Master Your Lease Renewal Strategy to Minimize Lost Revenue from Vacant Units
Right now, people should be willing to renew some leases – if you can give them a compelling reason. The economy is good, but it’s getting tougher and tougher for tenants to buy into a hot housing market.
Veteran property managers know: It’s a lot easier and less expensive to renew an existing lease with a good tenant than it is to market a vacant or soon-to-be-vacant property to bring in a new tenant from scratch.
Managers should be zeroing in on that critical lease renewal metric, and attacking it from multiple directions. You need a great offense – and a great defense.
Your offense is your effort to renew the maximum number of leases possible – while still getting an adequate income from rents. Your defense is the agility with which you are able to anticipate and react to vacancies and turn units around to rent to new tenants.
The best property managers have a detailed and multi-faceted plan for both.
The first step is to have an aggressive, pro-active lease renewal campaign that lasts year-round.
Too many managers are passive for three quarters of a year-long lease, and only get serious about tenant retention and lease renewal in the last 90 days. That is, just 30 days before a 60-day move-out notice period.
Successful lease renewal campaigns begin the day the lease is signed – not 90 days before the lease expires.
Have a system
Your lease renewal program should not be haphazard. It should be written, with a clear plan for each leasing agent/manager, tenant and unit. Every unit should have a staffer responsible for it by name, and that staffer should have a track to run on, marked on a calendar, for executing action items that lead to a successful renewal.
You know when the peak move-in and move-out dates are for your market. You know when your leases are scheduled to expire. Budget your advertising and marketing spending plans to begin 60 days prior to season. Plus up your maintenance, make-ready and leasing staff during these peak months and run lean during the slow periods.
Get feedback early
Develop some survey materials for your tenants – both anonymous and non-anonymous. Start pinging them the day after move-in. Are they satisfied with their experiences? Are the amenities up to snuff? Was the staff professional and competent? Was the unit in excellent condition when they moved in?
Continue to get a sensing every 60-90 days to make sure everything is on track. If they aren’t happy with something, you have time to fix it well before lease renewal time. If you wait until 90 days out, it may well be too late: They’re already either shopping other apartment complexes or working with a realtor to buy. You may have already lost them.
Note: Survey data can also be valuable if it improves: Right after a big upswing is a great time to make them a deal for extending their lease early. Catch them while they’re happy.
Appoint a Renewal Czar
Some firms have created a full-time lease renewal specialist position. These are experienced staffers whose role is to maintain positive relationships with tenants, anticipate and resolve problems, and set the managers up for a successful lease renewal. If that’s not possible, they work on getting referrals.
These staffers can be heavily bonused based on lease renewal rates.
If successful, the reduction in vacancy rates more than justifies their position, and you don’t need as much staff to maintain and renew a lease as you do to do another apartment rehab, market and show a unit and do a whole new lease from scratch.
Schedule a T-Minus-90-Day Upgrade
Now’s a great time to schedule some upgrade or repair work. Install that shiny new refrigerator, bathtub or dishwasher. Replace that old dryer that they have to run twice to get their clothes dry. Now is the time to communicate that you care about your residents’ experience and quality of life, and the best way to do that is with actions, not words. Go above and beyond the call! Exceed expectations! But time it in such a way to maximize lease renewals and good referrals.
If they move out, you’re going to have to replace those aging appliances and make those repairs anyway, so it’s not like you’d be saving money by neglecting them!
Put the upgrade date on the calendar at the beginning of the lease. Even if you don’t yet know what the upgrade is going to be – you have nine months to decide. If your survey data is good, you’ll have a good idea what’s working and not working in the apartment.
Automate your rental application and screening
Automating your rental application process will decrease the amount of overhead taken by your property management team to push new tenants into your system. We’ve seen results that have reduced the application process from two weeks of back-and-forth communication to minutes.
Ditch the paper and pen if you haven’t already – take your rental application online to streamline processes.
Tenant screening should be automated as well. Develop systems that automatically screen an applicant’s credit and net income as soon as they submit their rental application. Every step you automate reduces the amount of busy work for your team and opens up their schedule to more high-impact projects.
