Lease Renewals: Retaining Your Top Renters

Automating workflows could be the hottest trend we’ve observed in the real estate industry in recent years. It’s no surprise considering the promise for cost savings and improved accuracy on critical processes that are predictively repetitive. The property management industry is quickly being redefined by process optimization and automation. A recent study by McKinsey & Company revealed that the COVID-19 pandemic accelerated the share of digital or digitally enabled products in their businesses by a shocking seven years. This transformation isn’t a temporary trend either, the findings reveal that executives at many U.S. companies recognize technology’s strategic importance as a critical component of the business, not just a source of cost efficiencies.

However, there is an unfortunate gap between the desire to automate these workflows and the reality of what work needs to be done to make it happen.  While there are almost countless opportunities to automate key workflows in your business, lease renewals are strong candidate because it’s time consuming and closely aligned to revenue. We speak to apartment operators and single family managers on a daily basis and wanted to quantify the level of effort involved with lease renewals to quantify the time and resources involved in this critical process. Seemed like a perfect opportunity to conduct a survey! Here’s what we found:


It wasn’t surprising to see that the average lease renewal takes 55 minutes of an employee’s time. While your property management software might provide some tools to manage this process, we discovered that most property managers are resorting to manual methods to get the job done. If you could automate 30% of this process across 500 leases, you’d be saving $4,125/year. This doesn’t even consider any possible increases in conversion rates on renewals resulting from simply managing the entire process more consistently or efficiently.

While your numbers might vary from our results, it’s clear that optimizing lease renewals should be a top priority since:

  • Your property management software likely doesn’t manage the entire renewal process, forcing you to rely on tools like spreadsheets and your inbox to track the progress 
  • With multiple stakeholders involved in the process, it’s easy to lose track or where it might get stalled 
  • It’s closely aligned to revenue
  • Provides an opportunity to reassess the condition of your property and the relationship with your customers (renter and owners)

We’ve studied how hundreds of companies manage lease renewals and have captured some of the best practices and common questions we get when implementing Aptly to manage the process. 


Should you renew the lease?
 

The ultimate goal of lease renewals is to retain desirable renters at a rental price that is aligned with what the market charges for a similar home. Unfortunately, most property managers are making their decision on whether to keep or excuse a renter on a incomplete picture of what happened over the lease term. We recommend considering reviewing the following key data points over the current lease term before extending a renewal to anyone:

  • Did they make timely rent payments?
  • Did they have any payments returned for non-sufficient funds?
  • How frequently did they reach out with complaints? 
  • Did they get along with others in the community and your staff?
  • Do they have any open maintenance issues?
  • Have they maintained the home properly?
  • Have you surveyed the renter to see if they are happy with their home? 

This list might seem daunting, but with Aptly you can find the answer to these questions in a matter of seconds.

How Far in Advance Should I Start the Lease Renewal Process?  

So, you’ve filtered out the list of those problem renters and you’re ready to start the renewal process. But, how far in advance of the lease end date should you engage your renter in the renewal process. We found that most customers that approached us to implement our lease renewal process in Aptly were reaching out to their renter 60 days before lease end. While this feels like the industry standard, there’s a growing amount of evidence that suggest you should start your process much earlier. With more than 60% of renters in the United States moving every year, it’s important to start the process early to optimize retention. The chart below from a JT Turner survey of more than 39,000 renters reveals that 37% of people would consider a renewal offer 4 to 6+ months before lease end. Additionally, the chart reveals that a vast majority of renters are considering their renewal at 90 days before lease end.

Source: Residents Attitude Towards Renewals and Online Reputation

Based on our experience and research, we strongly recommend starting your renewal process 4-5 months before lease end. By starting early, you have sufficient time to gather the data points we highlighted above and get your offer in front of your customer before they start shopping around.

Optimizing Your Lease Terms

Sophisticated property management companies have been using variable lease terms as a powerful secret weapon to protect and optimize revenue for years. Yet, it’s surprising how many companies we work with that still only offer 12 month leases to their renters. Renting homes follow predictable seasonal patterns each year, commonly referred to as “seasonality” which has a significant impact on the rental market. While renters move year-round, it should come as no surprise that there are certain times of the year that are more popular than others.

Source: Apartment List- How Does Seasonality Impact Rent Prices?

