It turns out that one of the best ways to maximize your real estate investment is very simple: Keep your tenants happy and treat them well! After all a happy tenant will have a longer tenancy, will likely maintain your property better, and will cause you fewer headaches! Oh, and of course, will significantly improve your profitability! In this article, we outline why treating your tenants well and keeping them happy pays dividends in the long-term.
Let’s start with why you would want to keep your tenants happy. On the average, happy tenants stay longer! This is what you want. Why? Because each and every time a tenant leaves, you can incur a significant number of expenses, including (but not limited to):
- Administrative costs
- Advertising costs
- Showing costs
- Application costs
- Repair costs
- Lost income costs
- Cleaning costs
These can really add-up. Our goal with this article is to help you assess how to select good long-term tenants and how to keep your tenants happy (so they stay around).
Long-Term Tenants: When selecting tenants, looking at credit, criminal, employment, and rental histories are critically important. However, they are not the whole-story. When looking for long-term tenants, we encourage landlords to look deeper into the application. Does the prospective tenant typically stay in the same place for five-years or more at a time? Or do they jump around every 12-months (both with regards to residence and employment)? These subtle details tell a lot about whether the tenant is likely to stay for a long-time, or only for a year or two.
Happy Tenants: When it comes to keeping tenants happy, there are a few basic main stables that seem to be key. First, you need to be responsive! The biggest complaint tenants have is the unresponsiveness of landlords to their requests. This is particularly true for repair and maintenance requests. To keep good tenants long-term, you need to be responsive. Respond quickly and do your best to resolve any problems they have as quickly as possible. The second biggest key is related: maintain your property! Many owners let their property fall into a state of ill-repair (slum-lords) for fear that the costs associated with property upkeep will dig into their profits. Unfortunately, these owners frequently enter into what we call “the death spiral.” This death spiral goes as follows:
- The property owner does not maintain the property for fear that it will decrease their profits.
- The property condition deteriorates, resulting in lower rents over time.
- With the lower rents, the owner now feels especially frugal and does not want to pay for key repairs/upkeep on the property, instead trying to milk it along.
- The property condition worsens further, and rental revenues decrease further.
- Eventually with such poorly maintained property, high-caliber long-term tenants are no-longer interested in the property… and the process continues.
- Eventually the above process has resulted in the property being dilapidated, and when the owner goes to sell, the property isn’t worth a lot because it has been run into the ground. Thus, the owner lost cash-flow for years, and then lost-out on the equity of the property.
The above process is all too common, and it doesn’t need to happen. The best way to maximize your long-term profitability is to keep it up and incorporate a proper maintenance and upkeep schedule. When it comes to maintenance, an old-saying rings true: “An ounce of prevention is worth a pound of cure.”