6 Steps for Improved Tenant Retention by Decreasing Churn and Increasing Residential Property Value
AppFolio, a company that creates property management software to make data-driven decisions, recently released its first property management benchmark report.
And property management teams are holding a cautiously optimistic outlook for the remainder of 2023.
The Report's Methodology
AppFolio surveyed nearly 5,000 employees at U.S.-based property management companies.
The report found that four out of five respondents, or 81%,expect their organization’s revenue to increase in 2023.
Of the remaining 19% of respondents, only 3% expect a decrease. Nearly three-quarters, or 72% of respondents, expect net operating income to grow, with only 5% anticipating a decline.
Hold Your Applause and Wait Before Celebrating
While this property management benchmark report presents a relatively positive outlook, that outlook must be tempered by J Turner Research’s study – “How to Ride the Wave,” released at the 2022 Apartment Internet Marketing Conference (AIM).
Based on J Turner’s resident satisfaction metric – TALi (Turner Apartment Loyalty Index), resident satisfaction has decreased by 13 % since 2019.
The pandemic did not necessarily cause this downward trend because virtual social events and enhanced cleaning by onsite teams’ resulted in improved satisfaction for a time.
“TALi continued to be on the descend due to prolonged amenity closures and inadequate cleanliness/security practices,” J Turner Research concluded. “Most recently, in 2022, TALi was at 6.45, which can be attributed to frequent complaints by residents related to service and lack of adequate communication in online reviews.”
Through its study, J Turner Research demonstrates that property managers must take positive measures to improve satisfaction and retain residents if they want to continue to successfully manage their residential properties.
What Happens When a Tenant Moves Out?
The Journal of Property Management revealed that, on average, a retained resident is worth almost $900 each year on top of rent payments. Each time a resident moves out, a unit is vacant for an average of 1.5 months.
If the tenant retains their lease, the property saves $1,350 and the additional costs for marketing the vacancy. Research by SatisFacts, an authority on resident satisfaction surveys, showed that over 60% of customer turnover is controllable, with staff performance the largest determining factor in why a tenant moves out.
In 83%of cases where renters leave, it’s caused by a triggering event.
Here’s How To Help Prevent This
Based on the J Turner Research study, AppFolio Property Manager benchmark report, and SatisFacts research, OpenWorks suggests these 6 steps to help residential property managers avoid churn and improve retention.
STEP 1: Rely on Software
Use CRM software to help you organize, automate, and evaluate your retention efforts. With CRM and IoT software, you can keep track of leases, tenant records, maintenance activity, and all other documents to focus on the bigger picture of nurturing satisfied tenants.
STEP 2: Ask and Check In
Conduct periodic surveys to help identify problem areas where you can make improvements. If you don’t have the time or resources to conduct surveys, consider why tenants leave. Or simply go online and read some of your property’s online reviews.
While there’s nothing landlords can do when tenants leave due to new job opportunities or life changes, it’s important to recognize why tenants move out and avoid them when possible.
STEP 3: Create a Plan
After completing steps 1 and 2, use the information you gathered to create a tenant retention plan.
That plan should identify the lifetime value of a tenant or LTV, the cost of acquiring a tenant or CAC, your turnover or churn rate, and the reasons why tenants leave. The lifetime value of a tenant is the profit you’ll make for the period they’re renting from you.
To profit from your rental property, your CAC should always be less than the tenant’s LTV. Otherwise, you’re losing money.
STEP 4: Create a Tenant Matrix to Prioritize
Create a Risk/Revenue Matrix to identify residents who will benefit the most from your retention efforts. Tenants should be divided into one of three segments of lifetime value:
Then categorize them under one of three churn levels or likelihood of leaving soon.
Once you have identified those high- and medium-value tenants with a high- or medium-probability of leaving soon, you can prioritize who should receive attention and when.
Remember that according to J Turner Research, 41% of residents think about rent renewal earlier in the leasing cycle. Proactively discussing the rent will not only ease sticker shock but also allow tenants to bring up any lingering concerns, such as maintenance issues, and help build trust and a feeling of community.
STEP FIVE: Take a Deep Dive into Churn
Recognize how resident churn can and will significantly cut into your cash flow. Measure the costs of resident turnover by calculating a "churn index." The data you need to calculate the index is found in your monthly financial statement.
A good index will tell you the cost, in dollars, of losing a resident, as well as the annual cost of residents who are lost. It should consider lost revenue, the cost of cleaning and repair, and advertising to re-rent the units.
Once you remember how the SatisFacts retention survey found hat 60%of turnover is controllable with better customer service, you’ve now identified the costs associated with turnover and how you can make better decisions to keep residents happy.
STEP SIX: Consider a Mature Facility Management Company
Consider how employing a mature facility management company like OpenWorks can free you or your staff up to work on tasks like increasing tenant retention. This move will allow you to invest more resources on amenities.
Plus, once you have a firmer handle on retention, discussions with sales personnel about the cost and potential benefit of various facility management services will make much more sense.
Even if you want to chat about information here or something else like streamlining your vendors, give us a no-obligation call at 1-800-777-6736. We’ll be happy to help give you more information to help keep your residential property packed with tenants who are only too happy to be a part of your community. Contact us today!
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