Increasing lease renewal rates increase annualized rental income and will reduce overall expenses. There is a direct correlation between fewer days vacant and higher rental income. Every unit turnover represents lost revenue. The most direct path to reducing days vacant is to focus staff attention on lease renewals.
In the U.S. apartment business, approximately 50% of renters renew their lease at the end of the lease term. Said another way, 50% of renters do not renew their lease contract. As a property owner, average performance means having to replace fully half of your anticipated rental income stream every year. It sucks to be average and very expensive!
Being average, having a 50% turnover rate, assuming this is ok, automatically results in high turnover expenses. Reducing turnover, or, increasing lease renewals, has an immediate positive impact on costs and Capex - less is more; less turnover correlates to more savings on expenses. A resident renewal is a big win!
Forget about gimmicks; let's stick with tried and true to gain lease renewals. There is a particular course of action that allows for continuity in customer contact and a high lease renewals rate. Avail has the process of resident renewals down to three simple steps; ask draft and sign. That is a very American perspective; you don't ask, you don't get! With lease renewals, we should be asking not less than 60 to 90 days before the lease end date.
Lease renewals are a cornerstone of consistent rental income generation. If you are familiar with my guidance, you have read many times, my perspective about the fact that a rental property does not manage itself. Owning rental property assets is hard work. Part of assuring each unit you own is maximizing revenue is keeping them occupied with paying customers, your residents.
For starters, if there is a leasing office on-site, having posted hours is a small thing that brings significant results because your residents (customers) know when the "store" is open. Your property must have trained staff responding professionally. Is customer service at the forefront of company policy with an eye towards quality customer service? These are operational must-haves for increasing lease renewal rates.
Regarding the effect of a unit vacancy on cash flow, the value of a resident that remains for a lease term of more than one year is far higher than you may think. Consider the expenses generated from a single vacant apartment:
With an extended lease, the revenue never stops, and turnover expenses are kicked down the road indefinitely. Without going deep, I see $3,000 in opportunity costs with quick turnaround time.
The primary reason that a longer-term lease has value is that it replaces the unknown with the known. An occupied unit has a known income. An unoccupied unit has zero income and hidden expenses until filled.
Every property can have its customized newsletter sent via email. The newsletter provides a consistent method of contact to inform and notify about all things on the property. It doesn't have to be a long and tedious process. It can be a single page in pdf that includes information on renewal specials and offers.
Most markets remain competitive while we hope to avoid "two-months free rent" concessions to gain leasing traffic. Direct calls speak to the urgency of getting in-place leases extended and reminds us of the known value of a lease contract versus the unknown expense component of vacancy.
Electronic signatures for resident renewals work well, (check with counsel before implementing), however, my preference is to have a renewal signing in the apartment home and use the event, per the terms of the lease, as an announced interior inspection. Of course, better is having the inspection weeks before renewal to prepare for a turnover if necessary to:
By the way, the unit inspection may cause you to pause on the renewal for reasons from too many persons in residence (people living there but not on the lease), to all the other issues that denote lease violations. Do not proceed with lease renewal until all violations are in order. There is such a thing as denying a lease renewal, knowing that sometime this is the better part of wisdom.
Looks like you haven't made a choice yet.