Manage out-of-season expiration dates
If your market has a strong seasonality element to it, work to manage your out-of-season expirations. It’s much more difficult to get a new tenant out of season. Look at your projected expirations. If you have several set to expire out of season, you have some substantial risk.
Sure, you can let them go month-to-month. But that takes the power out of your hands. Meanwhile, other properties may be willing to make them a sweet deal in the off-season and you lose them.
It may be worthwhile to offer a significant incentive to these existing tenants to extend a few months. Otherwise you run the risk of sitting on a vacant unit for months waiting for moving season in your market to begin.
With new leases, consider offering an incentive for tenants to sign an extended lease -18-20 months, if appropriate, or whatever it takes to put the expiration date in a month where your marketing position will be strong, rather than weak.
Spread move-out dates out within the month
There’s no reason everyone needs to move out on the last day of the month. Sure, most people write leases that way. And you don’t have to worry about doing prorating math. But your agents can write the lease to expire at any time of the month. This can be a useful technique for minimizing end-of-lease vacancies.
Why? Consider your bandwidth for rehabs. How long does it take your in-house crew to turn a newly-vacant apartment around for a new tenant? How many crews can you run at the same time?
If it takes one crew three days to turn an apartment around, and you can staff two crews, and you have 20 units coming up for renewal at the end of the month, it’s going to take 33 days to complete them all. For most of the month, most of these units are going to be sitting idle, waiting for your make-ready crews to get to them.
- After 3 days, at least 18 will still be vacant.
- After 6 days, at least 16 will still be vacant.
- After 9 days, at least 14 will still be vacant.
And so on, and so on.
That’s a lot of revenue down the drain.
You can shorten the process by adding staff so you can turn around more properties at the same time. But that costs money, just when your revenue is faltering. If you plan ahead, there’s a much better way:
Spread your move-out dates throughout the month.
That way, you can still have 20 expiration/move-outs in the same month. But spread them out so they are 3 or 4 days apart, and you may only have two or three vacant or non-performing at any one time.
It may be worthwhile to provide some incentives to customers willing to change move-out dates to mid-month. The time to plan for that is 4-8 months ahead of time, before they’re looking at moving and making deposits on other apartments.
Create an upgrade or downgrade path within the company
Don’t lose good tenants just because their family size changes and they want to upgrade or downgrade. Stay in touch with your young families who might be wanting to upgrade from a 1-bedroom to a 2-bedroom. This is especially true of families with new babies or young children.
Of course, you can’t ask about familial status or their plans for future children – that would be opening the door to a discrimination lawsuit. But you can certainly ask your existing tenants if they might be wanting to move into a 2-bedroom unit in six months, or when one opens up. This is another great way to take advantage of surveys.
When it does, make them a good deal – and get a new 12-month lease.
If you don’t offer them a bigger unit, they’ll find one themselves, so get ahead of them.
Meanwhile, once you have their commitment to move into a soon-to-be vacant 2-bedroom, you have few worries about that two-bedroom, and you may have a couple of months heads-up to find a new tenant for that one-bedroom that they’re moving out of!
Ensure a good mix of available units
Look at your scheduled expirations, both in and out of season. Drill down beyond the raw numbers and look at unit types. Are they all 1-bedrooms? All 2-bedrooms? All studios? Are they all bargain units or all premium units with a lake view?
You don’t want all the units coming available at the same time to be of the same type. You’ll wind up turning too many potential applicants away because you don’t have the inventory that they need. Try to get a balance in the types of units coming available in any given month. If you have 20 1-bedrooms coming available in a single month and hardly any 2-bedrooms, it may be a long time before you can get all those 1-bedrooms rented out. And you will have had to turn away a lot of people looking for 2-bedrooms. That’s a waste of marketing dollars – and a lot of lost rental revenue.
Project your renewals and vacancies a year, six months, three months in advance, and work to iron out inventory imbalances.
The common thread between both the offensive and defensive measures is this: Maintaining a long-term outlook that sees months and years ahead. This is the key to being pro-active rather than re-active, and is critical to informing key decisions about staffing, marketing and resourcing.
Having that vision out at least a year also gives your middle management and staff time to work these issues, work with clients, and steer a very big and slow ship away from the icebergs that can sink your company’s monthly revenue figures and towards clear waters and smooth sailing.