Three Steps to Avoid Tenant Turnover
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Tenant turnover is expensive. It can cost you as much as $3,225 to turn over a two-bedroom, 1,000 square foot unit. Evictions? Those expenses can total up to $10,000 in some areas. With the majority of move-ins happening in June, July and August, now is the perfect time to discuss the 3 simple steps you can take to avoid the high-cost of tenant turnover.
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Three Steps to Avoid Tenant Turnover
- 1. Image area The webinar will begin shortly Welcome!
- 2. Shari McKoin Vice President of Business Development JoRae Gamble Relationship Manager Team Lead Elise Beck Product Marketing Associate Sam Clarke Acquisition Marketing Manager
- 3. Image area 3 Steps to Avoid Tenant Turnover Presented by Buildium and TransUnion
- 4. Tenant turnover is expensive. $3,225 New coat of paint $600 New locks $100 Background checks $100 New appliances $600 Monitoring phone calls $75 Drafting and executing leases $75 Advertising open apartments $75 Basic repairs $400 New carpet $1000 Showing properties $225 ______________________________________________
- 5. Image area Find the very best tenants Step 1.
- 6. Start with screening Comprehensive screening ensures you get a complete picture of your potential resident! Credit • Predicts your applicant’s financial ability and willingness to fulfill on their leasing obligation National Criminal • Reduces your risk and liability for criminal activity in your communities Evictions • Minimizes one of your largest expenses within a property
- 7. Fair housing - 7 Protected Classes • Race, color, religion, sex, handicap, familial status, national origin Consistent decision strategies • Follow recommendations • Eliminate subjective policies/practices • Create and follow Standard Operating Procedures FCRA Obligations • Permissible purpose • Consumer consent • Provide adverse action letters Supports your Fair Housing and FCRA responsibilities
- 8. Screening best practices Tailor your screening policies to your properties and communities Stick to your recommendations Stay objective and compliant Look past basic income to rent ratios Monitor you screening practices Refine decisioning practices as market conditions change
- 9. Important Considerations Validate • How do you validate your decisioning strategies? • How often do you re-validate? Confirmation • What you are receiving in your criminal and eviction searches? Compliant • Are you compliant with all local and state laws? Disputes • How do you address consumer disputes?
- 10. What can your screening service offer you? Provides • Consumer credit information • Access to national criminal data searches • Reported eviction information • Supports recommendations that allow properties to be compliant • Manual verification of employment and prior rental history* Does Not Provide • Personal reference checks • Bank and trade references on consumers *May provide depending on screening company
- 11. Screening can be financially rewarding
- 12. Image area Keep the very best tenants Step 2.
- 13. Provide great service ● Speedy maintenance requests ● Clear and open communication ○ Email ○ SMS ○ Tenant Communication Portal ● Focus on convenience ○ Allow tenants to pay rent online ○ Add on-site amenities like laundry, parking, and more.
- 14. Appreciate your tenants Welcome packages can include items like: ● Local amenities ● Property information (Trash/Recycling) ● Snacks ● Wine or beer ● Paper goods ● Soap ● Trash bags ● Toiletries ● Bottled water ● Magnets ● Paper and pens
- 15. Help protect your tenants ● Require Renters insurance o Reduce risk o Avoid conflicts o Help tenants maintain financial security when accidents occur
- 16. Image area Know how to handle the worst tenants Step 3.
- 17. Minimize the damage ● Require a security deposit ● Get your lease right ○ If it’s in the lease, you’re good ● Know the laws ○ Buildium.com/laws ○ Nolo.com
- 19. Questions?
Editor's Notes
- Thank you so much for joining us! Before we get started with today’s webinar, I’d like to introduce our presenters: From TransUnion, we have Shari McKoin, who is their VP of Business Development. And she’s joined by JoRae Gamble, who is their Relationship Manager Team Lead. And from the Buildium side we have Sam Clarke who is our Acquisition Marketing Manager, and my name is Elise Beck and I am one of our Product Marketing Associates Throughout the presentation, if you have any questions, please feel free to ask them using the box on the right hand side of the screen. We’ve reserved plenty of time at the end of the presentation to get through those.
