If you focus on building strong relationships with your residents, you can reduce turnover, increase profitability, and build a sustainable business.
nyone involved in the rental industry can see there is a real problem with tenant turnover. Relationships between investors and managers are broken, communication is faulty, operations are inefficient. All these issues lead to bad experiences and tenant instability.
For real estate investors, losing a tenant means needing to fill a vacancy and often completing many costly maintenance checks and upgrades. It also often includes having to rehabilitate the unit back up to market standard. Painting, cleaning, removing junk, and replacing appliances are all tasks that take lots of time and money. Not to mention, the longer a property sits on the market, the more profit is lost.
Conversely, the longer people stay, the more likely they treat the property as their home, look after it, maintain it, correspond promptly about problems, and invest in it as a long-term space. That’s why tenant retention is such a big part of building a successful investment portfolio.
Why Is Tenant Retention a Problem?
Why do we have a problem with tenant turnover? It’s not all because of market instability and economic crises. Although most non-homeowning Americans struggle to find stable accommodation, the rental market is characterized by impermanence and managerial neglect. Poor management of properties, lack of communication, and the absence of a dedicated customer experience all contribute to the tenant retention problem.
Communication is one of the biggest gaps in the industry. Because real estate investors, property managers, and tenants have fragmented relationships and inefficient processes, much information can be lost or misplaced. Fragmentation also results in reactive rather than proactive decisions.
On top of that, incentive structures tend to increase conflict between you as an investor and your property managers. Property managers tend to generate most of their revenue from tenant turnover, including placement fees and maintenance charges. Within this structure, why would they prioritize tenants’ well-being over gaining fast revenue? This, in turn, subsidizes and encourages “bad tenants,” those who don’t contribute to a long-term community.
4 Steps to Improved Tenant Retention
When thinking about how to build a successful investment portfolio, you may find yourself considering incentive strategies rather than prioritizing your tenants themselves. However, repairing these relationships is the first step toward creating better long-term portfolios, reputations, and communities. Here are a few tips to help you get started:
- Notice the link between relationships and profitability. The market may want to convince you that being nice to tenants is a fool’s game, but it is important to recognize that all these measures you’re taking to build community and a sense of home are for the purpose of profitability. The point is not to be overly lenient but firm, communicative, and kind. Good relationships lead to better accountability for bill pay, maintenance, and long-term management, with fewer rent gaps and miscommunications.
- Differentiate with relationships. Reducing turnover is about making a property feel like home. A little bit of a human touch goes a long way, and treating tenants as customers rather than disposable rent-payers can help to differentiate your properties from others. When you view tenants as customers, you deliver a customer experience and customer service. You may not see its impact every day, but it adds up. Tenants remember great properties. In turn, they stay for longer and communicate unit problems promptly, ultimately boosting your investment revenue and cutting down on long-term costs. Start paying attention to data; you’ll soon see how increased tenant stability affects your bottom line.
- Build trust in management. Trust is highly sought after in the rental industry. Oftentimes, investors begin to distrust property managers due to the need to do forensic accounting on tasks that shouldn’t need oversight. Factual inaccuracies and a lack of data lead to a feedback loop of distrust. Smart, relationship-minded property management can end the cycle of distrust by practicing transparent communication from the very beginning, especially regarding incentive structures.
- Empower better relationships with tech. When you work in an industry where operational inefficiency is the norm, relationships tend to suffer. Fortunately, using technology for portfolio ownership and management can boost efficiency at every level. By collecting data in real time to offer more timely maintenance and more proactive communication, problems never become emergencies and tenants feel cared for.
Remember: Tenants pay thousands of dollars in rent every year. Not treating those tenants as customers is a severe mistake. The best tenants are the ones who feel at home; they take the best care of your properties and your communities. Ensure an ever-growing percentage of your portfolio is dedicated to this kind of tenant—and watch your bottom-line grow.
Changing your mindset on tenant turnover is key to building a successful long-term investment portfolio. By focusing on building strong relationships with your residents, you can reduce turnover, increase profitability, and build a sustainable business that’s set for the long run. Use technology to your advantage, differentiate your service with a human touch, and build trust with transparent communication. The result will be a portfolio filled with great residents who take care of your properties and help you build a thriving community.
