You put a lot of hard work and money into getting where you are in your investment journey, from saving up for a down payment to rehabbing the unit, finding a tenant who wanted the apartment, screening them, and signing your lease. Now it’s time to recoup your investment and even possibly cash flow a little, but there is a secret that most investors forget to share with new investors: “If your tenants leave after one year over and over again, you’ll never be profitable on your investment.”
The average tenant retention rates in Chicago are about 33%, or in other words, new tenants will stay for an average of 36 months in Chicago. Realistically, until you keep a tenant for 24 months, you will probably struggle to break even. So how do you get your tenants to stay for 36, 48, or even 60 months? We are property managers for hundreds of properties in Chicago, and here are our 6 top tenant retention strategies.
#6 Screen for stability as well as responsibility
Which tenant would you rather have?
Tenant 1:
credit score of 625
makes 100k
moved out of his last two apartments after a year
has only had this job for 2 months
or Tenant 2:
credit score of 565
only makes 60k
lived in their previous unit for 5 years
had the same job for the last 10 years
Many landlords may choose tenant one; however, tenant two is a much better option to become a long-term tenant assuming he has consistently paid his last landlord on time. Regarding the responsibility side, don’t just look at a credit score. How much are their monthly payments? Do they have a pattern of buying things they can’t afford? Do they lett necessities like gas, phone, or electric bills fall behind? Lastly, on the screening side, talk to their previous landlord to understand how they took care of their last apartment. Great tenants leave clues that they are great tenants and will treat your rental properties well.
#5 Set up expectations early and don’t waiver from them
Go over your lease agreement and rules with your tenant before they sign and make sure they are ok following the rules. For example, having a dog might be great, but let them know that leaving poop in the yard overnight will not be tolerated. Keep in mind how these rules might personally affect the tenant. If you don’t allow smoking but realize the tenant smokes three packs a day, it may be uncomfortable for them not to be able to smoke inside the apartment. They may be more likely to move out after a short stay of 1 to 2 years.
Make sure your lease has a system of fines. Explain it to them and use it when they break the rules. This is especially important in a multi-family home. If one tenant is leaving trash on the back porch and you let it slide, it will cause other tenants in the building to want to move out faster because they are being bothered by negative smells or worse, roaches and rats caused by the tenant not following the rules.
Lastly, if a tenant is not following the rules and it’s making others feel uncomfortable, make sure the other tenants know you’re aware and are working to fix the issues. When the tenants feel heard, they are less likely to move out due to a neighbor being a problem tenant. Open communication is key and by setting up the expectations early you will create a foundation to have a good landlord-tenant relationship.
#4 Broken Window Theory
Speaking of other tenants, if the common area is looking pristine, all the fixtures are working correctly, and all of the tenants are obeying the rules set to make the building comfortable for all, you will see it is more likely that tenants fall into place. When they fall into place and keep their apartment clean and the common area clean with a sense of pride and ownership, you will create a more welcoming community between your tenants and this will cause them to stay much longer. However, if you let a cracked window stay cracked for a few months, stop cleaning the hallways and barely cut the grass, you will end up with tenants that treat your investment the way you do. This will cause more damage and worsen conditions that will need to be cleaned up. If you treat the investment as a valuable asset and keep it well-maintained, good tenants will also take care of it. They want to make it feel like a home, not just a place to lay their head.
#3 Fix maintenance issues in a timely manner and correctly.
Which brings me to number 3. Tenants are far more likely to stay if their maintenance requests are fixed 1. in a timely manner and 2. properly. If you’re trying to fix a pipe by yourself and don’t know plumbing, not only do tenants get annoyed that you were there for four hours when it should have taken one, this is an inconvenience to them. If these things add up because of multiple issues that arise over the course of their lease, tenant satisfaction may be low when it comes time to renew and could cause some second guessing. They will be thinking about how inconvenient it was to deal with repairs, and not about how you got them done quickly and efficiently. With that being said, if you fix something but it breaks again, meaning a tenant has the same issue twice in a lease period, the odds of them renewing go down even more drastically than before. So make sure you either know what you are doing, or hire a professional to take care of your maintenance needs. It may cost a little more up front, but the money you save by avoiding turnover, sitting with a vacant property, and paying an agent to rent your property, is a much bigger return than the money you would save trying to do it yourself.
#2 Make a great first impression
When the move-in process goes well, small issues with your apartment are often overlooked by the tenant. When there are major issues with the move-in, every little speck of dust not cleaned from a cabinet becomes an issue. There are three parts to this, in my mind:
1. The turn was done correctly, and every appliance, outlet, and switch works. Don’t skimp on something because you want to see if the tenant complains. If the paint looks bad, repaint it so it looks good. We want these tenants to feel at home as quickly as possible.
2. The move-in process was easy, don’t make it hard for them to get keys once they have provided you with all the documents and payments you need. Make it as easy as possible for them to move in when needed. If you are trying to meet them but your day is booked for most of the day, and they need to change things up to meet you or drive to a suburb to find you when they rent in the city, this puts a bad taste in their mouth. Think about how you check into Airbnb’s now. This is what tenants expect: easy access keys on a lock box for them to grab when they are ready, not driving all over the city to try and meet you.
3. Go the extra mile: give them the cleanest apartment they’ve ever seen, give them a welcome letter, maybe even a gift card to get their movers some pizza. These things show you care about them and want to start your long-term relationship, not just hit it and quit it after a year. We want to build a positive relationship from the start, so when minor issues occur, the phone call is just a courtesy to let you know and not a good tenant getting mad at you and building a minor issue into something big.
#1 Treat your tenants with dignity and respect
Don’t raise your voice, don’t swear, and don’t invade their privacy like you’re their father and they’re a 13 year old boy with a girl in his room. The less invasive you can be, the more the apartment will feel like a home to the tenant. Now don’t take this as don’t inspect, but do it in more low key ways such as showing up when maintenance is sent so you can see the unit too, or having your plumber tell you about how the home looked. When a tenant is a few days late, call them and ask them what's going on. Show compassion if there is a good reason for their rent to be late, and work out a way to catch up without falling further behind. For instance, we had a tenant lose their job and find another 2 weeks later. Instead of them trying to pay two months of rent to catch up, we had them pay the current rent due for the current month and a small amount towards last month's rent every month until they were caught up. If you are constantly going after them for late rent, you will have a far worse relationship with your tenant than if you treat them with respect. You want to create a good relationship with your tenants so that when lease renewal comes around, the conversations around rent increases are much more civil. Another note on these communications is to make sure you are following all local landlord-tenant laws.
In conclusion, if your property management company is not keeping a high standard for your rental units and common areas, and you’re struggling to provide effective communication and timely responses to your tenants for needed maintenance work, the odds of you ever being profitable with rental income is very low. The best way to achieve effective communication, find the best tenants in Chicago, and keep your property running like a well oiled machine is by making sure you hire a good property management company. If you are looking for a company like that on the south side of Chicago, please reach out to us for a free rent analysis and see how we can help better manage your property to become profitable long term.
