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What is it that every Single Family Rental Property (SFR) investor wants? High resident retention. Ideally, everyone wants 100% retention, but anyone who has invested in SFRs knows that perfect retention is unrealistic. Minimizing resident turnover, on the other hand, is a very achievable goal if you know what to do.
The most effective resident retention strategies come from trial and error, but if you're smart about it, you don't have to worry about trial and error. REI Nation has managed 8,000 SFR properties throughout the Southeast for over 20 years. Our average occupancy length is 5+ years per lease. Here are some proven resident retention strategies based on real-world experience with our portfolio of single-family rental properties.
How do I calculate retention rate?
Before we dive into the math, it's helpful to review how to calculate occupancy retention. This is easily calculated by dividing the number of residents who moved out in a 12-month period by the total number of residents in that same period and multiplying that number by 100. A reasonable occupancy retention rate for a single-family rental home is at least 83%.
Of course, if you only have one property in a year and only one resident stays there, your retention rate will automatically be 100%. Retention only makes sense if you have multiple rental properties. As a landlord, you also have more challenges to deal with as you own more properties. So, the more properties you have, the more complicated it becomes to maintain high resident retention. This is where our retention strategy really comes in handy.
1. Make sure you charge the right rent
It's no surprise that all potential tenants want the best property at the best price. When asked why they're looking for a new home, the overwhelming majority cite price as the main factor. After price, residents cite poor communication and poor property conditions. If you're going to provide a quality experience for your future tenants, your fairly priced home will stand out.
Most renters have a set rent budget and stick to it. And while most understand that small annual rent increases are inevitable due to inflation, they tend to fight back strongly against an unjustified rent increase and are very likely to move.
According to CoreLogic, the average annual rent increase for single-family homes in the U.S. was 3.4% as of March 2024. This is the rent increase that most residents are willing to accept. We have found internally that in some markets, competition and price range will dictate this percentage. Some properties may see only 0-1% increases, while others may see as high as 7-8%. This varies by market and property. However, landlords who are still holding onto the mindset that rents will increase by double digits in 2024 due to the pandemic will experience high resident turnover. Most renters know they have options. They know how to research local market rents and are not afraid to move even if it is inconvenient.
Of course, there are cases where rent increases above the average rate of inflation are justified. These rent increases are easiest to implement while the property is vacant, but if you already have occupants, you may be able to convince them to accept a rent increase if you clearly adhere to the points below and show them that staying in their existing property at a higher rent is their best option. Most occupants don't want the hassle of moving, and building an honest and fair relationship is the best way to get the maximum rent increase without creating vacancies.
2. Maintain clear and honest communication
The importance of good communication is worth discussing in detail. Not only is it cost-free, but it's something that will be appreciated by almost all residents. Communicating your plans for the property to your residents makes them feel respected and valued. It also minimizes the chance of resentment that builds up over time and most often causes residents to leave. Answering calls, returning emails, and diligently following up with residents before and after work is also an easy way to stand out from your competitors. Most residents are not accustomed to that kind of communication, so it makes a difference.
3. Respond quickly to maintenance requests
Here's a real story we encountered: A resident's fireplace broke on a Wednesday evening during Thanksgiving holiday. The resident is fully aware that Thursday is a holiday. However, if the fireplace isn't fixed immediately, the house will become uncomfortable and cold. The resident contacts the management company's maintenance department and, to their surprise, they answer the phone and not only will the repairs be made on Thursday, but the management company also calls on Friday to ensure the fireplace is working properly and no other repairs are needed. That resident will be living there for the rest of their lives. They will want to rent from that management company for as long as they need to rent a property.
Most rental agreements clearly outline who is responsible for what, and even if residents can afford to make emergency repairs themselves, they usually need to get approval from the management company or landlord before proceeding with the repairs.
It's important to have an emergency plan. If you can't answer calls after hours, hire a management company that offers this service. Emergencies are bound to happen, and how you handle them will affect your tenant turnover.
Even in non-emergency situations, it's best to resolve them quickly. Put yourself in your resident's shoes: Do you want to keep using a broken heater or air conditioner for weeks?
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4. Make sure the property is of good quality
“Good quality” is a somewhat subjective term and should be understood in light of your area and the situation of similar properties in that area. Most residents do not expect to live in a luxury property unless they are renting in an upscale neighborhood.
Still, most people expect a reasonable standard of amenities and décor. The most important areas to focus on are paint (new and not peeling), plumbing (new and clean fixtures and fittings), floors, and space.
Putting off property maintenance issues costs owners money and leads to resident dissatisfaction and high turnover even over minor issues. The more times residents have to call the management company for even minor issues, the less likely they are to sign an extension. When residents first enter a property, they see a neat yard, neatly trimmed shrubs with a clear view of the front door, fresh paint, new window treatments, clean and even floors, etc. These are all items that reflect how well you manage your relationship with them. It's hard to expect good communication and a fair relationship if the property you're looking at is rundown and clearly in need of repairs and renovations.
5. Provide additional incentives for resident retention
This isn't necessarily necessary, but in a stagnant rental market, it may be worth offering additional incentives to encourage residents to stay longer. Refresh upgrades such as painting the interior or refreshing the property are the most obvious incentives, but you could also get creative and consider offering upgrades to residents (if they were planning on upgrading anyway, this can be very effective) or offering a referral bonus to help secure residents for your other properties. We've found both to be very effective, regardless of price range or market.
Of course, these incentives only work if you, as a landlord, are already following all other best practices.
Final thoughts: Exceeded expectations
A landlord's goal is for their tenants to actively enjoy living in their rental property, not just put up with it. That's our goal with every rental property at Premier Property Management Group. We go above and beyond industry standards to ensure you and your tenants alike have a great experience.
The results of our efforts speak for themselves. The average tenure of the properties we manage is 5.3 years, with a vacancy rate of less than 2%. Our tenants are here to stay for the long haul. When you entrust your property management to us, you can rest assured that you won't have to worry about high occupancy rates.
This article is provided by REI Nation
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BiggerPockets Note: These are opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.