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KEEPING TENANTS LONGER

PART ONE

When the writer was asked to do an article titled “Keeping Tenants Longer,” the first reaction was, “longer than what?” Most people instinctively accept the concept that tenant retention is a good idea. It is certainly true that frequent turnover can be a source of large expense, not only from lost rent, but from the inevitable loss of time, effort and money involved in refurbishing the newly vacant unit and screening and obtaining suitable new tenants. While the tenant lost was a known quantity, the new tenant, no matter how well screened, is a wild card.

So tenant retention is a good thing, if it can be done. Some writers take the position that this can be done through gimmicky techniques. Others stress steadfast devotion to legal duty. Few take the time to analyze what tenant retention means. Without an understanding of what tenant retention is, the landlord cannot hope to know if he has achieved it, which may result in him doing things he need not do and making concessions he need not make.

It may as well be said now that rental and ownership are antithetical. The rental relationship is inherently temporary. All rental agreements are limited in time. It is mostly in this that they differ from the fee, which is granted in perpetuity. Coming to grips with this fact is prerequisite to understanding the landlord’s conundrum. The landlord will lose all his tenants. The issue is how to keep the good ones as long as possible, and what that length of time might be.

People choose to rent. People choose to do things for reasons, even if they are not always obvious. We contend that an understanding of these reasons is essential: First, the reasons why people rent at all, and, second, why people should rent from you. No one, after all, is compelled to rent. It is not that there is no space for everyone in the US to own his own house with a backyard and a front lawn. Next time you are flying a long distance look out the plane’s window.

Different people rent for different reasons. If your apartment building is located next door to an Air Force base and you cater primarily to military personnel, then you can expect to have a high turnover rate. Reference to a raw statistic on the average tenant’s stay in your building is misleading. Ask instead whether tenants regularly move out of your building to move into other buildings in the same general area. If the answer is “yes,” then you have a problem and need to work on tenant retention policies.

A better formulation of the issue than “tenant retention” might be “how to avoid losing tenants to the competition.”

Several classes of individuals prefer to rent. One has already been mentioned: the person with the type of job that may require frequent moves. Much as such a person may wish to put down roots and buy, the risk of having to move promptly makes that option impractical.

A second group consists of younger persons starting out, who do not yet have the financial wherewithal to buy. Renting permits them to live in decent housing without substantial capital outlay, while laying aside the down payment for their first house.

A third group might be those who are recently divorced or separated. Despite the fact they may have substantial income and assets, they are in no position to make long term commitments until their legal affairs are in order. These might be the most transient of all.

A fourth group are those who, for whatever reason, have decided that home ownership is a bad personal investment for them. A widowed retiree, with substantial assets but family living elsewhere in the country, may not think, at age 70, that a long term investment in his dwelling is a wise use of his money. Others might like the idea of home ownership, but not like the idea of home upkeep. These tenants might be expected to remain for many years.

Some thought would yield more examples, but the point is made. Not all tenants are alike, and not all tenants rent for the same reason. There is no formula which will result in the ideal tenant stay. But there are things the landlord can do to avoid the movement of valuable tenants from his building to the one across the street, an event which should be deeply disturbing to anyone in the landlording business.

The landlord is in a business. He sells a product to his customers, the tenants. What is this product? “Easy,” you say, “shelter.” This is false. A tent salesman sells shelter. The landlord sells more. The residential landlord retails a bundle of objects and services, all of which add up to a residence.

The first step to increased tenant retention is to realize that you are in a business, with competitors to be outwitted and customers to be satisfied.

There are a number of ways to make money in real estate. These include, but are not necessarily limited to: appreciation of the property, natural or forced; equity buildup over time; tax shelter; cash flow (rent). That last item requires tenants, customers. You can practice the other three, and some do and make a lot of money, but if you want to practice that last method of making money, then you must be a landlord and offer your customers a product they want to buy. This means dealing with the basics, consistently.

Imagine an automobile manufacturer. It has designed a car which has all the amenities which consumers have said they want in their surveys: leather interior, multi-channel sound system, reclining seats, power windows, all the bells and whistles. Best of all, the price was slashed well below the competition by leaving out all those costly engines, drive trains and wheels. This manufacturer will not have many repeat customers, and the reason is that it lost sight of the basics. These are, that the automobile transports its payload from place to place, with more or less comfort, safety, reliability, and so on, but it does transportation.

The basics which the landlord provides can be subdivided into the physical characteristics of the dwelling, and the services necessary to maintain it. We will discuss these first, and deal with some of the bells and whistles which can be of help later.

In turn of the millennium America, the characteristics of dwellings are dealt with in laws of all the states. These typically include that the building be weather tight, that landlord supplied appliances function and be maintained, that there be heat, adequate ventilation, electrical service and pest control, that plumbing be up to code and maintained, that common areas be maintained in a safe and clean condition, that the building be structurally sound, that there be hot and cold running water, and so on. Individual state requirements differ slightly. Some require a phone jack, and others even require cable TV access, but all share the requirement of a sound and sanitary building.

All of the tenant types discussed above will, with, perhaps the rare exception, require at least these things. But there are other things, not written into law, which tenants have rightly come to expect, and which are equally part of the basics.

