According to the National Center for Housing Management, over half of U.S. apartments turn over every year – at substantial cost to landlords. Turnover can be one of the largest operating expenses, due to lost rent and unit preparation steps like cleaning, repairs and advertising. Reducing turnover should be a top priority for landlords. Vetting great tenants and incentivizing them to stay is crucial to generating the highest and most consistent possible income from rental properties.
Compounding the need to attract and keep excellent tenants is the fact that younger Generation Z renters may be more scrupulous than those from generations past. Having spent their formative years during the housing crisis, Generation Z or “zillennial” renters tend to be more frugal. They’re also digital natives with a completely different set of expectations when it comes to modes of payment and communication with their landlords.
Because collaboration and flexibility are paramount for this new wave of renters, today’s landlords should consider negotiable lease terms. For instance, offering lower than usual rent increases can incentivize good tenants to stay and, while this might reduce potential profits, it’s generally far more profitable than the cost of vacancy, turnover and the risk of taking on new tenants.
Forbes Real Estate Council member Jeffrey Taylor is a landlord coach, mentor, instructor and author of The Landlord’s Survival Guide: How to Successfully Manage Rental Property as a New or Part-Time Real Estate Investor. Having managed rental properties himself for the past 35 years, Taylor has experience with thousands of renters from many walks of life. He believes today’s landlords should collaborate with current and prospective tenants to establish and update leasing terms that encourage lower turnover rates and higher profits.
“Turnover is one of the biggest killers of cash flow for rental property owners. If, however, landlords can encourage renters to voluntarily rent for longer periods by getting them more actively engaged in the decisions surrounding the lease terms, this can create more of a win-win environment,” Taylor says.
As a landlord, Taylor’s goal is to offer individual residents options in the lease terms that will work best for them. He begins by asking new residents if they would prefer a one-year lease or month-to-month agreement with slightly higher ($30-$50) monthly rates but greater flexibility, should they need to move. He also offers security deposit options; residents can pay the standard one month’s rent plus security deposit (equivalent to one month’s rent) upfront, or they can pay a reduced security deposit upfront and a small monthly rent increase (usually half of the standard security deposit and a 5% monthly rent increase).
Taylor also gives residents options in terms of how they choose to pay their rent: either the traditional monthly payment or payment every two weeks, to correspond with their paychecks. The latter option comes at a slightly higher rate; however, Taylor says some residents prefer this option, because it helps them budget their payments better. Additionally, he says, today’s tenants should be given the option of paying traditionally via check or with automatic payments drafted from their checking or savings accounts.
Amenities (washer and dryer, Wi-Fi, lawn care service) are additional variables that can be added or subtracted from lease terms. Taylor says the most important part of offering flexible leases is establishing a collaborative landlord-tenant relationship upfront. “When meeting with renters to sign a new lease and go over the lease terms, I would encourage rental property owners to consider offering renters the opportunity to provide input in some of the above lease terms,” he says.
In Taylor’s experience, utilizing these strategies can increase a landlord’s average annual net income by 10 to 20%. They can also increase the average length of time residents stay in rental properties by an additional year or more. Taylor’s residents generally stay about three to five years, far surpassing the national average. His congenial approach to working with tenants is epitomized in the first words of every lease: “Welcome as one of our new 3-Star Residents and we look forward to working with you for the next 3 years!”