As a landlord, you can’t ever sit back and relax. Just because you have good tenants in your properties at the moment, doesn’t mean they’re guaranteed to stick around. It’s up to you to retain them by encouraging and motivating them to renew their leases over and over again. Do you have a plan for doing so?
4 Benefits of a Lease Renewal
Lease renewals are integral to being a successful landlord. But do you know exactly how important they are? Benefits include:
Avoid the Process of Finding New Tenants
From a practical point of view, finding new tenants is a logistical, resource-intensive mess. (Especially if you want a good tenant – not just a warm body.) Getting a lease renewal from an existing tenant saves you time and money spent conducting an inspection, cleaning the property, posting ads, showing the property, screening tenants, collecting money, explaining the lease, changing over utilities, etc.
Avoid Vacancy Costs
Vacancy is expensive. In addition to the resources it takes to find new tenants, there are expenses and holding costs associated with having an empty property for an extended period of time.
Lost rent (each month the property sits vacant) is the main sticking point. Then there are the mortgage, property taxes, insurance, and utility bills that still have to be paid, even if there’s no income. If you’re in a really tight spot, you could even have one of your properties go into foreclosure as a direct result of a prolonged vacancy.
One of the frustrating things about turnover is that you have to “sell” the property to someone all over again. (In other words, you have to convince them that it’s worth leasing.) Renewing an existing tenant, on the other hand, isn’t nearly as difficult. They already know the flaws and justified them long ago. Whether it’s a tiny hole in the wall or a broken tile, they probably won’t ask you to fix it (unless they’ve already made a request.)
Even if your tenant isn’t the best renter in the world, there’s something reassuring about working with someone you already know over a total stranger. Predictability is a good thing in this industry and a lease renewal allows you to capitalize on this.
Tips for Getting Tenants to Renew
Now that you understand just how important lease renewals are, you can develop a game plan for actually getting tenants to renew. Here are some practical suggestions that many landlords find simple and effective:
- Never assume that a tenant remembers when their lease is up or what was agreed upon when the lease was signed. It’s best to stay in constant communication in the months and weeks leading up to renewal. By informing them of expectations, the entire tenancy will be smooth.
- Start early. Don’t wait until the last minute to ask a tenant if they want to renew. If they happen to turn down the offer, you’ll find yourself scrambling to find a new tenant. This will almost certainly result in some vacancy time. (In a slow market, it could lead to weeks or months of prolonged vacancy.)
- Address concerns. When it comes to a renewal, tenants have this internal dialogue going on. On the one hand, they want to stay because they’re already comfortable and settled in. On the other hand, there are some shortcomings and concerns that tell them they should go. It’s your job to find out what those concerns are and proactively address them through word or action.
- Think about ways you can incentivize a tenant to sign a renewal. This could look like offering a free month of rent, providing an upgrade (such as a new appliance or TV), or even giving the tenant a discounted rate.
- Add some pressure. If your tenant seems on the fence about renewing and sort of drags their feet, you may need to apply a little pressure. Simply setting a deadline and asking for a firm yes or no is usually enough to get a decision.
You know your tenants better than anyone else. Based on your knowledge of your tenants and the aforementioned best practices, you can develop a repeatable process that helps you consistently retain and renew tenants.
Situations Where You Shouldn’t Offer a Renewal
In the vast majority of cases, renewing a lease makes sense. However, there are certain situations where offering a renewal may not be the best course of action. Here are some red flags:
- Bad tenants. Just because you can renew a tenant, doesn’t mean you should. If you have a tenant with a history of making late payments, perhaps you could do better. There’s no sense in putting yourself through more stress and friction than you have to.
- Change in plans. There could be a situation in which you decide to make a change. For example, do you want to add another bedroom to the house? Are you planning to sell in three months? Do you have a family member who wants to move in soon? Changes in plans may call for a non-renewal.
- Significant increase in market rent. There are typically caps on how much you can increase rent on an existing tenant. But in rare situations where the market rent has increased dramatically from the time your tenant signed on, you might not be able to get a fair return with an existing tenant. Ending the lease and finding a new tenant will allow you to bring the price up to where it can be.
There may be other extenuating circumstances where a renewal isn’t the best way forward. Trust your instincts and always balance short-term gain against long-term ROI.
Work With Green Residential
At Green Residential, we take pride in our ability to offer Houston landlords with comprehensive property management services at an affordable price. When you work with us, we handle the heavy lifting and small details so that you can put your focus on the big picture. Contact us today for a free Houston property management analysis!