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Investing in rental property is an excellent way to put your money to good use and generate passive income. So it is no surprise that real estate investors bought 18.2% of homes sold in the US in the last quarter of 2021. But, as ideal as it may sound, the journey towards a successful rental business is often riddled with bumps along the road. 

One of the most common concerns encountered by even experienced property owners is tenant turnover. The National Apartment Association (NAA) 2021 Survey of Income and Expenses in Rental Apartment Communities revealed that the turnover rate among rentals was 46.9%. That means nearly half of the total renter households chose to move instead of renewing their lease agreements.

Turnover can significantly hamper the growth of your portfolio. Knowing the reasons why renters leave can help you undertake mitigating measures. There are also strategies you can adopt to make your residents stay or extend their lease. Let’s talk about your property’s turnover rate and how understanding this metric is key to keeping your rental occupied for the long term.     

 

 

Calculate Your Property’s Turnover Rate

 

First, find out how you’ve been faring when it comes to renter turnover. You can identify this by using a formula or simply letting an online calculator do the math for you.    

Person making calculations with white house

Apartment move-out rates can go as low as 10% in some regions in the US. Therefore, if your calculations result in a percentage of 50% or more, you’ll want to evaluate the reasons behind that to avoid incurring vacancy costs

 

 

Know the Costs of Vacancies

 

Your expenses can climb up to $1,750 each month your property remains vacant after a resident moves out. This amount becomes higher if you factor in lost rental income. Below are some of the costs you should anticipate after a turnover.     

According to the Harvard Joint Center for Housing Studies, elderly adults take up as much as 30% of all renter households. But why do more than 13.2 million seniors prefer to rent rather than own a home? Here are a few reasons.

 

Advertising

Once a renter concludes their lease and vacates your property, your first course of action should be to set up a solid marketing plan. You can create and implement your own marketing strategy. Keep in mind, however, that the results may not be as promising compared to a comprehensive marketing campaign that can cost more. 

Relying on paid ads, social media, and multiple listing sites as part of your marketing plan guarantees that your listing reaches prospective customers. For a strategy like this, Zillow estimates that you can expect to spend around $100 for every customer your campaign reaches.

 

Tenant Screening

Professional tenant screening fees can range from around $15 to as much as $40 for each applicant. Though screening prospective residents yourself is cheaper, hiring a professional has many upsides. For one, letting another person do the screening for you helps ensure that the selection process is free of inherent biases. 

 

Maintenance and Repair

Properties in their best conditions create positive and lasting impressions on new residents. This can be difficult to achieve if you fail to address maintenance issues while the rental home sits vacant. Unrepaired damages left by previous residents will throw off prospective renters if you fail to catch them before showings. For this reason, the upkeep of rental homes must continue during turnovers. Annually, you can expect to spend as much as 1% of your rental’s current market value on maintenance.   

These are a few of the significant costs you can expect to incur during a vacancy. On top of these, you’ll also have to factor in property insurance premiums, mortgage payments, and cleaning fees. In the next section, you’ll find strategies that can help you reduce renter turnover and avoid the costs that can undermine your rental income.

 

 

Examine External Factors Affecting Turnover

 

Apart from management issues, external factors can also influence high move-out rates. In a 2017 study, RealPage identified three elements that influenced turnover, which varied in different regions:

  • Employment Growth: Data from the research showed that metros with more jobs had higher turnover rates. The study concluded that residents tended to stay longer if there were fewer job opportunities in the area.
  • Rapid Development: Rapidly developing neighborhoods tend to have more short-term renters. As an area experiences more expansion, investors are inclined to construct more apartments. With an increased inventory of rental properties, people have more options for housing.
  • Median Age: The study also discovered that metro areas with higher median ages had lower renter turnover rates. Lifestyle differences between younger and older folks are mainly responsible for this. Younger renters tend to be more transient because of significant life milestones like starting families or new jobs, which can be reasons to move out or relocate. Meanwhile, older adults are more concerned about settling down. Thus, as median age rises in a community, move-out rates drop.

 

Understand Why Renters Leave

 

Renters can move out for a variety of reasons. Some of these reasons will be factors that are out of your control. However, it’s important to acknowledge that your residents can also move out due to poor management. 

Woman with clipboard and boxes

A ResidentRated survey suggests that an average renter stays in a property for 27.5 months. Hence, losing two or more renters in a year can indicate an underlying issue that you need to address. Below are some common concerns that may influence your renter’s decision to leave. 

