Why Some Tenants Don’t Renew Their Lease
Written by Connor Swalm
Jaime: Well, hi there. My name is Jamie Swalm. I’m here with Connor Swalm and we are the hosts of the Landlord’s Resource. Brought to you by Swalm Property Management where each week we educate and empower landlords just like yourself. So Connor, how are you doing today?
Connor: I’m doing awesome today.
Jaime: Alright, well we’ve got a very important topic for you today. So every landlord has one goal and that is, they want to have a tenant in the property that pays on time, that takes care of the property, and they want that tenant in there a long time because that’s how as a landlord you build wealth. Stable, long term, high quality tenants that continue to pay the rent, which helps you pay down the mortgage and also gives you cashflow. So one of the most important things is that when you have a tenant in your property, you want to make sure that your tenant renews their lease. The typical lease is a year long. And so after that year, renewing that lease is very important. So we want to start and today and talk about what are the benefits of having your tenant renew their lease.
Connor: Yeah, and I know that there’s some controversy on this issue. Whether you should pay a landlord a renewal fee or not. Some people see that the landlord is incentivized to increase turnover as a result. We really view it the other way. We touched on this a little bit in our last episode where there was going to be some amount of turnover cost if a tenant has to leave the property. And so renewing the lease is no different. There will be some amount of turnover cost, but it is significantly less. You don’t have to do that certain level of cleaning, you don’t have a vacancy so have someone there that’s still paying rent. You don’t have to do marketing, you don’t have to repay a placement fee if your property management company or if you charge a placement fee. So really when it comes down to it having a tenant renew the lease, ends up saving the owner a significant amount of money regardless of what the renewal fee is versus the placement fee. It always ends up saving the owner a lot of money, a lot of time, and a lot of headache.
Jaime: Absolutely. So the reality is that when a tenant re-sign their lease, there’s a lot less turnover costs for you as an owner, which saves you a lot of money. And then the second thing is that you also retain a high quality tenant. It is not difficult to find a tenant. Sometimes it is more difficult to find a very high quality tenant. And so when you get a high quality tenant in your property, you want to do everything in your power to ensure that they’re happy so that they renew their lease and sometimes we see owners that could be doing more for the tenants that aren’t. And in the short run, maybe they’re trying to save a little bit of money, but in the end they’re kind of stepping over dimes to get two pennies where the best thing to do is to retain your high quality tenants.
Connor: Correct. And when you retain your high quality tenant, they’ve remained incentivized to take care of your property. So if you demonstrate to a tenant that you’re willing to recommit to them, you’re willing to resign a lease with them. One thing that’s not talked about is renewing a lease gives you an opportunity to raise the rent. So we personally see a lot of homeowners that will manage a property for six years in a row, have the same tenant and not have the rent raised. The cost of living, the cost of their mortgage, the interest on their mortgage has increased at that point. So all of the payments that they’re making have increased, but the rent they charge does not because they defaulted to a month to month and then never raised the rent over the years. So honestly, renewing a lease gives you an opportunity to recoup those losses, to bring the property back to market rate.
And like Jamie said earlier, it keeps the high quality tenants in your property. We touched on this before in one of our first episodes, the best way to make or lose money as a property manager is with a high quality tenant. If you put a good tenant in a property, everything will be going smoothly. If you put a bad tenant in a property, it’ll be headache, it will be financial troubles, it’ll just be a mess that you and the homeowner don’t want to deal with. So really, anything you can do to incentivize a good tenant stay and your landlord would know who the good and who the bad tenants are. Anything you can do to incentivize them to stay would be worthwhile.
Jaime: So just imagine that you’re a tenant and you’re in a property and you’re at the six month mark of a year long lease. And just imagine that at that six month mark, you know that after a year you’re going to leave because you’re not happy with the situation. How are you going to take care of the property? Do you really care as a tenant about taking care of the property at that point in terms of knowing that you’re going to leave in six months? Now contrast that with your tenant and you’re at the six month mark and you don’t have a move out date, where you want to stay in that property if you can for 5 years or 10 years. Well, if you’re going to be in that property for 5 years and your mindset, you know, you’re going to take care of that property to a whole different degree. You might even invest money in that property and maintaining that property because you consider it a long-term investment. So that’s just a snapshot of the mindset of a tenant that knows that they’re going to be out soon versus a mindset of a tenant that knows that they’re going to be there a long time. And so at Swalm Property Management, we work very hard to take care of our tenants and make sure that they’re very happy, for the well-being of all of our owners. And so let’s talk a little bit about why is it that a tenant leaves, what are the most common things that we see that caused the tenants to want to leave?
