Owning a rental property can feel like running a small business. As a result, you will have to deal with challenges and will look forward to maintaining stability. This is where you should learn how to deal with tenant behavior, turnover, and occupancy issues. Read this guide, and we will share how you can deal with tenant turnover and manage stability.
Why Tenant Stability Matters for Long-Term Rental Success
Low tenant turnover means predictable rent payments, dependable tenants, and fewer holes in your wallet. Long-term renters let you sleep peacefully at night because you know your rental property will always be occupied and you won’t spend a lot of time or money advertising your property and interviewing tenants. Tenants who plan on staying a while take better care of your property because they think of it as their home versus a month-to-month rental situation.
What a lot of people don’t see is that low tenant turnover creates predictability in your life as well. Landlords who enjoy long-term tenants typically build a friendship/rapport with them, which leads to less confusion and conflict. Your tenants know your maintenance scheduling rules and how you prefer to be contacted. As a result, fewer surprises come up that either party can use as an excuse to pick a fight.
Predictability also plays a large role with your wallet. A tenant who pays the same amount of rent on time each month allows you to precisely budget for property repairs, property management costs, and all of your other monthly expenses associated with owning rental property. Your constant positive cash flow is what your return on investment is built on, and it determines whether you can use that return to invest in another real estate property. When you screen tenants, make sure you carefully review their ability to pay you – not just their ability to earn a paycheck.
What Is Tenant Turnover Rate and Why It Affects Your Income
If you manage rentals, you might often ask what tenant turnover rate is and how it affects your overall income. Turnover rate is the percent of renters who vacate the property upon lease expiration rather than renew their lease. Turnover rate is calculated by dividing the total units vacated by the total units in the portfolio, then multiplying by 100. If you own 10 rental units and two of your tenants leave at year-end, your turnover rate is 20 percent.
Average turnover rates matter because turnover costs money. Industry studies peg the average cost to turn over a single-family rental home at between $1,750 and $3,500. Luxury turnovers, involving major rehabbing, can easily exceed $5,000. Typically, vacancy costs, or lost rent, equal 30 to 60 percent of turnover costs. Remaining turnover costs include cleaning, repairs, advertising, and leasing fees to secure a new tenant.
Typically, dollars spent reducing vacancy will exceed dollars saved by shaving turnover make-ready expenses. A landlord who reduces vacant days by a week will save more money than the landlord who decides to paint last time around. Monitoring turnover rate can help highlight unnecessary expenditures. Not only does turnover rate indicate dollar losses due to rental property churn, but it can help illuminate when to invest further in retention activities such as tenant retention via maintenance response times, reasonable rent hikes, lease renewal incentives, etc.
Additionally, turnover can negatively impact the asset itself. Increased tenant turnover leads to more move-in/move-out inspections, potential property damage, and management overhead when entering new leases. Landlords who focus on retention via effective communication and preventative maintenance often experience higher profit margins and lower everyday stress.
How to Deal with an Unauthorized Tenant Without Escalating Issues
Landlords often look for guidance on how to deal with an unauthorized tenant before the situation escalates. As a landlord, finding someone you don’t know living in your rental property is scary. But keeping a cool head and handling things the right way keeps you protected. First, double-check that this is actually happening. Look through your payment history and see if there is a new name associated with your rent checks. Inspect the unit and look for clues, such as whether the tenant took everything out of their closet during your regularly scheduled inspection.
You may also search vacation rental sites to see if they’re listing your property for a profit. Take screenshots of any relevant info. Remember that you must always give tenants notice before entering the property. Forcing your way into the unit or threatening the occupants can leave you liable for potential lawsuits. It’s best not to skip steps even if you feel you have a justifiable reason to do so.
Assuming you do have an unauthorized tenant, confront them about it. When contacting them, make sure all communication is done through legal mail. You can’t take action against any random person who is living in your property without consequence. You will need to take action against your tenant. Send them a professional letter politely explaining the situation and allowing them an opportunity to cure the breach by removing the tenant from your property by a certain date. Save yourself a copy of the letter.
If your tenant fails to comply, you’ll need to initiate eviction proceedings by serving your tenant with formal notice. You may have to go to court to get a judgement against your tenant, depending on your state’s landlord-tenant laws. To avoid future instances, ensure your lease agreement explicitly states that subletting is not allowed without your written permission. Consider implementing routine inspections of your property.
Final Words
Tenant turnover isn’t inevitable. It begins with thorough tenant screening and maintenance of open lines of communication. It also helps to know how much landlord turnover costs you. Calculating your turnover rate can alert you to trouble spots. Familiarize yourself with the lawful ways to deal with unauthorized occupants. By using these tactics, many landlords have developed successful, low-turnover rental businesses.
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