A tenant’s lease will soon expire and if he was of good standing, then his lease renewal would be vital to the landlord. It would be the most profitable transaction a landlord could close because good renters who stay on equate to a guaranteed income for at least another year.
Sometimes, however, negotiating for renewing the lease could be a big challenge for the landlord, especially when there are plenty of enticing rental properties on every block. So, what are the most effective strategies for landlords to convince their tenants not to look for a new home?
First, it’s important to distinguish the pros and cons of renewing a lease with an existing tenant – aside from the guaranteed regular payments.
Advantages of Letting a Tenant Stay On
- It’s less costly and it saves time to go with an existing tenant, as your property won’t have a vacancy.
- Since you already know the occupant, more or less you’re both accustomed to the system, the SOPs and the rhythm of things.
Disadvantages of Letting a Tenant Stay On
- On the downside, you’re likely to set limitations on how high you can raise the rent for an existing tenant.
- You might not be able to make major renovations to your property to command a higher fee right away.
Understanding a Tenant’s Mindset
Tenants move out for a number of reasons but the most common ones can be narrowed down to four:
- There are major changes in their life. Marriage, divorce, a new baby, or losing a job could affect their decision for staying on.
- They have a new job in another city, or if it’s in the same town, they might want to move to a home that’s closer to their workplace.
- They found a better place for the same rental fee.
- They have issues with you, the landlord.
Landlords have to keep in mind that moving to a new home is rarely a sudden decision. However, even though only 14 percent of tenants in the U.S. actually decide to look for a new place, according to the Census Bureau, landlords still have to work hard at keeping them interested in renewing the lease.
Lease Renewal Incentives
Though most of the reasons tenants leave seem non-negotiable, you could still convince them to renew by providing incentives. Before making offers, it’s best to weigh the risks versus the rewards for such incentives first and think hard about how much you really want this tenant to stay on.
1) Rental Fees
Money is always a big deciding factor for tenants, and when rents around the city are skyrocketing, you’re actually in the best position to make an attractive offer based around the rental fees.
How about promising not increasing the tenant’s rent for the next 12 months? You already have a good tenant who pays on time, so you’re set for the whole year.
Consider offering a discount for early payments. Say the lease to the unit is $1,000 a month and your tenant never misses payments every 30th. How about taking $100 off his rent if he promises to pay 10 or 15 days earlier?
Offer to give his security deposit back after he signs the lease renewal. Security deposits belong to the tenant anyway, so it won’t be a loss on your part. If you choose this incentive then your good and harmonious tenant-landlord relationship would be your new security.
2) Lease Terms Flexibility
Some flexibility in the lease can bring more rewards than risks. For instance, if the landlord agrees to let the tenant sublet his unit, then the move might entice another potential renter in the future.
If a landlord allows the tenant to finally have pet or two in the apartment then he could be looking at a longer tenancy agreement. Pet owners are the types who stay in their rented place longer because it’s never easy for them to find a place that could take their pets in on a whim. Besides, the landlord can eventually charge a higher rate when it’s time to extend the lease agreement again.
3) Property Upgrades
Tenants consider their unit as “home” even if they don’t technically own it, and they might be convinced to stay on if you offer an upgrade to their place. It could be as simple as repainting the walls or adding another parking slot; it can be as big as doing a kitchen remodel.
The bigger enhancements aren’t completely going to be expenses, though because any upgrade to the house actually increases its value; hence, it’s a worthy investment.
Keep Good Tenants Happy
It won’t be so difficult to convince your tenants to stay if they have generally been happy with how you manage the property as the landlord. To do this, however, you have to build a good relationship with them from the first month they’ve moved in. It’s important to start the process of retaining tenants early on and not right before you have to negotiate for the lease renewal.
Outline your expectations in the lease agreement.
A detailed and well-drawn lease agreement that includes sections about rules and regulations will help avoid any confusions and conflicts. It might be important to go over these details in a sit-down meeting with the tenant even before they move in.
You also need to provide the tenant a copy of any additional rules and guidelines that might arise as the months go on. You could also give other documents in a welcome package for the tenants that are otherwise not part of a lease agreement, such as:
- The emergency plan for the rented property, in case there’s a need to evacuate such as in a fire
- The schedule for trash collection and recycling
- Brochures from agencies about hazards and security awareness
- The emergency numbers of the local fire and police station, animal control, or poison control
- A compiled list of phone numbers for utility companies or the most convenient restaurants with deliveries
Attend to their requests and concerns in a timely manner
Tenant requests and concerns should be a top priority. How you promptly deal with a broken heater or a noisy neighbor, or the fact that you return their calls and reply to their messages, can help build trust and credibility.
If an outside professional is repairing something in the unit, let your tenants know that you’re still involved by checking up on the service men and their work. You should monitor the progress of a repair work, too.
A landlord who is effective at solving the tenant’s problems will be hard to top, and if your service makes them satisfied, then this could be a big reason for convincing tenants to renew the lease.
Add the human factor
While managing a property is still a business, it shouldn’t stop landlords from having an amiable relationship with the tenants. It’s necessary to add the human factor in this business arrangement because it will matter to the longevity of the contract.
For instance, you could send flowers to a tenant who’ve just had a baby, or give a get-well card to a tenant who’s in the hospital. While gift-giving could be seen as bribery by some, according to a survey, at least 70 percent of tenants were convinced to stay on for two years because they appreciated their landlord’s act of kindness.
If you’re not comfortable with giving gifts, however, you could still show the human factor by granting a grace period to a tenant who expressed having problems meeting a rent payment for the month. The decision to grant a leeway, however, must be an exception and not the norm.
Make improvements in the property that will please tenants
Invest in smart devices that could modernize the property’s amenities. Improve the common areas’ aesthetics with simple renovations like repainting or adding more outdoor furniture, or planting more greens and flowers.
Trim the trees, cut the lawns, and clean the water in the courtyard’s fountain regularly. Consider turning unused areas in the basement for recreational functions.
Making improvements to the property show the tenants that you care about where they live. These improvements will no doubt make them proud of their home too, and perhaps convince them to sign for another year.
Conduct regular surveys
Do a survey among new tenants a few months after they have moved in. Ask what they like about living in the property, and don’t forget to get their suggestions on areas to improve on. By getting their feedback, tenants feel that your care for their welfare.
Don’t discount the small things, as this could be the most important factor to retaining tenants for another year. Focus on your goal as landlord to keep the turnover rate among your tenants low by feeling the pulse of your small community.
When to Negotiate the Lease Renewal
Ideally, landlords and tenants should start discussing the lease renewal some 90 days before it expires. Either party could initiate but if you’ve been a great landlord, you can be confident in bringing the new offer on the table.
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