 

High Rental Rates

One of the primary reasons why renters move out is financial difficulties. If a resident is working with a tight budget, a dramatic rent increase may convince them to move to somewhere they can afford.     

 

Poor Communication

Inefficient communication between you and your renters can result in countless problems. Residents won’t feel safe enough to bring important issues to your attention unless they know you will respond and engage in open communication with them. Moreover, neglecting your renter by not talking to them may push them to end their lease sooner than expected.    

 

Problems With Maintenance

No renter wants to constantly deal with maintenance issues that could affect their day-to-day life. A faulty heater or a clogged toilet, when left unresolved, may push your residents to leave. In fact, 40% of renters claim to be unsatisfied with maintenance services in their rentals. 

 

 

Ensuring Your Residents Stay

 

Turnover is a natural part of every rental business. Fortunately, there are several strategies you can use to bring down your move-out rate. Below are some methods guaranteed to help you retain your residents.

 

Invest in Rental Markets with Lower Move-Out Rates

Some regions tend to have higher apartment move-out rates due to conditions specific to that area. In the U.S. Multifamily Research Brief, the CBRE determined that people in the Northeast and Midwest tend to stay longer in their rental homes. Data suggests that limited housing options in these regions are mainly responsible for the lower move-out rates. This signifies that cities in these rental markets exhibit the most significant potential for a successful business. That’s why it’s essential to assess current market conditions in a specific location before hopping on the opportunity to invest in a rental property.

 

Thoroughly Screen Rental Applicants

To avoid turnover and the risk of a costly eviction, screen renters properly. By carefully selecting those qualified, you increase your chances of placing a good resident. Assessing the background of a prospective renter will reveal their rental history. This information will tell you whether or not they are someone you can trust to take care of your property and pay rent on time.

Establishing a comprehensive screening process helps minimize the risk of eviction. Depending on your state, you may have to pay up to $200 to file an initial complaint. Then, you’ll have to pay around $50 to $100 to the sheriff tasked to serve the eviction notice. Additionally, you will need to hire an eviction lawyer who may charge up to $5,000, depending on the complexity of your case.   

 

Build Positive Owner-Renter Relationships

Maintaining positive relationships with your renters can help minimize turnover. Show your residents that their concerns are taken seriously. By being prompt in responding to their maintenance requests and inquiries, you’re building trust and rapport with them. A good owner-renter relationship also makes it easier for you to encourage them to stay or renew their lease.    

 

 

Increase Rent Fairly

Maintaining positive relationships with your renters can help minimize turnover. Show your residents that their concerns are taken seriously. By being prompt in responding to their maintenance requests and inquiries, you’re building trust and rapport with them. A good owner-renter relationship also makes it easier for you to encourage them to stay or renew their lease.    

Some factors, such as current market conditions, property taxes, or maintenance fees, may push you to increase your rent prices to maintain a good return on investment. It’s best to inform your residents about a rent hike ahead of time. Send out a formal letter and meet with them in person. Providing them with the reason why you’re increasing rent helps them understand why it has to be done.

However, it would be best to keep rent increases as strategic as possible. Although they are inevitable, you must also consider how costly it would be for you if a renter decides to move out because of it.

 

Ensure Habitability at All Times

Another way to make your renter stay is to improve your property’s habitability. This can be upgrading security features, replacing outdated appliances with more modern ones, or simply being proactive on potential maintenance concerns. In a survey conducted by Move.org, 45% of respondents said that a need for upgraded housing influenced their decision to move.

 

Invest in Technology

Leveling up your residents’ experience by incorporating technology into the renting process can encourage them to stay longer in your rental. Consider setting up automated rent payments or providing an online renter portal to make payments and maintenance requests easy and convenient for your residents. A tech-enabled property management company has the technology to provide you and your renters with a streamlined renting experience using automation and dedicated teams of professionals.  

 

Bottom Line

 

Retaining your residents should remain your top priority. Hence it’s essential to look into how you can keep them and ensure your portfolio performs well.

Adopting a fool-proof tenant screening process, responding to maintenance requests, and maintaining good relations with your tenants may be too much to handle on your own. Take the load off your shoulders by working with a property manager like Poplar Homes. As a proptech company, Poplar Homes can manage your rental business seamlessly using technology, taking care of all the busywork of property management while helping you keep your rental occupied for the long term.

 

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