Successful Rental Property ROI Starts with a Plan
You can consistently increase your rental property ROI – if you have a good strategy. The key is to include a plan for keeping your tenants long-term. This aspect, while often overlooked, is directly correlated to your rental property ROI success.
The Hidden Costs of Tenant Turnover
The biggest success factor for your rental property ROI is the length of your tenant stay. For example, say you have a property that is rented at $1,150 per month. When the tenant moves out, you’ll have several expenses. On average these will look like:
- 45 days of lost rent = $1,701
- Average turnover repairs = $2,000
When you bought the rental property, you expected a loss of about 12% in maintenance and vacancy costs. However, if you have a tenant turnover every year, that’s a loss in maintenance and vacancy costs of $3,701 a year. Over four years, you’re set up to lose nearly $15,000. That’s a whopping 27% of your rental income!
All in all, how much you lose in rent and turnover repairs will determine the success of your investment. Property managers must pay attention to this basic fact. If your property manager doesn’t strive to keep and re-sign tenants, you’re setting your investment up for failure.
The Advantages of Long-Term Tenants
In contrast, if your tenant stays four years, your returns look much more optimistic. The turnover maintenance and vacancy costs are only $3,701 every four years, decreasing your loss to 6.5%. That’s much brighter than a 27% loss!
Unfortunately, there’s no way to avoid some degree of expenses each time a tenant moves out. By spreading that cost out over four years, however, your rental property ROI will look much better.
Three Keys to Decrease Tenant Turnover
We’ve found three ways to decrease tenant turnover:
Key 1: Sign leases with two and three year terms. When prospective tenants call, we explain that we specialize in long-term leases. This expectation is clear up front; this way we’re able to structure the lease terms to benefit everyone involved. Moving is expensive for tenants too, so we find incentives to encourage longer leases.
Key 2: Invest in properties that are new construction or fully renovated. Brand new and fully renovated properties don’t have as many repairs, and some items are still under warranty. This makes everyone happier.
Key 3: Treat the lease renewal process like a sales opportunity. While often overlooked by property managers, this is the biggest opportunity to secure your returns. We start working to renew leases as soon as tenants move in.
We appreciate every opportunity to build a relationship with our tenants. Each interaction is the chance to offer a lease renewal. That’s a win for everyone!
By Gregg Cohen
As a founding partner of JWB Real Estate Capital, Gregg Cohen has seen the company grow from humble beginnings to serving over 1,000 clients worldwide with total assets under management of over $350 million. Cohen and team have been featured multiple times in The Wall Street Journal, The New York Times, Bloomberg, Inc. Magazine, Jacksonville Business Journal, and The Florida Times-Union. To learn more about building a rental property portfolio, go to www.jwbrealestatecapital.com or call (904) 677-6777.
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