How To Keep Your Best Tenants

One of the biggest lessons you need to learn as a landlord is that it’s exponentially cheaper to keep a tenant than find a new one. The only exception to this rule is when you have to evict somebody for nonpayment. But when it comes to your best tenants, they’re worth keeping.

A lot of first-time landlords make the mistake of driving tenants away by consistently raising the rent. 

Before we get into more tenant retention strategies, let’s consider the lifetime value of a tenant.

How to calculate the lifetime value of a tenant

To calculate the lifetime value of a tenant, you’ll need to estimate the length of stay for one of your tenants.

There is a dramatic difference between multifamily and single-family tenants. Single-family tenants, for example, stay an average of three years, while multifamily tenants have an average tenancy of just 12 months.

Let’s create a theoretical situation:

1. The rental is a single-family property.
2. Rent is $1,100 a month for the next three years.
3. We need 20% ($220) a month for taxes, insurance, and maintenance expenses.

The calculation

(Gross monthly rent * X months) – 20% = lifetime value of tenant

• Gross revenue (36 months x $1,100) = $39,600
• Minus estimated expenses (20%) = $7,920
• Lifetime value of a single-family tenant = 31,680

A lot of landlords have tried to increase the rent they charge to a more market-wide rate of $1,300/month. That increase would earn them an extra $2,400 a year in gross revenue!

However, it takes two to three months to get a property rented. That’s because you'll need to paint, perform upgrades, and do some landscaping. Those upgrades generally take a few weeks and cost around $3,500. Therefore, you will usually net a negative return on investment during your first year.

Landlords underestimate how long it will take a property to get re-rented. Let’s look at a everything that goes into a tenant turnover:

1. Repair work
2. Cleaning
3. Marketing
4. Showings
5. Lease signing

Also, if your lease ends mid-month, many tenants will be moving from another rental property, and they might want to finish out their lease their since they have paid for it. This causes additional delays in re-renting.

It’s possible to re-rent a property with no vacancy period, but it could also take six months. That’s why you need to make your calculations using a three-month average vacancy period.

Additionally, from a cash-flow perspective, changing tenants could potentially put you in a tight place if they move out in the fall season, when property taxes are due. Then you would have zero revenue coming in when you need it most.

Calculate the cost of tenant turnover as follows:

• Remodeling cost: $3,500
• Lost rent: $3,300
• Total turnover cost: $6,800

The example:

You might think you can make an extra $2,400 in rent, which equals $7,200 over three years. Subtract $1,440 (20%) to get net cash flow of $5,760.

However, the cost of turnover is $6,800.

Therefore, it’s better to keep a good tenant in the property. The new tenant who pays the extra rent will cost you $1,040 ($6,800 – $5,760).

Now that you've seen why it can be better to keep a tenant than have turnover, let’s look at six tenant retention strategies.

6 ways to reduce turnover

1. Remember special dates

Write down your tenants’ birthdays and any applicable anniversaries. Even a simple email or text recognizing those special days can greatly improve your relationship. You can also give your tenants a small gift during the holiday season.

Most landlords don’t do these things, so your tenants will notice and appreciate the gestures!

2. Give discounts

When tenants first move in, provide them with a list of your favorite local stores and restaurants. You should also pass along any standing discounts these merchants offer.

Or you could buy a local coupon book and give it to them. Tenants moving in from out of town really appreciate this gesture.

3. Upgrade the property

Property upgrades make a rental unit more desirable over the long-term and they’ll significantly reduce your turnover rates. Add a new coat of paint when the tenant asks, even let them choose the color. But make sure the paint color they choose isn’t too crazy.

Another upgrade is to provide a washer/dryer for multifamily units. This is a huge advantage when they are comparing my properties to others.

4. Invest in energy efficiency

The number one complaint you get about older properties is the cost of the utilities.

Most people recommend energy-efficient lighting. However, since people can be picky with their lighting, this isn’t the best upgrade. It might be better to improve the insulation of the house, because a roll of insulation is only $15 and has almost a guaranteed return on investment.

One of the best energy upgrades is a water heater blanket. You can usually pay around $20 for one, and you'll notice an immediate $5/month savings.

5. Improve security

Smart locks are a valuable item that will be the new standard for properties in the next five years. The best thing about these locks: they’re useful for maintenance workers who need temporary access to a property. You can give a maintenance worker a temporary code that won’t work after one use.

Another security upgrade you can make is a full alarm system. Here’s a tip: You can get an alarm system installed for free. The tenant would be required to pay for the monthly monitoring.

6. Upgrade the landscaping

Landscaping can be one of the highest returns on investments for my rentals. 

Some basic jobs you should do for tenants once a year:

• Clean gutters
• Trim shrubs
• Spray the lawn with weed killer and nutrients for the grass
• Buy flowers for window boxes
• Add a welcome mat

Don’t tell tenants about the work you plan to do beforehand, they always consider it a nice surprise when you do these things for free. In some cases, landscaping costs combined can cost less than $100, which is a good investment that leads to happier tenants who stay longer.