“Oh, you know, COVID…”: Spotlighting Tenant Retention Amid Rising Costs
“I noticed you didn’t post a blog last month? I really missed it!!”
(Actually, no one said this…????)
I think one of the frustrations that I’ve had in the last year is how seemingly how every business underperforming service-wise or raising prices can be explained away easily by COVID or her offspring (shortages, inflation, sharp price increases, not enough employees, etc.). Examples:
My coffee cost $4.00 last week and now it is $5.50. Why?
“Oh you know, COVID… Prices of coffee in South America have spiked due to complications in the harvesting process and container price shipping increases.”
Why wasn’t the gym open this Monday when I showed up there?
(A sign with a partial explanation was posted to the locked front door on Monday and then Tuesday the front desk person offered more details)
“Oh, you know, COVID… Staffing is still really tough as no one wants to work anymore. Once people left the workforce, they just didn’t want to come back. You know, I think it’s mostly due to video games- guys just prefer to play them all day instead of going to work.” (Oh, really???)
Voicemails I run into frequently: “Due to recent events, call volume has increased creating longer than normal hold times.”
(I’d like to get an explanation on why this voice mail message is still there and has not changed in almost three years). But I can speculate… COVID?
I can be frustrated as a consumer, but understand it. I’m used to getting what I want at a reasonable price and in a reasonable time period and feel slighted when I don’t. Pretty much every business has raised prices and many have had hiring issues. It’s a fact that costs and wait times have skyrocketed whether I agree with the causation rationale or not.
Many landlords have experienced “Oh, you know, COVID…” conversations for the costs now associated with fixing up rental homes between tenants. All of the issues above coupled with a hot real estate market has led to sticker shock when these repair quotes come out. The cost of painting an entire house and replacing the flooring (as well as the myriad of handyman issues) has risen, especially when landlords compare prices 5-10 years ago (think double).
Rising rents after fix-up will eventually offset these increased costs, but it is still painful to look a $10K+ repair bill and know that the person writing that check is going to be you. So, how can this be avoided?
It can’t be avoided forever. However, there is the strategy of kicking the can down the road as long as possible. This can be accomplished through an intentional effort in tenant retention. The basic rationale is that if tenants don’t move out, most repair costs (cosmetic, that is) can be avoided until after their tenancy is eventually over.
So how do landlords accomplish tenant retention? There are books written about this, so I’m not going to go into all the creative ways people have thought up of: giving free flat screen TVs to the tenants when they sign a multi-year lease, delivering chocolate chip cookies on their birthdays, having a monthly rent credit incentive where some of the money is forfeited if tenants move-out prior to a set number of years, etc. The advice below is for a landlord who is more a “nuts and bolts” person and doesn’t bake very well.
The great news is that the cards are stacked in the landlord’s favor right now so most of what I propose is being done by others already. The landlord’s job is just to keep the rental rate reasonable on lease extension offers. That’s it. I’m not even saying to not raise the rent at all; just don’t be greedy. That’s the only thing the landlord has to do right now as a decent tenant retention strategy.
Very few people like to move. Landlords should continue to perform normal landlord activities in a timely manner so tenants do not have some explicit reason why it is imperative for them to leave the house. And be pleasant. Then wait. The heavy lifting is already being done by the big institutional landlords who own houses nearby and are raising the rents up 25%-50%. When tenants see the advertised rental rates of homes on the market and then see their reasonable lease extension rate, most will stay put.
If the tenant still leaves, then biting the bullet on fixing up the property may be an unfortunate reality. But the silver lining is that the house can now be advertised at the higher market rate (thank you again, big institutional landlords!) which will reduce the time on the ROI.
Best of luck keeping your good tenants around and avoiding the “Oh, you know, COVID…” expenses on your rental home for as long as possible.
Happy Landlording!
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Property Management: Changes for the Better in 2021?
“Everything in moderation, including moderation.”
Oscar Wilde
“…The man who fears God will avoid all extremes.”
Ecclesiastes 7:18
Let me start off by saying I’m not a big clothes shopper.
I was minding my own business the other day at home and my phone buzzed. I looked down at an alert from Amazon Photos with the “From 10 Years Ago” tag; it was a photo of my beautiful wife and I on a date at a Panthers game (awww…).
Two things struck me:
- Look at that guy with his gorgeous, flowing mane of hair (what happened???)!
- The UNC sweatshirt and wooly I was wearing looked eerily familiar… When I glanced in the mirror, I realized I was currently wearing the same exact outfit. I tend to view these things from an optimist perspective (I still fit in my clothes- nice going! Carolina blue really has always really accentuated my eyes…) as opposed to reality (Buy some new clothes, cheapskate!).
OK, sometimes things should be changed; buying some new attire from time to time never hurt anyone.
And sometimes not changing things can hurt people. In 2020, COVID made changing certain in-person business practices necessary for safety reasons; this really accelerated the use of certain technologies in property management, especially self-showings, video virtual tours, and virtual lease signings. These methods have been used and adopted by many in the industry to varying degrees:
- Self-Showings: This is where a prospective tenant is able to access keys through a lockbox to show themselves a property without a company representative being present.
