Real estate investors have typically viewed turnovers on their properties as a bad thing. Damage to the property, vacancy, loss of revenue… all are proverbial four letter words in this industry. But is a turnover really a bad thing?
First and foremost, real estate investing is a business. Investors must keep up the property but also keep an eye on market forces and especially market increases. An investor who does not raise rent for many years may find that when the tenant moves out, they are able to demand significantly more in rent from the new tenant. The rent increase often more than covers any costs associated with the turnover if the investor is diligent in making the turnover as quick as possible.
I recently had an experience with a tenant I’ll call Sheila. She is a long time tenant with my management company. We had been diligently raising the rent every year when her lease expired, but only between $10-$25 at a time. For 2021, rents had spiked so much in Sheila’s much desired neighborhood, we calculated that we would actually be able to easily cover expenses involved in a turnover since the tenant’s rent was so far below market rent ($275 per month). Confident in the numbers, we approached Sheila 60 days out from her lease renewal. We let her know that we would be glad to renew her lease, but this year her rent would increase by $75 per month. We did not give her the amount we would charge for the home if she left, as we did not want her to feel pushed out. Sheila was not happy with the large increase as compared to other years. We held firm on the price and assured her that if she would like to look around and rent elsewhere we would understand. Within a week the tenant responded that the increase was acceptable and the new lease was signed shortly thereafter. Sheila is still renting at a great value, but the homeowner has improved their ROI significantly.
This scenario is really the holy grail of rent increases; additional revenue and no repairs or vacancy. With times changing so quickly, be aware that the properties that you control are assets that increase in value year over year, both in sales value and also in rental revenue.