- So let’s get started! Without further adieu, 3 Steps to Avoid Tenant Turnover
- Why are we talking about tenant turnover? Well, it’s expensive! When you add it up, it can cost you up to $3,225 to turn over a 2 bedroom, 1000 square foot apartment. And it’s going to be a lot more than that when you’re dealing with evictions or when you consider lost rent With 40% of all moves take place in June, July and August now is the perfect time to start thinking about how you can really make sure you’re finding the best tenants, keeping the best tenants, and doing everything you can to avoid tenant turnover.
- So how do you avoid tenant turnover? The first step is making sure you’re doing everything you can to find the very best tenants to fill your vacancies. This process really starts with your rental application. You’ll want to make sure you’re asking all the right questions- when are you moving? Do you have any pets?, but when it comes down to it, the rental application is just one piece of the puzzle. There’s nothing that prevents people from lying on their application– and that can potentially leave you dealing with some serious repercussions. So what should you be doing to really make sure your filling your units with good, reliable tenants? I’m going to turn it over to JoRae and Shari to talk a bit more about this.
- Talk through the importance of a complete picture when making decisions and how one slice of information may not truly reflect the quality of the resident. A comprehensive screening provider allows you to make smart decisions. By establishing and maintaining consistent decision strategies property management companies are able to ensure they are compliant with FCRA and FHL. We will touch on this further in a bit. A full scaled screening provider will provide you insights to three critical pieces of consumer information/behaviors. Insights will be gathered on a consumers financial ability to pay as well as the willingness to pay. This information is collected an maintained on a credit reporting database. Criminal data can also be included in during the screening process. Criminal activity is reported at a national level as well as can be collected at the county level. Securing eviction data is also very important to obtain. Evictions are one if not the most expensive costs a property can recognize. As Elise noted before turnover costs come into play as well as legal cost, marketing costs and how long you have to wait before the unit can be occupied again.
- Talk through the importance of a complete picture when making decisions and how one slice of information may not truly reflect the quality of the resident. Another benefit of using a screening provider is to ensure you are compliant with regulatory obligations. For example, using a consistent decisioning strategy will ensure you are adhering to Fair Housing laws – you want to make sure you are NOT discriminating on potential applicants based on race, sex, religion, etc. You also have to ensure you remain compliant with the FCRA – Federal Credit Reporting Act. As stated in the FCRA in order to secure a credit file the company needs to have a permissible purpose…meaning you are running your searches for tenant screening purposes only and the consumer/tenant has expressed and consented for you pull their report for the unit in order to determine their eligibility to move into the unit. By having a consistent decisioning policies will support your obligations under FCRA. These decision strategies will eliminate any subjective policies and practices and formalize your standard operating procedures.
- Once you have your standard operating procedures set there is always ongoing maintenance as well as additional opportunities for optimization. One opportunity is to tailor your screening policies to each property. Every property is different. Markets are different, buildings are different, the demographic attracted to each property is different and each property has their own challenges. For example, maybe you’re your vacancy is low or your bad debt is high at a property, making some tweaks in the criteria can help you optimize your performance at that property. Of course you still want to make sure you are sticking to your recommendations not only to be objective and fair housing compliant but to make sure the criteria you have set is working the way it should be. One area to evaluate is to look past basic income to rent ratios. We have found that income is not as predictive as we once thought in the rental industry. You could be turning away a potential good resident by automatically declining an application because they are slightly below the income requirement (on a non-affordable property). We have found the higher the score, the less likely an applicant is to be evicted or skip regardless of their income. Another opportunity is to monitor your screening practices. Monitoring will help you determine if your screening practices are working for you and your properties as well as identify opportunities for adjustments and improvements. As we know, everything is fantastic in the apartment industry right now but that’s not going last forever. Continuous monitoring will help you identify trends so you can refine your decision practices as market conditions change.
