The Real Estate Holy Grail
High occupancy and low turnover
Welcome to this week’s issue The Un-Normal Investor. Each week, I publish one 5-minute read that’s written to make you a smarter real estate investor.
If you don’t know where to start, or you’ve hit a roadblock along your journey, consider joining our private community.
You’ll have instant access to our chat where we answer each other’s questions and share referrals, live Q&As with special guests, and invite-only in-person events and dinners.
Keeping your properties occupied year-round isn’t easy, but it’s straightforward.
Every vacancy traces back to one of these four culprits:
Affordability, Safety, Functionality and Beauty.
If you want to keep churn and tenant turnover to a minimum, here’s how you do it ↓
Affordability
Make sure your rents land in the “sweet spot” - high enough for you to make a profit, but low enough to fit within a tenant’s budget.
You don’t have much control over what you can charge for rent.
You can’t just pull a price out of thin air and slap it on a Zillow or Apartments.com listing.
Supply, demand - and in some markets, rent control - dictate rates.
However, when it comes to tenant screening, you’re the one sitting in the driver seat.
You get to choose who occupies your property.
And when making this decision, you want to ensure that the rent you’re charging, fits comfortably within the tenant’s budget.
Whether it’s a family of four with two working spouses, or a single renter with no kids, the tenants’ household income should be at least 2X - 3X the marketed rent rate.
If housing costs exceed 50% of their gross monthly income, the risk of non-payment is substantially higher.
Any unexpected expenses will get in the way of timely rent payments.
This leads to late fees, and ultimately, it opens the door to eviction proceedings.
Neither you or your prospective tenants want to end up in court over un-paid rents.
So do both of yourselves a favor by making sure your property wont turn into a financial burden halfway through their lease.
Safety
Even if the neighborhood isn’t lined with white picket fences, your property has to be a safe haven for its residents.
Regardless of how rough a neighborhood may be, your property must be the exception.
If your residents don’t feel at home when they park their car and kick off their shoes, they won’t stay for long; it’s as simple as that.
No matter how “affordable” the rent may be, no tenant worth having can tolerate a hostile environment for an extended period of time.
For those that own real estate in relatively high-crime areas, there’s plenty you can do to help insulate your residents from the madness.
For starters, you can install cameras all around the perimeter of the building and near the front door(s).
This will help keep an eye on who’s coming and going.
Next I’d place motion censored flood lights throughout all entries.
This will not only brighten up the property, but it’d also help deter any “thieves in the night”.
Lastly I’d add a security gate; for both the parking entrance and walk-up.
This will help keep out unwanted company.
Taking these measures doesn’t guarantee there won’t be any mishaps, but it definitely reduces the odds.
As owners and investors, it’s not always necessary turn your property into a mini Fort Knox.
But providing your residents with peace of mind is a must.
Functionality
You don’t need a long list of amenities, you just have to make sure everything works the way it’s supposed to.
Before you shift your focus to beautifying the property, you have to take care of the basics.
Most residents aren’t looking for a ton of bells and whistles, but they expect everything in their home or apartment to function properly.
A fancy gym or vending machines in the common area won’t keep your tenants around.
If the sink drains slow, the shower water pressure is low, and the AC is constantly cutting off, it won’t be long before you receive a notice of non-renewal.
Ensuring that the property is pest-free, providing updated appliances, and making sure all mechanicals - such as the plumbing, HVAC, and electricity - are working properly, will go much farther than any exterior or cosmetic updates.
Beauty
Everyone wants to feel good about the place they call home.
Only after you’ve nailed the fundamentals - affordability, safety, and functionality - should you direct your attention toward the fun part: beautifying your property.
This is when you get to play the creative role.
Me personally, I never splurge on trendy finishes or flashy fixtures, but I will spend generously to execute a timeless design.
Installing tile floors instead of linoleum, and quartz countertops rather than formica.
These minor touches make a huge difference.
High quality materials are more expensive upfront, but they look better and last longer.
Not only does this help attract a larger pool of prospective tenants, but it also reduces your replacement costs down the line.
And most importantly, investing in the overall appearance of your property achieves the #1 goal - minimizing tenant turnover.
The better a building looks, the longer residents will typically stick around.
If you’re looking for the formula to low churn and high tenant retention, this is it.
It’s not rocket science.
You don’t need marble floors and gold plated door handles.
All people want is a safe, clean, and comfortable place that they can be proud to call home.
Anything above and beyond is just a cherry on top.
What’s your take on today’s topic? Do you agree, disagree, or is there something I missed?
If you enjoyed this read, please share it so others can gain value as well.
For access to the Un-Normal Investor private community, live Q&A sessions with special guests, and our exclusive in-person meetups, dinners, and events, click the link below.