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.
Ask, Draft and Sign Your Lease Renewals
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.
Five Lease Renewal Touchpoints
Here are your five “touchpoints” that professional property management companies deploy to implement consistent customer contact and assist in making lease renewals part of ongoing operations.
- From Day One. ABC: always be closing. The most sophisticated property management companies are in continuous renewal mode. They begin the discussion about lease renewal in the welcome packet- basically, from day one of the initial lease terms, because – why not?
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:
- Loss of Revenue (and the fixed costs without attribution)
- Turnover costs: Labor, material, staff time to schedule all
- Marketing expense
- Utility expense
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.
- A Call to Action. Last year I would be saying that every public event on the property should have a renewal component, from pool parties to BBQs to renewal “bonus” offers at the leasing office door and by the coffee pot each morning. This year, with COVID-19 in the fray of every corner of our lives, it’s essential to remain connected as if you were a digital marketer, using every channel at your disposal for consistent contact with your resident base.
- Email (marketing). Send an email to everyone not less than once or twice each month. The content of your email conveys essential safety information, property operational changes, and reminders to communicate about renewing leases. Beyond email, use the same social media channels as residents use. You can identify these channels with a simple doodle poll for free.
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.
- Reaching out by phone. The closer the lease end date, the more reason to sound the bell of urgency, particularly in hot markets where rents are rising, and you have a waiting list. Am I dreaming? Property with a waitlist? Yes, they still exist. But not everywhere, of course.
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. Some PM companies have verbiage in the originating lease that allows residents to “electronically” sign a lease renewal that makes it a binding document. Docu-sign has this feature, as does Yardi and Realpage.
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:
- Allow the resident to address any issues that would place the renewal on hold. It may sound funny, but all residents that show up for a lease renewal don’t renew. They may have changed their mind for whatever reason. The reason for a face-to-face (with mask) is to
- 1) get the renewal signed, or
- 2) determine the real cause for the non-renewal and
- See if you can solve the issue and gain the renewal and
- Prepare for a turnover in advance. Having staff, vendors, and materials at hand the day of move out to reduce turn time.
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.
- Gifts and concessions. For a starter list on lease renewal concessions, ideas read 21 Low-Cost Renewal Concessions.
- Things not to do. Also, read the article Five Resident Loyalty Shredders for another perspective on renewals.
What are your ideas on how to manage lease renewals for your residents? Comment below with anything we missed regarding the lease renewal process!