Just like most people, you probably desire happy tenants after renting out your investment properties. A tenant who feels valued is more likely to renew their lease, therefore minimalizing vacancies, correct? This is precisely why landlords tend to make the mistake of deals-cutting that involves offering financial discounts or fee waivers, rent reductions, and more.
However, this so-called “friendly” approach could reduce your profits greatly. It could also lead to dangerous investments in the long run and place you at risk of acquiring the wrong type of renters for your properties. If you tend to give renters too much room for flexibility, read on loosen up and discover how it can help you manage retention.
The Financial Pitfalls of Cutting Deals for Tenants
Let’s start with one of the major concerns first. If you decide to lower the monthly rent, waive any late fees, or provide any special accommodations without any planning, you’re directly harming your bottom line. Rental properties are investments set out to gain returns. The cash you charge is certainly not pocket budge, as it should instead clear most of your mortgage payments as well as maintenance costs, taxes, and still give you a comfortable profit.
Keep in mind the following scenario:
How about you, as a friendly gesture, decide to shave $100 of a tenant’s monthly rent.
Well, after a year, your result is -$1,200 in income.
If you look at it from a multi-tenant and multi-year perspective, the number multiplies into considerable losses.
This loss is not just painful for your finances. As this negatively affects your ability to maintain and enhance the property’s value, it puts your investment within a dangerously harmful cycle. This stagnation, when combined with the ever-competitive rental market’s demand, makes the property’s value suffer considerably.
Key Takeaway: Eliminating discounts may come off thinking he is acting generous, but it harms your essential fund that was meant for preserving and augmenting the property.
Discount Accounts Today, Problems Accounts for Tomorrow
When you create arrangements for new tenants, expect it to be constant. Tenants recall these negotiations done and may expect more favorable arrangements. The problem is, these arrangements have uncontrolled spillover effects. Other tenants, rest assured, will know of your lenience and try and get their own deals.
This can even affect future leasing strategies when the current tenant exits. For instance:
Other potential tenants may feel entitlement to those sought after deals.
Other available units will actively draw attention to value gaps through rent.
The evaluators of your property may perceive that lower rental income will negatively impact the property’s assessed value and directly influence your ability to sell or refinance at an optimal price range.
Key Takeaway: Making compromised deals can have a long lasting impact by altering your rental thresholds, tenant expectations, and ultimately the property value.
In The Scope Of Attracting The Wrong Tenants
Cutting deals such as these may assist in procuring a tenant, but this strategy can also backfire and cause a multitude of disturbances. For example, it is common to encounter tenants who have high expectations for low prices – bargain-bin shoppers. While trying to cut as many deals as possible, these tenants for example may:
Go after properties with high traffic.
Expeditiously file paperwork to avoid the competition.
Have free reign on how they’ll pay for the space.
A tenant who is familiar with their dwelling’s significantly lower than market value rent may constantly delay their payments, feel less obligated to tend to upkeep obligations, and frequently bombard you with maintenance requests. Gradually, all of these behaviors combine to increase your vacancies while costing you a ton more in repairs and stress.
Not every cost-cutting tenant is problematic, but it is absolutely the case that too flexible cottage agreements lead to this kind of behavior.
Key Takeaway: Investing for retention purpose may backfire if the tenant fails to honor their leases.
Effective Ways of Keeping a Tenant Without Inflicting Damage on Your Business
How do you retain desirable tenants if the only option you are looking to consider is not lowering the rent? Consider the following pointers to help retain tenant satisfaction and loyalty without sacrificing your business revenue.
1. Make Improvements To The Property
Instead of offering discounts, patron your property and use the obtained funds to reinvest in the property. Poll your tenants to find out the suggestions that would increase their satisfaction. Perhaps adding a new dishwasher, changing the light fixtures, or repainting the hallways will give current tenants satisfaction and allow landlords to rent the property at a higher premium to future tenants.
2. Foster A Good Community Spirit
Doing so increases genuine tenant satisfaction. Consider hosting appreciation events such as coffee mornings and holiday mixers. All these remind tenants about the property being more than a mere building that they rent. It allows tenants to feel a stronger bond and ensure they remain in the unit for a longer period of time.
3. Enforce Just and Uniform Rental Practices
Having policies regarding late payments, maintenance concerns, and rent raises portrays your ability to manage a professional business. Illustrating consistency depicts fairness, which is crucial for building trust. Tenants are less willing to negotiate for unreasonable ‘special’ offers when they recognize that actions stem from a pre-defined policy instead of a set preference.
4. Appreciate Loyalty from Your Clients
Instead of extending discounts, encourage perks that do not require cash tender. For instance:
Incentivize offering gift cards to regional businesses subsequent to renewing leases.
During renewal of the lease, provide free steam cleaning of carpet and other minor improvements.
5. Facilitate First Contact Resolution Culture
A post all maintenance request response suggests the tenant is valued and regarded respectfully. Undoubtedly, a valuable landlord takes equal interest in timely responses to maintenance requests and in the professional handling of general concerns. Most clients can build a much higher willingness to renew when requirements are known, respected, and valued.
Final Thought
Value increasing by remaining professional and foster long-term profitable relationships is critical to client loyalty whenever there is a need to kneel down financially.
Ensure that Rental Agreements Are Set Up to Be Fair, Consistent and Profitable
Providing a discount to tenants may seem like a good idea, especially during financially challenging times. However, as we previously discussed, this comes with substantial costs, setting poor standards, and having problematic tenants. Experienced property owners appreciate what genuine property value and competent management brings to the table, which is why they do not resort to providing undeserved financial concessions just to retain tenants.
Now that you have context, re-evaluate your agreements. Are you maintaining profitability? If not, change these agreements today. Remember, at the end of the day, a rental property is indeed a business and should be treated as one.
