Collect Higher Rents and Keep Tenants Longer
“What can I rent it for?” “What are the rent comps?” If I had $1 for every time I’ve heard these two questions, I’d be a rich man.
The answer to both is: IT DOESN’T MATTER! One- and two-bedroom apartment rent comps in my area are $350-450 per month. My apartments rent for $550 and $650 per month and my vacancy rate is less than 3%. Yes, my apartments are nice, but not that much nicer. So what is nicer that worth higher rent? Two things: The fellow tenants and the landlord.
There are good reasons for some investors to stay away from rental property. These are NOT some of them:
- “I don’t want the headaches.”
- “I don’t want to be fixing something all the time.”
- “I don’t want my property damaged.”
- “Short of eviction, I can’t get them out if they don’t pay.”
- “They leave in the middle of the night and trash the place.”
If you handle your rental business like a business, it will make you money as any business should. Properly priced and managed, rental property makes you money. Poor management and pricing costs you money. The following are some ideas I use to keep tenant maintenance to a minimum and prevent some typical problems before they happen. Nothing’s perfect, but rental property can provide a worthwhile active or passive income to investors.
It Begins With Respect
Treat Tenants with Respect – This is the most important piece of information anyone can give to a landlord. If you respect your tenants and treat them well, they are much more apt to treat you and your property with the same respect; plus they’re more likely to make on-time rent payments to landlords they like and who like them.
So before talking about getting higher rent and keeping tenants longer, we have to address how you demonstrate respect for tenants …(who are probably “financing” this particular real estate investment of yours):
- Repairs – When something is broken, fix it fast. I had just returned home one evening when a tenant called to say their water wasn’t working. When I went to their apartment and checked things out, it turned out the city turned their water off (for non-payment). Embarrassed and apologetic, they offered to “pay me for my gas.” (Had I been in my thirsty truck instead of on my motorcycle, I’d have been tempted to accept!)
The lesson here is mutual respect. I took time to find out what was wrong. Tenants respect landlords who go the extra mile; and they’re more likely to respect that landlord’s property. Question: When was the last time a tenant offered to pay for YOUR Gas?
- Communication – Keep tenants informed: Upcoming maintenance, a termite inspection, an up-coming annual walk-through, anything relating to “their space”; and never increase their rent without asking them what they can afford. Here are some examples:
a. A note half way through first year lease, “… Want to let you know I notice you’re taking good care of the house (apartment)… I appreciate that … Hope everything’s okay …”
My wife’s note to tenant on a diet/exercise program, “You’re looking great … What program are you on? … I might want to try it.”
b. Perform regular maintenance checks on your property, but instead of notifying a tenant you were there or are coming on x date, ask what suits them, “I need to do a Walk-Through and it’ll give us a chance to spend a few minute together … how’s this Friday after you get off work?” Every landlord should visit each property at the very least annually.
c. As lease renewal time approaches I have what I call my “Tenant Appreciation Gift” (one year gift, two year, etc.). I always deliver it in person the month prior to lease renewal because if/when a rent increase is forthcoming, it sets the stage. The phrase “It’s the thought that counts” applies here. In fact, the more the rent may increase, the less extravagant your renewal gift should be. You want to avoid appearing like you’re “rolling in their dough”: A small basket of fruit, a decent flashlight, a restaurant gift card.
If a rent increase is going to be forthcoming then, after complimenting Joe on being a good tenant, I tell him we need to talk about a rent increase and add, “I don’t want to lose you so I need to know what you think you can afford”. If my goal is $10/month, I’m going to ASK if he could handle $20/month. In the end, I hope to net more rent and still hold on to a good tenant.
d. Respect – Slumlords think of them as “tenants living in tenant housing”. Landlords view them as “tenants who rent property”. Do you consider your tenants a commodity you can trade at will, or people who need and deserve your respect. Of course there are some undeserving undesirables, but hey, landlords should have better sense than to rent to them in the first place.
If you were in the retail rather than rental business, you’d probably have a customer or two you could do without, maybe even one you’d turn away. But most of them you would appreciate and treat with respect. Our tenants are our customers. They’re the reason we’re able to make a living. Question: So who’s the real problem, them or us?
Getting Potential Tenants to Pay Higher than Average Rent …
Rent Comps – Realtors and Property Managers can give you rent comps. They have a fairly accurate idea of what other landlords are charging. However, these figures don’t HAVE TO DICTATE WHAT YOU CHARGE. Charge what your property’s worth, and that includes the value of renting from you instead of someone else.
Sell yourself to the tenant. Explain why they’re better off renting from you.
- What makes your property worth more than others’? YOU DO! It all goes back to respect and upkeep. If you are better than the average landlord, your property is worth more, in which case you should be paid more.
- When they say your price is too high, tell them why your property rents for more. Sell yourself to them, not by bad mouthing other landlords, but by emphasizing positive expectations they in fact get from you because it’s policy:
a. Choice in the length of their lease (six months? one year?) Yes, it impacts monthly rental rate, but not to same degree as losing an entire deposit. Let’s say it rents for $550/mth w/1 yr. lease & 1 mth. deposit. Six month lease increases it by $25/mth., and if left in good condition they get entire $575 deposit back and only spent $150 more.
b. Based on experience, timely repairs can be a big issue with some tenants. Have and explain your Land’s Failure to Perform policy. If you fail to address needed repairs in a timely manner, you discount their rent. Notice I said address, not repair. Explain this too. Your rent is higher because you to get the plumber /electrician /roofer /etc. to check the problem out within 24 hours and usually fixed in 48 hours or less. If something like back ordering a part applies, the tenant is given a “repaired by” date and if you don’t meet this, their next months rent is discounted by x amount which you specify. I have no qualms about admitting this level of maintenance costs me more and that’s why my rents are higher. Tenants who’ve dealt with neglectful landlords find it well worth a few additional dollars a month.
c. Potential tenants whose circumstances make them “long term” renters are looking for landlords who perform regular periodic maintenance updates. Retirees and singles who don’t want to move in a year or two may be more than willing to shell our a few dollars more to avoid deteriorating surroundings.
d. Apartments are up close and personal living conditions that make items like Grounds, Exterior Building Maintenance, and general pet and/or child control issues not to be ignored. Go over your list of regulations, telling potential tenants they are all enforceable (but only if they are) and are to be respected by you, them and their neighbors.
People rent for a variety of reasons. A large majority simply can’t afford to own their own home. Some could handle the monthly payments, but poor credit is a problem.
There are about as many reasons for renting as there are folks who rent: Just moved to the area; only going to be in the area a year or less; sold old house and new one’s not finished; recent separation/divorce; soon to be married; lost roommate and need cheaper place; got roommate and can afford nicer place; retired but not ready for rest home; recently widowed; single and plan to stay that way.
The bottom line is people’s lives and circumstances change. You keep tenants and you lose tenants. But if you’re a good landlord, if you respect your tenants and treat them fairly, they’ll stay with you as long as they can. If you don’t, they’re out of there the first chance they get. Conversely, if they disagree with you about rent or any matters determined by you, the tenant/landlord relationship is probably damaged beyond repair and its best if they “move on”.
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