By Gregg Cohen, Co-Founder of JWB Real Estate Capital
Plan for a Successful Rental Property ROI
Did you know that you can consistently increase your rental investment returns? To do this, your strategy should include a plan for keeping tenants long-term. This often-overlooked element is directly tied to your rental property success.
The Real Cost of Tenant Turnover
The biggest factor to success with your rental investment returns is how long your tenant stays. For example, say your property is rented out at $1,150 per month. When the tenant moves out, you’ll have these average expenses:
- 45 days of lost rent = $1,701
- Average turnover repairs = $2,000
When you bought the investment property, you expected to lose about 12% of rents collected in maintenance and vacancy costs. If your tenant leaves every year, that’s a maintenance and vacancy loss of $3,701 a year. Over four years, that’s a loss of nearly $15,000 – 27% of your rental income!
In the end, the amount you lose in rent and turnover repairs will determine how successful your investment is. Property managers need to understand and care about this simple fact. If your property manager doesn’t work hard to keep and re-sign tenants, you’re setting yourself up for failure.
Benefits of Keeping Long-Term Tenants
On the other hand, when your tenant stays four years, your returns jump exponentially. Your turnover maintenance and vacancy costs are only $3,701 every four years, dropping the loss to 6.5%. That’s much more promising than a 27% loss!
Any way you look at it, there’s no way to avoid some loss each time a tenant moves out. However, if you can spread that cost out over four years, your ROI will reap the benefits.
Three Ways to Reduce Tenant Turnover
This is how we’ve been able to increase resident stays:
Key 1: Sign leases with two and three year terms. When potential tenants call, we clearly explain that we focus on long-term leases. We set the expectation up front so we can structure the lease terms to everyone’s advantage. Moving is costly for tenants too, so we find incentives for them to sign longer leases.
Key 2: Invest in properties that are new construction or fully renovated. This way you can set your residents (and yourself) up for success. Brand new or fully renovated properties won’t have as many repairs, and some items will still be under warranty.
Key 3: Treat the lease renewal process like a sales opportunity. This is often overlooked by property managers, but it’s the greatest opportunity to increase your returns. We start working to re-sign tenants as soon as they move in.
We appreciate the value of building a relationship with our tenants. Every interaction becomes an opportunity to offer a lease renewal. That’s a win for everyone!
As a founding partner of JWB Real Estate Capital, Gregg Cohen has seen the company grow from humble beginnings to serving over 1,000 clients worldwide with total assets under management of over $350 million. Cohen and team have been featured multiple times in The Wall Street Journal, The New York Times, Bloomberg, Inc. Magazine, Jacksonville Business Journal, and The Florida Times-Union. To learn more about building a rental property portfolio, go to www.jwbrealestatecapital.com or call (904) 677-6777.