Tenants expect to be dealt with in an organized and business like way. However negligent they may be in their personal affairs, tenants perceive the landlord to be in a business, and want to see a business like approach to what may be one of the most important transactions they will enter into in their lives. When renting to the new tenant, use a written rental agreement. Do not use just any form, but an agreement which actually sets forth the terms of the rental contract you are making with the tenant. Then go over it with them. In this way, everyone knows what is expected of them and what they can expect.

 

 

 

If you promise, at move in, to correct a fault which the tenant discovers when he walks through, then do so, within the first week of the tenant’s stay, while the tenant is still living in turmoil and out of moving boxes anyway. Do not go there two months after move in and wonder why your tenant does not want to move all his furnishings around to permit you to do something that should have been done at once, all the while grumbling about how he is going to move in a few months anyway.

The tenant has an expectation of reasonable privacy, and that he be left to live his life without constant interruption by the landlord. At the same time, he wants the landlord to be available and responsive to his needs. Remember the group of tenants we discussed who think home ownership is fine but home upkeep is to be avoided. These can be tenants of the greatest longevity, but they do require service.

The one service which tenants value above all is responsiveness to repair requests. For at least one tenant type we have identified, freedom from having to deal with repairs is a paramount reason they rent. None of the other tenant types, neither the ones we discussed nor the ones we could not think of, believe they should be responsible for doing repairs, inasmuch as they lack any equity share in the building. At the same time, unresolved required maintenance imposes frustration and creates ill will many times far out of proportion to the seriousness of the requested work. More than any other single factor, failure promptly to attend to requested maintenance will shorten tenant stays.

In keeping with the business like mode you have decided to adopt with regard to the initiation of the tenancy, adopt a similar one with respect to maintenance. Designate one person or one place, or a phone number where maintenance requests can be made, for example, a telephone number with an answering machine or service attached and operational 24 hours a day. This way, you guarantee the request is made to someone who understands how important it is. It is probably not a good idea to require that all maintenance requests be made in writing, as it imposes an unnecessary burden on the tenant. Make it clear, however, that all maintenance requests must be memorialized in writing, and that if the tenant does not receive a note from you, or the responsible person if you have the luxury of employees, then it is time to renew the request to ensure it has not gone astray.

Establish a policy that all requests will be acknowledged in writing within a day of receipt, and that action will be taken within three business days. Then follow it. Some types of repair are such as to require action sooner, but there is not one upon which some action cannot be taken within three business days, even if the repair itself takes longer due to back ordered parts, etc.

Some writers have suggested giving a maintenance guarantee. This would entitle the tenant to a rent abatement if repairs were not initiated on the problem within three business days of the date of a maintenance request (on major items, of course). Be careful of this one, as this type of a guarantee carries legal ramifications and can lead to uncontrollable results. We would, however, strongly suggest offering a rent abatement, not because the tenant has a right to it, but as a matter of good will, after the repair is made. If you do this, be sure to document it, and the reason for it.

Do you leave your apartment building after a visit thinking, “Boy, I’m glad I don’t live there”? Your tenants live there, but if this is your attitude, you can bet they won’t live there long. Next in line as a long term tenancy terminator is a failure to maintain the common areas. The landscaping need not look like something out of “Sunset” magazine, but keep the place clean, well lit, with living, not dead, plants and lawns, and walkways that are safe to use. If your tenants are ashamed to call your building their home, they will not be likely to want to make it their home.

A failure quite likely to lose you high quality tenants is the failure to maintain a high general tone to the building. By this we mean a failure to look to the tenant mix. This used to be easier before the advent of anti-discrimination laws and suits based thereon, but can still be done. If Mrs. McDougall, age 67, with a cat and very highly developed sensitivity to noise after 9:00 p.m., expresses interest in one of your units, but emphasizes that it must be quiet, you might want to point out that her prospective neighbors are students at the university who sometimes keep late, loud, hours, if that is so. Now if Mrs. McDougall decides she would like to be around young people, fine. But at least she will know the situation before going in, which is less likely to lead to a premature vacancy than if she is surprised once she is there. Note, we are not advocating steering or other prohibited acts, but honest responses to specific needs voiced by incoming prospects.

Further under this heading is what you do when two tenants just do not get along to the disturbance of other tenants. This is a subject for another article. But if confronted with this situation, you are confronted with the certainty that you will have at least one vacancy. Try not to make it two. The extent of your involvement should be to make it clear, firmly but politely, that you are prepared to accept one vacancy, but not two, or three, or four. If they do not get along, one of them will leave. Who that will be will be based on factors that you think to be relevant to the best interests of building as a whole. The tenants have a choice. They can get along, or, at least, avoid each other, and both remain, or, they can continue to fight and disturb other tenants, in which they are taking a 50/50 risk of eviction. If this does not motivate them, nothing will.

This last, by the way, illustrates that you do not have to give away the farm in order to provide customer oriented service. But do keep in mind, that while you are exercising your best efforts to provide outstanding service and responsiveness to your tenants’ needs, you also have valuable legal rights which you must enforce in order to ensure that you retain control of your investment.

Article Continued - Part Two

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