October 11, 2023

JF3324: 3 Top Tips for Tenant Retention | Bonus Operations ft. Slocomb Reed




This episode is brought to you by Presario Ventures, a private equity real estate firm based in the booming Austin, Texas, market. To learn how to invest in the future of Texas with Presario Ventures, visit info.presarioventures.com/bestever.

Bonus Operations is a series hosted by apartment owner/operator and Best Ever Show host, Slocomb Reed. In each five- to ten-minute episode, Slocomb provides his top takes for executing your business plan and maintaining cash flow.

In this episode, Slocomb Reed discusses the value of tenant retention for investors and landlords. He also shares four tips for retaining tenants and reducing turnover from his extensive first-hand experience owning multifamily properties.

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Slocomb Reed:
Best ever listeners, welcome to a bonus operations episode. I'm Slocomb Reed. Today's episode is brought to you by Presario Ventures, a private equity, real estate firm based in the booming Austin, Texas market. To learn how you can invest in the future of Texas with Presario Ventures, visit info.presarioventures.com forward slash best ever. That link is in the show notes.

These bonus operation episodes. I give you my top tips for executing on your business plans and maintaining cashflow. in your properties. Today our topic is best ever advice for tenant retention. Now while the vast majority of my experience is in residential rentals, single family, small multifamily into commercial multifamily, some of this advice I do believe will apply with non-residential commercial tenants. A lot of this is fairly general. Of course, if your business plan or your asset class is not multifamily, then you would need to adapt this advice to your own plan and assets.

Before I get into my list of top tips, there are a couple of things I'd like to say here. The first is that as real estate investors and real estate operators, we should all have a level of care, concern, compassion for the people who are living in our investments. For us, they are investments, they are financial tools. For our residential tenants, they are also their homes. So we should be demonstrating a high level of care and concern for these people and for their homes that we also need to be able to treat as financial assets. The other quick thing I'll say is that it's helpful to remember when we talk about these kinds of things like tenant retention, tenant satisfaction, how to keep your tenants happy in their rental homes as long as possible. People process new information through their emotions before they process it through their reason. You should expect that every one of your tenants is going to react to any news or information that you share with them for the first time, emotionally first, and then rationally. This is built into... all of the systems that we have for communicating things like lease updates, terminations, rent increases with our tenants. We understand they're going to react emotionally and we make sure that we are creating space for that in our communication.

Just so that it doesn't go unsaid, let's talk about the value of tenant retention. What we're talking about here is making sure that our tenants are happy with where they live and that they plan to continue living in our space. and that they plan to continue living in our apartments. The reason is that in my opinion, vacancy is the number one killer of profits. You don't necessarily see it as the biggest item on the P&L, but it's the thing that's going to creep up on you the fastest and create the most lost cash flow when you consider that lost revenue from vacancy. You can't let vacancies linger, and the purpose of this conversation about tenant retention is to reduce vacancy by keeping occupancy up, keeping tenants in their homes, in your apartments as long as they can be happy doing.

I have three top tips here for you and then a bonus fourth piece of advice. The first tip is buy multi-bedroom apartments. This isn't going to help you with your current portfolio, but if you look at turnover rates, whether you want to call it turnover, vacancy or retention rates, tenants have the shortest lifespan in studio apartments. It is higher in one bedroom apartments and significantly higher in two, three plus bedroom apartments and houses. What those exact statistics are will differ greatly on your market and your sub market within your metro area and where the demand is in those spaces. But regardless, studios and one bedrooms across the board are just going to have higher turnover rates. You're gonna have to find new tenants more frequently. You're going to have vacancy more often with studios and one bedroom apartments than you are with two beds and larger. So if tenant retention is a primary concern for you in your acquisitions, focus on those multi-bedroom units.

Tips number two and three really play hand in hand together, but number two is that maintenance is the key to tenant satisfaction. Everyone understands that things break, things get old, normal wear and tear is a thing. And for the vast majority of tenants, it's not a question of how long everything in their apartment lasts, as much as it is a question of how quickly and how thoroughly you take care of issues when they come up. People expect that there will be issues. And these issues are one of the key reasons that people who decide to rent over the home ownership they're capable of decide to rent is because they don't want to have to be the ones who are dealing with these issues. The advice here is to make sure that you're taking care of all maintenance and repair concerns that come up quickly, diligently fix things, right? The first time and get them addressed quickly when it comes to getting them addressed quickly, that leads straight into tip number three, which is to focus on your communication.