At first take, it seems risky to have strangers in a vacant home when they could just take desired pieces of the property with them when they leave. But this trend has been building and is now commonplace. I think a real estate agent provides limited value being on rental showings. Renters don’t need to be sold into making a decision. At the end of the day, they are taking time to look at rentals because they either want to or have to move; I don’t see a lot of rental home tire-kickers. They want to like the property and get it done with, as opposed to new home buyers who sometimes look for perfect.
However, there obviously needs to be some controls in place (avoiding the “open-barn” theory). It’s important to know who is going into the house and have some concrete, confirmed contact information that can be given to the police if something goes awry. Done properly and moderately, self-showings are efficient and allow renters to view homes on their own schedule. It can work really well.
- Video Virtual Tours for Rentals: I’m still not on the bandwagon on this one. I really want people to visit the rental in-person so they can make sure it is right for them. If someone wants to buy a home from across the country sight unseen, that is fine with me (we live in America, right?); they can spend their money anyway they choose to. But if they wind up disliking the home after purchase, they have no one to complain to. With rentals, they can complain to their landlord for a year or more. No thanks!
I want to provide enough information for people to decide if they want to see the property (pictures, accurate property information, price, etc.). But I’m still not convinced that videos can replicate being there. I also want to be cautious abut adding an expense to our owners to get a tenant we may wind up in a forced bad relationship with (“I don’t like the neighborhood”, “The building is too loud”, or “You purposely videoed away from the wall in the dining room to hide the scuff marks.”).
- Virtual Lease Signings (E-signing Documents): I like this trend, to a point. We’ve used it for a few years for lease extensions with existing tenants and paperwork for our owner clients who needed to add properties. Since COVID, we have even started to e-sign the lease documents prior to meeting the tenants at the property to give them the keys as a precaution.
However, I think this trend has gone too far. It seems like it is a ready excuse not to talk or meet. I like to meet with the tenants and review the lease in-person. There is value to attaching a person with a (masked) face. If we’re going to the property to get our sign and lockbox anyway, why not (safely) say “hello”?
Anyway, in property management and in life, change isn’t always good or always bad- and it often does not need to be wholesale! Treading moderately with new technologies can be the best path forward.
So I think that means I can still wear the sweatshirt and wooly as long as I mix in some new pieces of clothes occasionally, right?
Happy Landlording in 2021!
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Credit Reports (YAWN) & COVID Tenant Placement
“Everyone has a plan until they get punched in the mouth.”
“Iron” Mike Tyson
The “sleep industry” (from bedding, sound control, “sleep consultants”, prescription pills, etc.) is estimated to be a $30B-$40B annual business growing by 8% year. That’s a lot of money going to something that should naturally be free; and, unfortunately, the inability to sleep seems to be an issue that keeps growing.
My father told me that a solution that always worked for him was to read textbooks. It made sense, but most adults (thankfully!) don’t have many lying around. However, if you’re in the property management arena, you do have a lot of credit reports you can read through that will have the same effect.
On a single rental application, it is possible to have 20+ pages per person. Every open and closed line of credit they’ve ever had in their lives is listed. It can be painful reading and sorting through them as the pages can begin to just run together…
Many property management companies outsource the application process. I get it! No one wants to read through the reports and try to put together how someone’s finances link to whether they’ll be a good tenant, especially when 10-20 applications are coming in per property. It’s arduous. That’s why it’s common for property management companies to have credit score minimums- for example, if you don’t have a minimum 600 credit score, your application will automatically denied.
There are a couple problems with that approach, in my opinion. The first is that if every landlord did that, there would be a lot of people in the streets who weren’t eligible to rent a house. That seems harsh, unfair, and inhumane.
The second is that a credit score alone is insufficient to gauge an applicant’s true financial strength. I think the level of debt to how much available credit they have is a huge indicator. A credit score rewards taking on debt to a certain extent as it measures whether debt payments are being made in a timely fashion; people with no debt (or utilized available credit) seem to have lower credit scores because there is less of a payment track record to go off of. Should people be penalized for that? I guess I have an “old-school” mindset where I think not having debt is preferable to the alternative.
Thirdly, I like to see cash flow and where it is going. I’ve had 700+ credit score applicants who have so much debt to pay off that after their monthly debt obligations (aka credit cards, financed cars, etc.) there is little room to pay rent and other niceties of life (like food).
This is where COVID and tenant placement comes in. How strong is the applicant? Can they pay when times are good and bad? Can applicants take a financial punch? COVID is a huge punch to almost everyone. But even putting COVID aside, a punch could be an unexpected job loss, big car repair, or some other major expense that life throws at everyone at some point. Can it be weathered?
That’s where I find the credit report to be an invaluable tool and a “must-read”. I always felt that the #1 responsibility of property managers is to keep the rents flowing to the owners. And property managers are only as good as the bench of good-paying tenants they have in their properties. How strong is the bench? Can it handle adversity?
COVID has and will continue to put things to the test. I think the practice of pouring that extra cup of coffee while poring over the credit reports will prove to be time well spent.
Happy Landlording! And Stay Safe!
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