- We know everyone doesn’t use our screening but we wanted to point out a few items to consider when choosing a screening provider. One important question to ask your screening provider is “how do you validate your decisioning strategies?” Many screening companies provide a recommendation so it is good to know not only how they get to that recommendation but also how they have validated their score or process works and is predictive in our industry. It is also important to see how often they re-validate their score. Again, markets change so re-validating your score should take place every few years. You also want to confirm what is information is included in your criminal and eviction searches. Are you getting a national search, just one state, etc. States can vary on what information is instantly accessible so it always good to know what you are getting. Another good question to ask a potential screening provider is if they are compliant with all local and state laws. There are few states that have laws on what information can be returned on criminal records. You want to make sure your potential screening provider is aware of these laws and is following them. The last question that should be considered is how does the potential screening company address consumer disputes? If an applicant says the information you have received from the screening company is not correct, what do you do? Under the FCRA any company providing consumer information should have a process in place for applicants to dispute incorrect information.
- Your screening company provides a lot of information to help you get the most complete picture of a potential resident. One slice of information may not truly reflect the quality of the resident so it is best to use all information available to you to make the most complete decision. There is of course information that a screening service does not provide such as checking personal references and performing bank and trade references. I did want to point out the asterisked item above. A large percentage of applicants now apply online and want faster results. Any manual process can delay your final decision. We have found that many customers no longer perform manual verifications of prior rental history as it can slow down the move in process and they are finding this information is not very valuable for all applicants. Some customers decide to only ask for prior rental history if the applicant does not have any credit. Again, consistency is key as well as monitoring your screening practices to identify trends so you can refine your decision practices as market conditions change.
- Screening aids in your properties overall financial profitability. By leveraging the three data sources we previously mentioned – credit, criminal and eviction, as well as adhering to a consistent decisioning strategy - a screening provider can assist you at minimizes your risk of expense associated with eviction, skip and turnover losses. Some screening providers offer the ability to surface a score that predicts bad outcomes, which go expand beyond rule of thumb strategies. For example, at TransUnion we built a scoring model that predicts bad outcomes for the multi-family industry. As you can see on this slide we have a property that has 250 units. If we use industry statistics we typically see a 50% turnover rate on average within the industry. We also see that the number of applications pulled are 1.5 per unit. Therefore your screening roughly 187 applicants and your screening cost are approximately $3,375 each year. Using industry models that predict bad outcomes for MF provide you the opportunity to minimize your losses associated with eviction, skip and turnover by roughly $13,468 each year!
- Once you’ve got great tenants, the next step is making sure you’re doing everything you can to keep those tenants in your units for a long time.
- Your ability to provide great service can really make or break a tenant’s decision to renew their lease. And while a quick response to maintenance requests is one of the number one things that tenants look for in a property manager, there are other steps you can take to make sure you’re providing great service to your tenants. Providing clear and open communication channels is important, partially so you can tend to those maintenance requests, but also just so you’re able to be responsive and keep your tenants in the loop. While email is a must, SMS messaging is also gaining popularity. There are a number of services available that will allow you to send text updates to your tenants. Twillio is one, Nexmo is another. And another great communication option is to build out a tenant communication portal. A tenant portal is a great all-in-one place where you can post updates to your tenants, host important information, or potentially even do things like view the status of their lease or pay rent online. Which brings us to the next category of providing great service-- setting your focus on convenience. Paying rent online is one example of this. Another example would be providing on-site amenities like laundry, parking, a dog washing station, etc. Anything you can do to make their day-to-day a little bit easier is going to encourage them to stick around for longer.