As illustrated in the chart above, summer is the most popular time of year for renters to move. Renters with a family having children out of school, others are graduating from college, and the weather is favorable for the logistics of a move. This seasonality affects your renewal process when you take into consideration the basic laws of supply and demand. Would you rather have your leases expire in the dead of winter when fewer people are looking to move or in the summer when there will be a greater demand for your home? If your renter chooses to vacate a home at the end of their lease in January, you could see longer days on the market which equates to lost revenue. Revenue management solutions can optimize rental rates and terms for your properties with little to no effort by your leasing staff. However, if you are not ready to make an investment in these types of solutions you can simply negotiate with existing and new renters to have their leases expire in those months when demand for your homes will be the greatest.

Mapping out the Stages of your Renewal Process 

Visualizing a process can be one of the more powerful steps to getting your team aligned, promoting accuracy, and introducing automation. Although it’s unrealistic to assume that everyone handles lease renewals the same, we’ve formulated some of the more common milestones that may be tracked as “stages” in your workflow. Stages are both a visual indicator of where a renter is positioned in your workflow and a trigger for automations. After working with hundreds of property managers,  Aptly’s designed a lease renewal workflow that both visual and loaded with automations to help you move renters through the process. Our recommended stages include:

Stage  Description  Key Action 
New  All leases expiring within the next 120 days. 
  • Evaluate the renters lease data (ie. rent amount, rent payment history, etc)
  • Review communication history with the renter over the past lease term
Calculate Rent Increase Determine the market rent for your rental and determine the amount of increase. Market rent needs to take into consideration the following:

  • Location. How desirable is the home in respects to the community (apartment complex or neighborhood). Has the desirability of the home changed since you signed the last lease?
  • Floorplan / Amenities. How desirable is the floorplan or the amenities as compared to the other homes you manage? Did you make upgrades during the last lease term where the costs need to be recovered?
  • Condition. If you haven’t made any updates to the home, are there known maintenance issues/upgrades that need to be addressed? A rent increase can help budget for these.
  • Demand. Take into consideration the proposed end date of the new lease and the associated demand for the home when the term expires.
Renewal Terms Shared with Owner/Leadership

(Fee Managers)

If you are a fee manager, you might need to communicate the renewal to an owner or leadership for sign off.   Reach out to the property owner/leadership with a recommendation or update on your strategy on regarding the renewal. This stage allows them to:

  • Approve lease renewal terms 
  • Elect to replace the renter 
  • Take the rental off the market (occupy or sell)
Schedule Inspection   Walk thru the unit to get a better understanding of the condition. We strongly recommended walking through the home to get a better understanding of the condition before offering renewal terms. In most cases, nobody on the management team has been in the home since it was originally rented. This inspection will give better insights into the level of wear and tear in the unit and/or deferred maintenance issues that could be budgeted for with an increase to rent.
Proposal Sent    Send the renewal offer to the renter  renter.  Send out a detailed email describing the conditions for the renewal and when the renewal offer ends. There should be a clear call-to-action for them to accept the terms or ask a question. 
Renewal Accepted Send lease renewal option to your renter.   This stage triggers a task to prepate and send the lease for the renter to sign.
Notice Given Renters with plans to vacate can notify you of their intent to leave. Renters that have given notice should always trigger a follow up conversation with your staff to better understand their reason for vacating and attempt to keep them in your home.
Lease Signed  Renter has signed the new lease. The final stage of the renewal process indicates that the renter has signed their new lease and can be accompanied with additional tasks to update the property management system with the new lease terms.

Present the Renewal to Owners/Leadership

One of a property managers primary duties is to maximize the revenue for an investment property. Property owners and/or management leadership count on a property manager’s knowledge of a local market to price vacancies and lease renewals right. Thus, it’s important to show thoughtfulness when presenting the lease renewal terms to an owner or property management leadership. We’ve curated a list of some of our favorite tools/suggestions for determining and presenting the market term to owners/leadership:

  • Create an Aptly board to track comparable properties in the area and gather relevant metrics like proximity to your rental, amenities, rent, $/SF, days on market. Tracking competitive properties in Aptly provides your team with platform to collect and trend valuable data about the properties that your renters would consider nearby.
  • In markets where the MLS is a relevant source for rentals, consider using a tool like Cloud CMA to present market comps
  • Leveraging Internet Listing Sites (ILS) like Zillow and ApartmentList are another useful way to identify competitive properties and some of the key competitive metrics. Tools like Zillow Rental Manager give property managers a useful tool for pricing and marketing their rentals.
  • Some states and municipalities have statutes that govern when and by how much you can raise the rent. The National Multifamily Housing Council (NMHC) has created an interactive map for landlords showing states with rent control and city-specific laws. It’s a good idea to review the state specific landlord laws.

