Property Management Basics: Improving Your Bottom Line through Tenant Retention – Why It Matters
Every investor wants to maximize cash flow. However, achieving this goal can sometimes be counterintuitive. For instance, you may think that because you have tenants paying below current market rent that you should automatically raise their rent to full market value when it comes time to renew their lease. While this may make you some extra money in the short-term, it could cost you over time.
Now, I’m not saying that you shouldn’t raise rents. It is often a prudent thing to do. However, if you have really good tenants who take good care of your property and pay on time every month, you may want to rethink the rent-raising property management strategy in the interest of turning them into long-term tenants.
What many investors fail to consider is how frequent turn-over in their rental houses costs them more than a few months worth of lost rent dollars due to vacancy. Every time a tenant moves out, in addition to the standard clean up costs that you should be able to deduct from their security deposit (if they didn’t already forfeit it by breaking the lease), you will likely face some deferred maintenance and updates to make your unit appealing once it is back on the market. You will need to pay a locksmith to re-key the doors. You may need to replace the carpet and will likely need to paint the walls. All of these routine items cost you money and you need to do most of them whether your former tenant lived in your property for two years or ten years.
If you stop and think about it, isn’t it better to be faced with painting and carpet replacement every ten years than every two years? Your cash flow reserves can easily get wiped out, and you will likely have to come out of pocket to get a house rent ready again if you’re losing tenants every couple of years. If there are longer intervals between move-outs, not only will you spend less money on fixing up your property over time, but you will have built up greater reserves from your positive cash flow to avoid coming out of pocket when you finally do have a tenant move out.
Now, there is no magical way to find tenants who will occupy your units for the long-term. Things happen: people get transferred, divorced, have children, move-on, etc. But you can learn better property management (link for our Real Estate Investor Bronze Members) strategies to increase the likelihood of finding and retaining good, long-term tenants.
Until my next post,
James
P.S. Enjoy our Secret Property Management Tips and Tricks real estate course (free download for a limited time only).
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