- Gestures of tenant appreciation really go a long way and can start the relationship off on the right foot. Including a welcome package on move-in day with items like a list of local amenities, a bottle of wine or beer, snacks, toiletries or paper goods… those little odds and ends that tend to get misplaced during a move. This kind of a gesture can really stick and help solidify a lasting relationship with your tenants– and even better yet, it can help you get the important information across when you include reminder information like when is trash day, where and how should they pay rent, and what numbers should they call in an emergency. Other forms of tenant appreciation? Hosting building-wide mixers or holiday parties, sending holiday cards or thank you notes. It’s these types of little gestures that can really go a long way and make your tenants want to stick with you.
- A third way you can ensure your tenants stick around for the long haul is by making renters insurance a requirement. Accidents do happen and requiring your tenants to purchase renters insurance helps to reduce risk, avoid conflicts, and really help tenants maintain financial security if and when an accident does occur. Let’s say, for example, that a fire or a burglary occurs. Tenants may not be able to cover the cost of their lost or damaged items while continuing to pay their rent on time. Requiring renters insurance helps to avoid this risk and keep tenants happily in their unit for longer. And the average cost of renters insurance is just $12 per month or $144 per year. It’s really not a huge investment for the tenant and it also helps you keep things professional.
- Step 3 is less about avoiding tenant turnover and more about minimizing the damage once it’s been done. Now, you might be wondering why I chose this picture for this slide, and I have a quick story about that. Once upon a time in Oregon, there was a local woman who became a local celebrity when she actually saved her pet bearded dragon by administering CPR. All of the local news outlets were talking about this woman, calling her the dragon whisperer… but one of the locals who caught wind of the press was actually her property manager. Turns out, she actually had 24 bearded dragons, 3 dogs, and a tortoise. Unfortunately, when she signed her lease she’d only listed one dog in the rental agreement. The property manager had no choice but to start the eviction process as a safety precaution. Turns out that the majority of the bearded dragons actually had parasites that could’ve been transmitted to other vertebrate animals including humans. This woman, Sherrie, wasn’t necessarily a bad person or a disruptive tenant, but if your tenants are violating the terms of their lease, you do have the right to evict them.
- How can you minimize the damage? Start by requiring a security deposit. A security deposit is meant to help protect you from the cost of damages or lost rent caused by bad tenants. There are limits on what you can charge in some states, so just be sure to do your homework. Some states do require a security deposit. But not all do. Just because it’s not a requirement, doesn’t mean you wouldn’t benefit from having one Getting your lease right is also extremely important. Eviction laws vary by state but a good rule of thumb is to make sure you’re explicitly clear in the terms of your rental agreement. Breaking the lease is certainly grounds for eviction. I’ve already hinted at laws twice now. There are strict laws around security deposits and evictions and those laws do vary by state. It’s your responsibility to make sure that you know and understand the laws in your area and that you’re abiding by those laws. The scariest part about evictions is the legal implication and those legal costs that add up if a tenant wants to fight back. Buildium is actually in the processes of building out a thorough law database that you can leverage to help familiarize yourself with the security deposit and eviction laws in your area. Nolo.com is another really great resource for that. What’s the number one thing people lie on on their rental application?
- That wraps up our presentation! We’ll also be sending out this great infographic we created that calls out a lot of the ideas we discussed today… so stay tuned for that. We’ll transition into questions.
- Where did you find that tenant turnover number? How can you make renter’s insurance a requirement? How long does the eviction process take? How do you get started with online rent payments? Is there usually an added cost to online rent payments? How do you handle tenant disputes? What information do you need for the background checks? Is it info on application? Or do you need to request additional information? Is it state specific criminal history or nationwide? Do I need to be concerned with that? What’s the deal with eviction reports? I hear that the eviction info only comes through if the case is brought to court What’s the worst eviction story you’ve heard of? So how should I handle reference checks? Are reference checks worth my time? How many references should you call, on average? (A boss, a person they work for, and their previous landlord) How do you handle a student with no previous rental experience? Is there an average income calculator for rent? How should I be setting thresholds?