pleasure. It’s all about the basics – smiling warmly, eye

contact, shaking hands

What Value Do I Get For My $ ?

Create a positive image in the resident’s mind from the very first day they inquire about the property.

Always keep in mind from the very first phone call, email or visit you are building on the prospects decision making process. Every interaction goes into your residents perception

From the move-in process and the events and activities on-site, to the rent increases and renewal notices, the best retention strategy is to learn how to make every interaction a positive one and keep your best residents for life!

If possible make every interaction a positive one

The power of the first impression

Good move in experience – make sure the home is ready and welcoming

Welcome packet – Documents and neighborhood incentives Involve all their senses

◦ Smell – Air fresheners – Vanilla ◦ Taste – Candy/Cookies◦ Sight – Clean and neat◦ Touch – Goody Basket◦ Sound – Leave them an awesome welcome message

Goody Basket for move in ($10 - $15)

◦ toilet paper, paper towels, hand soap, shower curtain, cheap towels, and some candy or cookies

In the beginning…

Remember that residents pay rent that in effect pay for your asset. Without them you wouldn’t have a business and the benefits, both short and long-term, that accompany it.

What is your standard for resident response? (example)◦ 1. Return all existing resident calls and emails

All calls and emails received by 3 p.m. receive same day response.

All calls and emails received after 3 p.m. receive response by 10 a.m. the following day.

◦ 2. Follow-up on all completed service requests◦ 3. Follow-up on prospect calls and emails

Create a “Culture of Responsiveness”

Quality Issues

In a recent Satisfacts survey 20% of those surveyed reported that their appliances and fixtures were not working properly at move-in.

When surveyed 3 months later 50% of those surveyed said they still had problems that were unsolved!

The cleanliness of the home at move in was a top complaint from residents who reported dissatisfaction with their rentals.

Providing a Quality Product

“Walk right” Enter the home and follow the wall to the

right: check paint, each fixture, outlet, switch, window covering, appliance, HVAC, etc. until ending up back at the front door.

You may identify issues that can then be addressed.

Can dramatically reduce number of service requests in first three months after move-in.

Final rent-ready inspection

Maintenance Issues

The biggest complaint residents have is about maintenance Not being properly informed of

maintenance, maintenance requests not being properly fixed, etc.

More than 25% of all service requests were not completed correctly the first time

Do any maintenance problems still exist? 23 % say yes Follow-up after repair?

49 % say No

“Service Requests 101” Respond promptly to requests for service Make sure residents can notify you of service concerns

in at least three ways: Phone, fax, email, text, drop boxes are examples.

Even if you can’t meet their demands, let them know where you stand on the issue.

Even though you are following state law - Make sure you ask “Do we have permission to enter?”

If you must enter an home when the residents are not at home, and without prior notice, leave a note stating that you were there and why.

In general, do not enter a resident’s home without giving at least 24 hours’ notice.

Review Your Existing Service Request Process Start to Finish Thorough service requests – Get Details

◦ Make sure you get enough information to CORRECTLY and COMPLETELY fix the problem the first time. A leak? Where, exactly? Extent of damage?

To make sure the first work order you take is done right the first time – while there, make sure you ask “is there anything else?”

Input the work order into some type of Property Management System Immediately

You, the Landlord, or your Maintenance Team equipped with necessary training and tools

Resident notified of delays Follow up after service request completed - Survey

after service request

Tips on Increasing Renewals

As an owner you won’t be able to eliminate turnover completely, but you can minimize it by maintaining a good relationship with your residents.

Move In Mission Set up move in appointments with new

residents. Be there to assist with questions about their new home as well as troubleshoot any problems. Items include:◦ "run through" of appliances◦ garbage disposal restart button◦ how to work the A/C properly◦ Your expectations on self maintenance and why that’s

good for them too Lower utility bills, etc.

If you feel it will take up too much time, just remember how many garbage disposals you have to reset each month - and if you teach residents how to do this it will cut down on calls.

Move In How To Notes If you don't have service techs to walk through the new

home and you truly cannot make the time, print Post It Notes on your own printer. Put the yellow stickies near the appliance:◦ How To Set The Microwave Clock◦ How To Reset This Disposal◦ What Should NOT Go In This Disposal◦ Set Thermostat By...

Like Jiffy Lube, put stickers on Smoke detectors and Air filters showing the last date of service. How residents will notice? Probably not many. But the ones who do will be impressed!

Post It Notes printed from your computer: 800-330-3966

Ideas To Implement Immediately Consider accepting Pets, even larger dogs

◦ People who love their pets and know they are welcome will often stay longer.

◦ Craft language and pet policies to protect your asset

If rehabbing modify per ADA standards Maintenance as a customer service

opportunity - "Just popped in" popcorn, etc. Welcome Cards/Packets Birthday and other holiday greetings

◦ Can be via email – use an online service - FREE◦ Can be via mailed cards – outsource this function

Renewals Create an effective renewal process Renewal Letters Fun Renewal Reminders Give residents an incentive to stay instead

of a gift after renewing ie. Anniversary Gifts “Improving your home” packages -Including

amenities for renewals adds value to your houses while incentivizing your residents to stay.

Help Residents Grow Roots furniture discounts upgrading the home

◦letting residents pick a paint color◦upgrade countertops◦giving them a choice of removable

wallpaper helping them convert their 2nd bedroom

into home office cleaning the carpet ceiling fans closet organizers

In Summar

y

Prospects experience and understand the value you offer

New residents experience perfect move-ins or at least “WOW” recoveries

Service requests are completed right the first time and receive a call or email to confirm satisfaction

Residents (especially those approaching renewal) experience the “Culture of Responsiveness” every day

Retention (and NOI, Asset Value, and Profit) increases when:

Do you make an effort to have contact with your residents?

Create touch points throughout the lease leading up to the renewal

Start at the application Move in is of utmost importance Stay in touch – cards, reminders, inspections

Communication is Key

Remember the Platinum Rule