Tenant turnover refers to the portion of tenants who stay in a rental property versus the number of tenants who leave. It can also be used to describe the period between lease expiration and the arrival of a new renter
To become a rental real estate pro, you’ll need to learn how tenant turnover works. We recommend learning from trusted sources with years of experience for the most accurate information. Luckily, you’re in good hands- we’re here to teach you all about this crucial topic before the exam.
In this post, we’ll define tenant turnover, explain its reasons, and advise on how to reduce it. Keep reading for everything you need to know!
What Is Tenant Turnover?
Tenant turnover is the portion of tenants who stay at a rental property versus those who vacate the property. Tenant turnover can also be used to describe the time gap between an old tenant leaving and a new tenant moving in.
If a rental property has a high tenant turnover, it means that tenants rarely renew their rental agreement after the lease expires. A high turnover rate is generally seen as a negative for property managers, as it is their job to keep tenants happy and living on the property.
How Does the Tenant Turnover Process Work?
Before we go on, it’s crucial to explain how the tenant turnover process works in rental real estate.
In most cases, property managers notify tenants to let them know their lease is about to expire. At this point, the tenant will either renew their lease or vacate the property.
If the tenant chooses to leave, it’s time for the property owner to find a new renter. The goal is to find a tenant as soon as possible to avoid lost income; the longer a property is empty, the less rental income a landlord will earn.
Before showing the rental unit to new prospective tenants, it’s vital to ensure the property is in good condition. Most property managers will conduct a move-out inspection to ensure there are no damages. If there is property damage, the landlord may keep the tenant’s security deposit to cover the costs.
When the rental unit is ready for new tenants, the property manager should start marketing it. The time it takes to find new renters varies depending on rent prices, location, amenities, and other factors.
Example of Tenant Turnover
Say that Angelo owns an apartment building with 150 tenants. When he looks through his expenses, he realizes that 90 of those 150 tenants chose not to renew their leases.
As a result, Angelo has been paying high turnover costs due to vacant properties. If this trend continues, Angelo will have to pay exorbitant costs for marketing, tenant screening, and traveling to apartment showings.
These expenses add up fast, and because Angelo is missing out on rent payments from empty apartments, he may no longer have the funds necessary to run the building. This could result in him having to sell the property and ending his career as a rental real estate investor.
To solve the issue, Angelo asks some of his tenants how he can improve their living experience. Angelo receives helpful feedback and starts making an effort to incentivize renters to renew their leases. This benefits Angelo’s business in the long run, as tenant turnover rates decrease and his profit margins go back to normal.
5 Reasons for High Tenant Turnover
So what makes a tenant hesitant to renew their lease and stay in a rental property? Let’s discuss the most common reasons for high tenant turnover in rental real estate.
High Rent Payments
Some landlords may charge higher rent in a lease renewal to increase their profits. However, this strategy can increase turnover by enabling current tenants to leave and keeping new tenants away.
When deciding how much to charge for rent, property owners should check out the market value of nearby rental properties and offer competitive prices.
Lack of Property Maintenance
Another reason for high tenant turnover is property owners who fail to maintain the rental property. For example, say that a tenant requests repairs in their unit because the toilet has broken. If a landlord ignores their maintenance requests, the tenant will not want to renew their lease once the lease agreement ends.
Also, if a rental unit has outdated appliances and peeling paint, this could indicate to prospective tenants that the property is not well-maintained.
Negative Landlord-Tenant Relationship
This point goes hand-in-hand with property maintenance, but another reason for high turnover is a negative landlord-tenant relationship. Landlords should do their best to make a positive impression on tenants and respond to their needs whenever possible.
Another reason tenants may leave their rental unit is that they do not like the neighborhood. Unfortunately, once the property has already been built, there’s not much property owners can do about this. This is why building rental units in good areas with access to schools, shopping centers, and other necessities is essential.
Sometimes external factors contribute to turnover, which is out of the property owner’s hands. For example, renters may experience life-changing events that require them to move away. Examples include marriage, divorce, job relocation, and family-related issues.
How to Reduce Tenant Turnover
Landlords and property managers generally aim to prevent tenant turnover. But what steps can they take to retain previous tenants? Let’s discuss some ways landlords can keep renters coming back for more.
Keep Rental Properties Well-Maintained
One of the best ways property owners can reduce tenant turnover is by properly maintaining rental properties. For example, if a tenant files a maintenance request, the landlord should promptly make the necessary repairs.
Landlords should also make an effort to update and modernize rental units. For example, a fresh paint job or replacing old carpets can work wonders in helping tenants feel taken care of.
Ask for Reasonable Rent Payments
Another way landlords can maintain tenants is by keeping rent prices at fair market value. If tenants want to renew their lease but see that rent payments have skyrocketed, they will likely vacate the property and find more affordable options.
Landlords should also screen tenants thoroughly to ensure they have a good track record. For example, a tenant with poor credit and a history of moving from place to place may not be a great candidate.
Foster a Positive Landlord-Tenant Relationship
Tenants with a positive landlord-tenant relationship are more likely to request lease renewals. If tenants have questions or concerns, landlords should address them promptly and professionally.
Create a Sense of Community
Another method of reducing tenant turnover is fostering a sense of community. For example, if a property owner owns an apartment building, they can provide opportunities for tenants to meet and chat. Examples include installing lounge rooms and swimming pools or hosting special events. Tenants won’t want to move away from their new pals and will likely renew their lease.
Conduct Exit Interviews
Landlords should also conduct exit interviews before a previous tenant moves. Finding out why a renter is leaving can be an effective way for property owners to see which areas they can improve.
Hire a Property Management Company
Finally, many property owners hire property management companies to keep tenants happy. If you’re a landlord with multiple buildings, this can be a helpful way to ensure tenants’ needs aren’t slipping through the cracks.
How to Calculate Tenant Turnover Rate
So how can landlords determine their tenant turnover rate?
According to Apartments.com, you must divide the number of tenants that move out in a year by the total number of tenants living there that year. Next, multiply the solution by 100. This answer will give you the apartment turnover rate, which tells property owners how many tenants typically move out in a year.
This information is vital for landlords to know, as it gives them an idea of yearly expenses and alerts them to the fact they may need to work on tenant retention.
How Much Does Tenant Turnover Cost?
Losing a tenant can be expensive for landlords; not only are they losing out on rental income stream, but they have to invest money into finding a new tenant. However, the true cost of a tenant turnover varies depending on a few factors.
Let’s discuss some costs landlords may have to pay after losing a renter.
After a previous tenant moves out, the landlord should ensure the unit is in excellent condition before finding a new renter. In many cases, landlords pay for cleaning services to ensure the unit is spotless. Also, if the property has damages from normal wear and tear, the landlord may have to pay for minor repairs.
Another expense to consider is the cost of marketing. For example, if a property owner wishes to post rental ads, they may have to pay a small fee to have their property featured.
In most cases, a tenant will want to physically see the property before moving in. Property managers will have to take time to travel to the rental unit to show potential tenants. As we know, time is money, so it’s easier to keep old renters instead of finding new ones.
It typically costs money for property owners to run background checks on new tenants. However, in most cases, property owners get this money back by charging application fees.
What to Know Before the Real Estate Exam
Tenant turnover refers to the number of tenants who stay in a property compared to the number of tenants who leave. Many people also use this term to describe the time between an old renter leaves and a new renter arrives.
As a future real estate agent, knowing how tenant turnovers work is crucial. Now that you’ve read this post, you’re closer to acing your real estate exam!
But this isn’t the only critical concept you’ll need to study up on. Explore other key terms with our helpful Real Estate Flashcards!