By: John Smith
Every year, the leasing season seems to start a little earlier. Both on and off campus landlords are working hard to get good tenants into their units. We do this by screening our prospective tenants.
We check references, examine credit histories, and verify incomes. All of these procedures are based on a simple premise: the best predictor of future behavior is present behavior. If these people have a history of paying their bills, then they’ll probably pay us as well.
All of these procedures are intended to maximize the chances that our new tenants will be top quality, taking care of our units and paying their rents in a timely manner.
Of course, the very best way to know your prospective tenants is to have worked with them before. When working with a renewal, if that tenant took good care of their apartment over the last year, and paid their rent in a timely manner, then it is a good bet that they will continue to do this over the next year as well.
Renewals are one of the best ways to keep profits high while risks are minimized.
While keeping retention high may seem like hard work, it is well worth the effort. Keeping your tenants for more than the original lease term simply means making it more appealing to them to stay in their current home than to go out and find another.
As long as our service standards have been adequate, then incentives can often be what helps close the deal.
There are many types of incentives to offer, but I particularly like to offer an incentive that is going to benefit me as well. My favorite is to offer that if the tenant renews their lease, I will have the carpeting shampooed at my expense. Many tenants appreciate this considerate gesture, and from the landlord’s perspective, it is not very expensive, and it will significantly extend the expected life of the carpeting for us.
Another incentive that can benefit the landlord is to make a small improvement in the unit that will both be enjoyed by the tenant and increase the quality of the building. This helps eliminate the problem of having a tenant move out and being left with a flat that looks too aged to rent easily. It is also a much easier to gradually put in modest improvements than to finance a significant remodeling all at once at a later date.
These small improvements can be a new dishwasher, or new counter tops. Maybe even tile in the bathroom and kitchen will work. My only cautionary note would be to avoid re-carpeting a unit for a current tenant. The risk of having your brand new carpet stained is too high to justify that expense when there are so many other improvements that are more indestructible.
After the tenant decides that your service standards have been adequate, and that the incentive is appealing, they must decide if the new rent is justified.
National averages say that a fifteen-dollar increase is rarely going to encourage a tenant to move. (That is why this is referred to as a “nuisance increase”.) Remember that even if that new amount is slightly lower than what you think the unit would draw from the open market, by reducing your risk of eviction as well as your cost of advertising the way you do when you have a renewal, you are essentially doing nothing more than passing on a little bit of the savings to your tenant. It’s basically another incentive.
Good luck, and happy renting!
John Smith has a Master's Degree in Education, is a real estate investment and management consultant and trainer throughout the state of Illinois, and has been a real estate investor and manager for over seven years in Champaign-Urbana. To contact John Smith, email him at firstname.lastname@example.org or call (518) 851-7820.