Connor: First and foremost, the most obvious reason a tenant would leave is that maintenance issues are not addressed quickly or not addressed correctly. Now this could be for a variety of reasons. Sometimes we get maintenance requests and it is very clear that the tenant caused the issue, the tenant is responsible, they did something incorrectly or they caused damage to the property and that they then would be liable for resolving that issue. Sometimes the tenants don’t see it like that but again, we’ve been around the block enough to know what is and what is not caused by the tenant. Also, this could be maintenance issues that actually need to be solved that are not and this could be for a landlord dragging their feet and not addressing it quickly enough, or sometimes what we see also is that the homeowner drags their feet.
So if you as a homeowner do not communicate quickly and effectively with your property manager, that really increases the turnaround time on maintenance issues that if they were solved quickly, would definitely make the tenant feel a lot better about the home they’re living in. So that’s also something to keep in mind if your property manager requests approval for a maintenance need, most of the time it’s in your best interest just to say “Yep, go ahead. Do it, get it done”. Personally, I’d rather not request maintenance if I don’t have to. Saves us a lot of time, saves the owner a lot of time, saves the tenant a lot of time. So if I end up requesting maintenance be done, it is really because that maintenance needs to be done. I’ve looked at the issue of either I had a technician tell me his professional opinion or I’ve gotten photos and I’ve gotten confirmation from the tenant or with my own eyes and I take all that information and suggest a course of action and bring that to the owner. And if the owner drags their feet at that point, I could not do my job better and it would really fall on the shoulders of the homeowner if that were to cause the tenant to be dissatisfied.
Jaime: And we’ve been doing this long enough that we know when a maintenance issue needs to be completed and when a maintenance issue isn’t. Often with the owners that we manage their property, it’s really a conversation between us and the owner. And at the end of the day, it’s important that as an owner that you’re willing to do the maintenance. I mean, we had a situation recently where, you know, we were hired simply to tenant the property. Now we were not hired to manage that property. So initially when we were hired to tenant it, we went into the property, we did an inspection of the property, there were a number of things that needed to be corrected in the property. We made the owner aware of that and the owner indicated to us that they would take care of all that. Then we went ahead and found an amazing tenant for that property. And when we went for the move in for that tenant, the items that the owner said would be corrected were not corrected and it created an issue at the move in, created a situation that was not positive for the tenant and rightly so for the tenant. And so we know that is most likely not going to end well. Now because we are hired simply to tenant the property, once we handed over the keys, once we accepted the security deposit, we are no longer employed by the owner and now really that is on the owner. But at the end of the day, most likely because of that owners unwillingness to fix those issues, that situation is not going to end well and it’s going to end up actually probably costing the owner far more than if the owner would have simply fixed the things that we had recommended. So the thing to remember is that as an owner, maintenance is always in your control 100% of the time. And so often we see owners trying to save money on the front side of maintenance only to have it cost them way more on the backside. All right. What’s our next reason?
Connor: Sometimes the tenant wants to move out because of the improvements they would like to make or the improvements they would like you to make to a home are just simply not getting done. I mean tenants like making their house feel like a home. Sometimes it’s not in the owner’s best interest to let that happen. Especially if they decide they want to paint some murals on the wall or something weird like that. But tenants want to customize the home because they want it to feel like it’s there. If you don’t allow them to do that, that could definitely be a reason for them leaving. Another point is the rent rates, if you allow rent to remain the same for five years, and then all of a sudden you raise it to market rates, which could be a difference. We’ve seen sometimes $200, $300 extra a month. A tenant’s not going to be happy with that. They’ve already budgeted and when you increase their expenses by that amount, they might just end up leaving. So that’s why it’s always good when you renew a lease at the end of every year to revisit the current rate of the property and to revisit if you should raise the rent or if you should keep that tenant or let that tenant live there. So like I said earlier, a renewing a lease gives you an opportunity to keep that rent steady at market rates so that, you know, as a homeowner you’re getting compensated and at the same time providing high quality housing to a tenant at market prices.