In a world where we believe in homo economicus and people always making rational decisions all the time, it's easy to spreadsheet out that the faster we respond to a maintenance concern, the better it leads to tenant retention, but that's not how humans work. Homo economicus is a lie. You need to be making sure that you communicate on maintenance requests as quickly as possible so that people feel heard. Of course you need to be addressing maintenance concerns quickly, but also importantly, you need to make sure that people feel responded to that you're reaching out proactively, regardless of how quickly you know that a maintenance technician can be on site. Someone should be getting ideally on the phone or at least responding by some sort of message with your tenant, acknowledging that the request has been received and is being processed and that you are working on fixing the problem that they're experiencing. Within communication, it's also helpful to have a regular schedule for communication with your tenants so that they're not only hearing from you out of the blue and things are going wrong. A piece specific to tenant retention and keeping our tenants satisfied, happy living where they live and keeping them living in our apartments longer. Within our communication schedule, we have 75 day and 45 day reach outs to our tenants. And that's 75 and 45 days roughly before a lease terminates, an annual lease. We reach out to the tenants 75 days in advance to ask if there are any maintenance concerns or other issues that we can proactively address. We ask for maintenance requests 75 days out. And the reason is that we're going to get them addressed quickly. And 45 days out or roughly a month and a half before their year lease expires. And just before 30 days notice is required to terminate a lease or to make any other changes, our 45 day reach out is to ask the tenant what their plans are. Do they intend to move out? Do they intend to stay? Do they want to go month to month? Do they want to sign a new year lease? Is there going to be a price difference between months a month and a year lease in the rent? And the way that we phrase that question is moving forward, would you rather be month to month or sign a new year lease? Because that's the frame of reference that we want our prospective tenants to have, but also we want them to have had the positive experience of being asked if they have any issues and then having those issues resolved before we return to them to ask, how they would like to stay in their apartment. 

Circling back to summarize communication, it is vitally important that your tenants feel heard, feel respected, feel dignified by the way that you communicate with them. And also of course, that you're addressing things quickly, but that your communication demonstrates your concern for the people who are making a home out of your investments. And make sure that your communication has a schedule, that you are proactive and you're communicating with your tenants so that you're not only on the phone with them or only communicating with them when there is a problem. If you do that, then your communication will be a trigger to the tenant that there must be something wrong.

And now for the bonus fourth piece of advice, sort of about tenant retention, sort of not, sort of fits within the communication point that I just discussed. This is my best ever advice for how to raise rent in multifamily properties. Let me start by saying, and I'll come back to this in a moment, but let me start by saying that the way that we within my company raise rent at multi-tenant properties has a lot to do with understanding the emotional reactions of people who are receiving what they feel to be as adverse news, like their rent is going up. We start by doing a lot of deliberating internally about exactly when and by how much we want rent to go up at a property. And then we announce the rent increase to everyone at the same time, having the same effective date for all apartments. So we raise what we would call the base rent for all apartments or all similar apartments like all of the one bedroom apartments or two bedroom apartments in a complex at the same time to the same rate. Of course, for tenants who are on annual leases that will not terminate until after the effective date, we explain in our communication to those tenants exactly when the rent increase will go into effect for them. Example, I'm recording this on September 26th. That means that the first day that I could announce in our metro area, greater Cincinnati in the states of Ohio and Kentucky, that rent can increase for month to month tenants or tenants who are terminating soon is November 1st for tenants whose leases are month to month or are up at the end of September or October. If I'm announcing now an effective date of November 1st for a rent increase and a tenant is on an annual lease through the end of March, then we announced that the rent is increases effective for everyone November 1st but does not impact this particular tenant in our communication to this particular tenant until April 1st. Rent increase is announced across the board, goes into effect across the board, accepting for those leases where the increase has to be postponed.

Now our reason for doing this has a lot to do with tenant retention, which is why I'm mentioning it here. And it has to do with the way that people react to this type of information emotionally. A lot of people, especially renters in B and C neighborhoods, but renters across the board who are receiving the announcement of a rent increase, a lot of them are going to start by feeling that it is unfair. And when they open by feeling that it is unfair, they're going to look for injustice wherever they can find it to justify to themselves the way that they are feeling. So we create fairness in the way that we increase rent by increasing rent for everyone at the same time, announcing it to everyone in the same way. That way we can demonstrate fairness to combat the emotional as opposed to rational reaction that our tenants are having to having their rents go up. We are trying to demonstrate that while they feel a sense of injustice or unfairness, what we are doing is in fact fair. And we are in fact trying to be as fair as we possibly can. We're not playing favorites amongst our tenants in my company. We are raising rent across the board. And there are of course reasons other than just profit that rent needs to be raised. We don't go into all of that in these announcements. We keep these announcements as succinct as possible. Of course, I have a template for the way that this is communicated. And we just plug and play the template every time we're increasing rent at a property, because we have our language dialed in exactly the way that I want it to be sent. And of course it's in writing. But the message here is that we raise rent in a manner that attends to the emotional reactions of our tenants.

So there you have it guys, four best ever pieces of advice for tenant retention within your rental portfolio. The first one being within apartments especially focus on multi-bedroom. Apartments with your acquisitions because they have lower turnover rates, meaning less vacancy and higher tenant retention. Points two and three, go hand in hand. Make sure that you are on point with your maintenance and with your tenant communications, having schedules for both where possible. And the bonus fourth piece of advice is to demonstrate fairness in the way that you raise rent. In my organization, we do that by raising rent equally. across the board for everyone at the same time, accepting of course for tenants who are on annual leases, letting that increase go into effect for them when their lease is up. Best Ever listeners, thank you for letting me stand on my soapbox for about the last 15 minutes. If you gained value from this conversation on tenant retention, please do subscribe to our show. Leave us a five star review and especially, share this episode with a friend you know we can add value to. through our advice on tenant retention today. Thank you and have a best ever day.

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