Last week, we started discussing the early work to position yourself strongly for a tenant renewal scenario. (https://danbaldini.com/2016/10/24/treats-instead-of-tricks/)
This week, let’s conclude the article.
Let’s assume you have one of two options for the renewal scenario: You plan on keeping the rent the same as in prior years or you plan on asking for a rental rate increase.
Same rent scenario: This one is easier, but be prepared for the tenant to ask for a possible rent reduction or other concessions. Their argument could be as basic as,”Hey–you don’t have to search for a new tenant, so how about knocking $25 off our rent for the next year?” or “Hey–can you replace the carpet and we’ll agree to renew?”
Whatever their request is….be prepared to know your numbers (i.e. profit margin) in order to know if you can do it or not. In addition, if the request is simply not in the cards this year, you could also respond with something along the lines of “I would love to accommodate your request, but unfortunately we have had to absorb higher property taxes, higher hoa dues, higher repair costs, higher xxxx. As such, we are doing everything possible to not raise your rent this time around and keeping it the same.”
Rate increase scenario: This one can be trickier, but essentially it’s the same argument about higher costs overall. You have to protect your profit margin otherwise cost creep will set in and you will lose points the following year.
Once you’ve determined your price points and margins for the next lease term, it’s time to set the deadline for how long you’ll give the tenants time to think it over. Communicate this in writing via email or snail mail. Be sure to include any special steps they have to take prior to signing the lease renewal document, such as reapplying for the property in order to pull fresh background reports on them. If the deadline comes and goes without the tenants doing what they are supposed to do, it’s time to put out the For Rent sign and install that lockbox. Often, this bit of saber rattling will wake them up and bring them back to the issue at hand. If not, well, then you know you definitely need to begin that new tenant search in earnest.
Assuming the tenants do what is asked of them, it’s time to have them sign on the proverbial bottom line again. BUT…..before you whip out that one page lease amendment, are you certain that there’s nothing in the current lease document terms you want to change or add? This is a good time to review their current lease document in full to capture any iterations made since their last signing and make sure they are in the new lease term. If a new lease term is needed, consider adding it to your lease template for that property and simply have them re-sign the new lease document.
So that’s it! Congrats on keeping vacancy days to Zero again for this property and keeping your bank account cash flowing rolling along smoothly.
Until next week, here’s to your pursuit of Financial Freedom!