Managing an investment property comes with a lot of unknowns, but it’s usually a sure thing to assume your tenants will eventually want to move out. If handled correctly, tenant turnover can actually help you steadily grow your rental income year after year. Handled it incorrectly, and you can lose thousands of dollars to vacancies and property damage.
So how do you turn tenant turnover into a positive?
- Keep your unit well maintained
If you want to get quality renters into your space, it’s important that your unit looks its best as soon as you are ready to market it to new tenants. Working with tenants to perform regular maintenance while they occupy the unit may be cumbersome, but it can save money big time when they move out.
Oftentimes new property owners will choose to delay as much maintenance as possible in order to save money. Not only can this end up causing more issues that cost you money in the long run, but it can also lengthen the time it takes to find new renters once your old ones are gone.
No matter how you handle it, there will be some line items to check off the list once your previous tenant moves out. However, if you plan well, you can have all of these things taken care of in as little as 24-48 hours. However, if you have been putting off fixing that furnace, replacing the washing machine, or tidying up the landscaping, you may find yourself with weeks of extra work and lost income.
- Plan Ahead
Like we talked about already, tenant turnover is inevitable, so it should never come as a surprise. If you handle things correctly you should have at least 30 days to prep your space and find new renters, so don’t wait till your current tenants have already moved out.
If you have never managed a property before, you may be wondering how you could line up new renters before the unit is empty and available for showings. If you have maintained a good relationship with your current tenants, and have a bit of luck, in many cases, people are very understanding that you don’t want your property sitting empty for weeks after they leave. Work with them to find convenient and short time windows for showing the property and many people will be compliant. You can even offer to pay for cleaning services to tidy up the space and make sure it is ready to show.
No matter how you handle it, it is important that you do everything you can to plan ahead and find new tenants who are ready to move in as soon as possible after your current tenants move out. Don’t wait till it’s too late and you are stuck losing out on weeks or even months of income.
- Keep Emotions Out of It
One big mistake new renters make is to not spend enough time studying the market and planning how they will price their unit. It is just human nature to overvalue our own assets and undervalue everyone else’s. However, this can cause huge losses of income when potential new renters breeze right past your inflated listing and move straight on to the unit right next door. Worse yet, many property owners find themselves comfortable with their income level and don’t even try to find out if the rental market has changed since last time it was listed, losing out on hundreds each month.
One of the best ways to avoid these pitfalls is to hire an unbiased professional to price the unit for you. If you choose to go it alone, do everything you can to approach your pricing as scientifically as possible. Find as many listings similar to yours in the area, and price your unit in a way that it will be both competitive and profitable.
- Don’t Try to Avoid It
When you think through the risks of an unrented property, it can quickly scare you into doing everything you can to keep your current tenants right where they are. If you are in a market with a highly limited number of renters and very drawn out vacancy periods this may, in fact, be the right approach. However, if you are in a competitive market like the one we are in here in San Diego, this may instead leave you with a dramatically underpriced unit.
In San Diego, the average rental price increased 3% this year from the previous year, and in recent years has seen increases as high as 7-10%. To put this in dollar values, since 2011, the average San Diego rental price has gone from $1294 to $2199 in just eight years!1
Many property management companies will advertise low turnover rates, but we never have, because we think this is a terrible indicator of your overall performance. Don’t just assume avoiding turnover is the best way to make money. Run the numbers yourself, and you will often find that the added appreciation in rental prices you can get from new tenants is well worth the risks that come with finding a replacement renter for your property.