The TRUE cost of renewals and how to save yourself thousands!

[Elise Bickel Tauber]

I've been having this conversation lately with a lot of the owners I work with as well as those who self-manage. For a long time, the mindset for investors has been to get the highest rents possible on their units. That has led them to continue to jack up rent prices and often, push out good tenants for the sake of an extra $100/month. I think this way of thinking is a bit foolish and can leave thousands on the table.

When I'm looking to process a renewal, whether for my own investments or for my clients, I start by completing an analysis on the tenant. Are they a good paying tenant? Do they have a lot of repairs called in? Damage to the property? Are they a pain in the butt? If I had the option to rent to them again would I? 

Once I've done that analysis, I do one on the property itself. If the tenant were to leave, what would I need to do to get top rents? Could do I a lot less to get lower rents (for example an upgrade may be $10-$15k where a bare minimum repairs and cleaning may only be $1-2k). The rent difference versus the offset of cost needs to be calculated. 

Once all of that is figured into place, I look at the expenses of the property. Is it cash flowing? If yes - great. If no - why? Is it repairs from heavy tenant use? Deferred maintenance I knew was coming? Something that was a 1-off repair that killed cash flow but shouldn't happen again?

After weighting all of that, does it make the most sense to try to keep this tenant in place? If not, then serve the non-renewal and prepare to turn the unit as efficiently as possible to reduce costs and vacancy. If yes - How can you creatively make yourself money without costing the tenant more? A good example to reduce your potential costs without raising rents is to have the tenant agree to handle all repairs under a certain amount. Not only will this help reduce unexpected costs but tenants often take care of their property better when they are responsible for the repair costs. 

At the end of the day, if you have a tenant you want to keep, talk with the tenant and see if you can get on the same page with them to align your goals as an investor with their goals and budget for their housing. 

Hope this helps!