Presenting the Lease Renewal to the Renter

As mentioned above, it’s best to have a better sense of the status of the relationship with your renter before asking for the lease renewal. One simple and extremely effective technique is to periodically survey your renter and compile an NPS or CSAT score. Aptly mankes this incredibly simple by automatically encouraging renters to provide you this feedback after any exchange with your team. The tally of these survey results and a quick scan through any open tickets on your Aptly Help Desk and Work Order boards will tell you everything you need to know about the status of your relationship with the renter. Ideally, you want to have all open issues addressed before reaching out with your renewal offer.

Typically, a lease renewal agreement is a short document that references/modifies the terms and conditions of an existing lease. Some of the best practices for presenting the lease renewal to the renter include:

  • Reference the original lease terms including any terms and conditions that relate to the renewal.
  • Renewal terms and conditions including the new start and ending date, changes to the rent, and any modifications to the lease terms
  • Requirements for proof of current renters insurance, instructions for paying rent online, and how to sign the document electronically
  • An expiration date on your offer. Renters are notorious for procrastinating.

Occassionally, renters will ask for incentives or discounts to renew the lease. These might include such things as replacing appliances, cleaning carpets, or painting interiors. Property managers need to weigh these requests against the cost for replacing the renter which can be much higher than deferred maintenance that should be done anyways. If you find yourself negotiating a lease renewal, it’s perfect timing to ask for a longer lease term that will expire prior to the peak months when your rental will be high in demand (ie. April thru August).

Here’s a sample of a lease renewal offer that captures these best practices: 

Dear {{renter-name}}, 

Thank you for being a neighbor at {{property-address}} over the past year. We’ve enjoyed having your in our community and want to see you stay with us beyond the term of your current lease. Your current lease expires on {{lease-end}} and we’d like to make the decision to stay at {{property-address}} an easy one! We’ve prepared a proposal with several lease renewal options from your consideration. Our homes are in high demand, so this offer is only value thru {{offer expiration date}}. If we don’t hear from you by this date, we will start our process for marketing the home for a future neighbor. 

Current Rent: {{current-rent}}

Please review and choose from the following options for your lease renewal. 

Lease Term (months) New Lease End Monthly Rent
16 6/15/2022 $1,200
14 4/15/2022 $1,250
13 3/15/2022 $1,265
12 2/12/2022 $1,300

This offer expires {{offer expiration date}}

What you’ll need to renew your lease

  • Proof of current renters insurance
  • Sign a lease addendum electronically

Considering moving out? 

  • You will need to formal notice to vacate by completing our online form
  • If you plan to vacate before the end of your lease, you will be liable for the terms outlined in Section X of your lease agreement
  • Be sure to settle any outstanding balances

Let us know your intentions as soon as possible and let us know if we can answer any questions. We look forward to having your stay in your rental home for another year.

Summary

Lease renewals are an important process for property managers to manage properly. It can cost thousands of dollars to replace a renter, so it’s critical to do everything possible to encourage your best ones to renew. Let’s take another look at the key strategies for optimizing your renewals workflow:

  • Do your homework and determine if a renter is worth keeping by reviewing the key metrics on your relationship
  • Start your renewal process 120 days before the end of the current lease term
  • Perform the proper market analysis to determine the market rent
  • Present the proposed lease renewal terms to owners/leasdership in a manner that demonstrates you’ve done the necessary homework to determine the appropriate rent and lease term
  • Consider seasonality by giving renters multiple lease term options that encourage an end date when demand for your home will be greatest
  • Offer small incentives with your offer such as gift cards, energy-efficient light bulbs, or housekeeping voichers to encourage an early renewal.
  • Be willing to negotiate with a good renter, but use concessions as leverage to extend your lease term.

Of course, consider trying Aptly to manage this entire process and automate many of the steps and communication with ease. We’d love to give you a demo and set up your lease renewal workflow today. Schedule a time to chat with our team and learn more about our Quick Start program to get things rolling!

 

 

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