Tenant turnover is a killer. Especially for the small real estate investor. Every good landlord wants to find out how to keep tenants longer. When you have a tenant move out of your rental property, if that property sits vacant you have to pay money out of your own pocket for the monthly expenses of that property. If your tenant is paying you $1,000/month in rent, and your monthly carrying costs for the property including mortgage, insurance and taxes are $850/month, you have to personally come up with that $850 each and every month until your rental property is rented again.
The fewer units that a real estate investor owns, the more severe are the effects of tenant turnover, and thus the impact to the pocket book.
For example, let’s assume that you own one rental property, and that the property is a single family home consisting of one unit. If this one unit becomes vacant due to the tenant moving out, you just lost 100% of your rental income for that month.
Let’s say now that you own 10 rental properties, that are all single family homes. If one unit becomes vacant due to the tenant moving out you now only lose one tenth (1/10) or 10% of your rental income.
Generally speaking, when you lose 10% of your monthly rental income, this is a much better scenario than losing 100% of the rental income.
All experienced real estate investors know that they name of the game with real estate investing is cash flow management. What I mean by “cash flow management” is knowing how to maximize your revenues an minimize your expenses.
As a real estate investor, if you are able to ensure that there is less tenant turnover, you are doing a fantastic job of lowering your expenses.
One of the biggest, hidden expenses that a real estate investor can face is tenant turnover.
From my experience thus far with real estate investing, I have learned that one can minimize tenant turnover by NOT increasing rents.
When you raise rents, tenants in many instances become unhappy and start to look for rental accommodation elsewhere.
Personally, I would rather roll the dice and only increase rents once my tenants have moved out of my rental property.
Once the tenants have moved out of the property, I would re-rent the unit for the new market rent to a new set of tenants.
What do you think about this post? Do you agree with this strategy to keep tenants longer? Do you think it will work?
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Regards,
Neil.
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I would say it really depends on your situation. If you have been making improvements to the property, and addressing all maintenance concerns, and keeping your tenants happy, telling them you need to increase the rent by 30-50$/month to cover all your costs usually isn’t going to be enough to make tenants leave.
You also have to keep in mind you may have tenants that NEVER leave, or stay for a seriously long time, and while market rents are 100-200 more than what they are currently paying, you are stuck with them!
I’m in the latter situation myself having inherited tenants with a purchase. They’ve been there 7 years now without a rental increase and rents are $200/month less than market and have no intention on moving. I’m increasing rents this year to ensure the rent finally starts moving up towards market…
Who knows, maybe the rental incease will be enough to upset them and they will move enabling me to increase rents and find new tenants!
Tenant turnover isn’t always a bad thing!
Besides, if you know a tenant is moving out, you have the right to show the property while they are still living there, and with any luck should be able to fill the vacancy even before the old tenant leaves.
Hi James,
Thanks for the comment. I agree with your point with increasing rents in order to motivate some tenants to ‘move along’.
As you know, sometimes not all relationships between landlords and tenants go well.
As such, sometimes increasing rents is the right move in order to help tenants get the idea that it is time to move on…
Regards,
Neil.
It is possible that tenants may stay longer if you never increase the rent. It is alos ok, if your intent is to rent to someone for only 2 to 3 years. If you have a long term tenant, say 10 years, not increasing the rents by a small amount each year, you could potentially loose thousands, especially if the unit needs a lot of repairs and updates. I usually refrain from rent increases after the first year, but that doesn’t usually stop someone from moving either. I believe that some people just like to move around alot, while others have a personality that causes them to stay put longer, as long as they are not having problems like crime, bad neighbors, job loss, etc. Good post, I just don’t agree.
Hi Dan,
Thanks for the comment. I agree with some of what you said. If the tenants don’t turn over in 2 or 3 years, depending on the financial figures of the property, it may make sense to consider raising rents. Everyone is different so this time may come sooner for some than for others. Personally, I have never had a tenant stay for much longer than 2 years. So I have had turn over fairly often which has allowed me to raise the rents to whatever the market rent was at the time. Thanks again for your comments. Regards, -Neil.
Great things to consider here. Tenant turnover can be a killer, so being prepared to cover expenses when properties are between tenants is key to being successful with rental properties.
Hi Tyler,
Expenses can definitely be a killer if not managed properly!
Thanks for you comment!
Best Regards,
Neil
Not having rent at market value becomes another hidden cost. Turnover managed well doesn’t necessarily mean lost income.
Hi Geno,
Thanks for the comment. I think that this depends entirely on the market that you own a rental property. Some markets as you know have a more challenging tenant profile, as such, finding new tenants may take longer versus markets with a more stable tenant profile.
What is the average amount of time that a unit remains vacant with rental property that you are re-renting? ie: generally how long are your units vacant for during tenant turnover?
I agree, the situation is dependent on a number of factors, including the tenant themselves. I wouldn’t hesitate to raise rent within legal parameters during a tenants stay if that tenant was less than ideal. However, I am a firm believer in rewarding great tenants with minimal (if any) rent increases. If I do increase rent, it is only in accordance with cost of living and is typically nowhere near the maximum allowable rent increase per annum.
Thank you for your comment!
Best Regards,
Neil
i’ve been managing a rental home next door for several years now, without a lot of guidance, and it has been my sense, too, that raising the rent on good, dependable tenants is the kiss of death….glad to hear that you, an experienced property manager, feel the same way….thanks!
Hello Suzanne,
Thank you for the comment. As you know, this is a tricky topic. I have always felt that if you have good tenants, and they are paying market value, or close to market value, why would one want to rock the boat?
However, on the flip side of things, raising the rent is a good way to encourage tenants (that perhaps you are not getting along with) to leave.
How are you making out now with your property?
Regards,
Neil