When should you be thinking about your strategy for expiring leases with good tenants? It certainly shouldn’t be the month of the expiration, as you can bet that any tenants who were considering moving have been researching and planning for months. By the time of the 30-day notice, many have made their decision. If the tenant(s) have been good at paying rent and caring for the property, keeping them is worth some strategizing.
Just to choose an arbitrary strategy review timeline, about three months before lease expiration would be a good idea. At that time, do a thorough review of the current situation and your ROI on the property.
Tenant Evaluation
Are they good at paying rent on time, obeying all the rules and caring for the property? If you’ve been in the unit to change smoke detector batteries or other excuses to see the interior, you know if they are abusing the property or not.
ROI Due Diligence
Just like you did when you purchased the property and set initial rent, do another rental market analysis. Has the competition changed? Are there fewer or more comparable properties for rent in your competitive area? What will your departing tenants have to pay to get a comparable rental in the current market? How have your expenses changed, as they most assuredly have in some ways? Have taxes increased? A complete analysis of your cash flow should be compared with your initial calculations or the ones you made before these tenants signed their lease.
Costs to Install New Tenant(s)
Get a hard number for rehab of the unit between tenants, as well as how long you expect it to be vacant, with the lost rent considered. What will it cost you to advertise it, do credit and background checks and other managerial tasks to install new tenants. Divide the total costs by 12 to get a monthly figure that you should subtract from whatever rent you plan to charge for a realistic net rent.
Consider Incentives
If you have tenants you’d like to keep and any rent increase is nominal, consider incentives to keep them. This doesn’t have to involve monetary concessions, such as free months or other cash incentives. If you’ve been considering improvements or upgrading appliances, this could be the time to do that. A new refrigerator or dishwasher could be just the incentive to hold onto tenants.
If the current market indicates you can install new tenants at a significantly higher rent, then it may just be time to prepare your current tenants for the approaching increase and let them move if they want. If you’ve done these evaluation steps and this is the case, don’t worry about it and start running ads for your new tenants. More real estate investment tools from Dean Graziosi here.
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