Jaime: The other reason that we sometimes see tenants leave is too many maintenance issues with the home. And so this is an issue of deferred maintenance where sometimes we see an owner that for many, many, many years has not kept up with the maintenance and especially the routine maintenance on the home to make sure that that home stays in a very good condition. And so then a tenant will move in and because of that deferred maintenance has never been done or not been done effectively. Or sometimes owners will do maintenance but they’ll put a patch on it or band-aid on instead of fixing it. We recently had an owner to do that with a roof where we came in. We worked with a lot of subcontractors and they’re good subcontractors so we had our roofer come in and recommended putting on a brand new roof and the owner didn’t want to do that. So the owner went with a different company, recommended that they just do a patch job, but said upfront “Hey, I cannot guarantee that this will not leak”. Months later, big rainstorm, that patch job leaks again. So it would have been in the owner’s best interest if they were to just simply replaced the roof at that time for the longterm. So it’s very important to make sure that you keep up with deferred maintenance. And then whenever we take over a property, one of the things that we always look for is what is the likelihood that a lot of maintenance going to need to be done over this next year? Because for us as property managers, if we take on a property that needs a lot of maintenance issues over a year, it’s just not worth it for us either because then we’re getting constant maintenance calls that we’re having to deal with. So the bottom line is, as a landlord, one of the most important things that you can do to protect your investment and to protect high quality tenants and keep high quality tenants is make sure that all of your maintenance is kept up to date. Now those are all the things that are in your control. Let’s talk about some of the things that as a landlord are outside of your control that might cause a tenant to leave.
Connor: If you’re a tenant and you need more space or you need less space, let’s say your kid moves out, you no longer need that third or fourth bedroom. Sometimes it’s just time for a downsize or an upsize. And there’s nothing you can do as an owner or landlord to prevent that. It’s really just time for that tenant to move into another place at that point. Another thing is job placement. If a tenant gets a new job or if their job relocates them, that is something that’s outside of your control. So at the end of their lease, if they need to move as a result of a job placement, you really can’t do anything for them at that point. They need to move, there’s nothing you could do to the home, there’s nothing you can do with the tenant. They just need to find another place to live. There are a couple of other things like they no longer are able to maintain the expenses. So rent is getting too much. Maybe you’re raising it too high or maybe they got a different job that pays less or someone is no longer giving them financial support at that point. It’d be really just in their best interest to find a cheaper alternative or a new place to live just because the expenses are too high. So really a lot of things are outside of your control.
Jaime: So when we tenant a property and we tenant a lot of properties and we’re looking at all these factors. It’s not only a person’s capacity to pay, it’s not only their credit rating. It’s also what is the likelihood that when we placed that individual into your home, into your property, that based on that individual’s circumstances and situation, how likely is it that they’re going to stay for a long time? Because the reality is that when you have a tenant in your property for the long-term, you win as a landowner, as a landlord, or if we’re managing the property, we win as the property management company as well. And then the owner wins as well. So bottom line is, it is best for everyone, the tenant, the owner, and the property manager if a tenant stays for very long term. All right, anything else we want to close out with?
Connor: No, that’s pretty much it.
Jaime: Well thanks for watching us again on the Landlord’s Resource. If you’re listening to us on Itunes, go ahead and pop over there and give us a great review and how can people get ahold of us if they want to learn more?
Connor: You can take a look at our website swalmpropertymanagement.com. We have all of our contact information there, our phone number, forms that you could fill out, emails that will go directly to an agent in our company. We also have a lot of resources over there that you’d probably like to take a look at. We have a blog and podcast and then some other documents that we have access to and you can also find us on Facebook, Youtube, Instagram, Twitter, just search Swalm Property Management, we’ll be the first people that come up and then just follow us.
Jaime: Alright. We will see you on the next edition of the Landlord’s Resource. Thanks for doing this.