Rental property is a great passive investment: Who wouldn’t want an additional stream of revenue coming in every month? However, when a tenant moves out, especially if abruptly, landlords can experience a sudden reduction of the flow of income. Prolonged vacancies are a significant opportunity cost and can be even more expensive if the landlord is relying on rent to pay off the mortgage on the property itself.
How to minimize tenant turnover costs
When tenants move out, there is a lot of work to be done to ready the property. A useful tool to make sure everything is on point is a checklist of what needs to get done for the tenant and the landlord. The first step is to anticipate the move out. Tenants are usually required by the lease to give 60- to 90-day advance notice of their intentions before the end of the lease. [and if they don’t,] If the tenants leave before the end of the lease, they can still be on the hook for the rent for the remaining months on the lease. Checking in with them before the end of the lease will help establish some clarity.
When tenants communicate their intent to move out, it is of paramount importance to schedule a walk through and compare the condition[s] of the property with the Apartment Condition Statement (ACS) [home inspection list (created before the move-in)]. The tenant has 15 days after they move in to complete the ACS, and an accompanying photo or video record of the conditions of the property, before and after, can go a long way in to ensuring everything meets the agreed upon criteria. Tenants would probably benefit from having a cleaning and repair checklist to consult before the walk through. Additionally, unless the property is a furnished rental, landlords must ensure tenants understand they will be charged for the costs associated with anything they leave behind (trash removal, furniture, odds and ends…). Fully restoring the unit prior to the new tenant coming in will reduce the chance of income loss during the next tenancy. Furthermore, the best time to check for pests is between tenants.
Another important step in the move out process is to check the status of utilities. Landlords have to make sure there has been no interruption of service and that there are no outstanding balances. Some utility companies reserve the right to charge the landlord if tenants don’t pay, and it can be complicated to track down the tenants after they move out.
The security deposit and the last month’s rent help insure against loss of revenue coming from early move out or damages to the property. However, if no material damages were to arise, landlords must return the security deposit within the statutory period provided by the local tenancy laws. Missing those deadlines can lead to litigation and significant penalties for landlords.
To minimize the costs of tenant turnover, landlords want to avoid prolonged vacancies by finding new tenants as quickly as possible. With this in mind, owners must stay on schedule, keeping track of tenants’ intentions through move-out or renewal notices. If a tenant does not renew a lease and also doesn’t want to move out {either], they might [default to] consider a month to month agreement (also know as “Tenant at Will”). This, despite avoiding the interruption of the cash flow, can take away the opportunity to raise rent or to find a new tenant at a convenient time, potentially only postponing the vacancy. Proactively marketing the property will also help reduce the length of vacancies.
Professional Property Management
In all dealings with tenants, mutual respect and professionalism go a long way in maintaining an amicable relationship – which can reduce[s] the risk of legal disputes and [can] help keep good tenants, taking the issue of filling vacancies completely off the table. It’s particularly important to keep a professional rapport with the tenant during move out time, in part because when the tenant is under pressure tempers can flair, but also because the tenant needs the landlord’s guidance. What may seem obvious to the landlord isn’t always obvious to the tenant and being confrontational rarely pays off. Clarity of communication, explaining in detail what needs to be done to receive the security deposit back, is the best strategy.
That being said, it is not easy for a landlord to chase after tenants and hold them by the hand as they prepare to move out or renew the lease. It certainly is time consuming and, in many cases, it can be a frustrating endeavor, especially if you rent out multiple properties. In this situation, professional property management can help reduce the time it takes to market the property, fill a vacancy, screen potential new tenants, process any paperwork, handle maintenance and repairs as well as taking care of rent collection. Property management can help make sure landlords don’t miss out on rental income when tenancies come to an end by dedicating time, effort and expertise to the process, while improving the retention of good tenants by nurturing a professional and cordial relationship.