The old adage goes, “I would rather have one true friend than a million fake ones.” Anyone in the multifamily industry can attest that the same is true for residents. A single good, long-term resident can be better than several new ones. But what is the true cost of gaining new residents? What is the cost of retaining residents?
Retaining Residents: A Cost Comparison
It takes time, effort and strategic marketing to fill a community. Both the hours and dollar signs add up quickly in marketing to new residents, yet retaining a resident only takes solid customer service and relationship building.
While it seems like a no-brainer to focus on retaining residents rather than constantly seeking out new ones, far too often the multifamily industry puts greater weight on gaining residents than retaining them.
Today we will talk about why there is real value in long term residents and why we should focus on retention.
What is the value of a long term resident?
Some basic math
We all know that a RLTC (A Resident’s LifeTime Value) is an assessment of the total anticipated revenue you will generate during the course of that resident’s lease.
$1000 per month rent payment
by a standard 12-month lease
you can expect a resident lifetime value of $12,000.
While this may seem like an oversimplification, evaluating and keeping these figures in mind, can help you decide where to allocate spending in your marketing and customer service budgets. There is wisdom in analyzing cost vs benefits and Leonardo247 can help you easily track and compare revenue, and budget expenditures making this process truly easy!
Retaining Residents vs. Recruiting Residents
We must start by defining the two terms, retention and recruitment.
Retention = Keeping residents already living in your community. Furthermore this means you have the security of a responsible, paying tenant and don’t have to try and fill vacancies. This creates stability and reduces the amount of work needed to turnover units
Recruitment = Marketing and selling to new residents therefore bringing them into the community and filling units. While this is often the main focus of leasing offices, we should NOT overlook relationships with current clients as ultimately, increasing current residents’ lifetime value makes more sense than recruiting someone new.
More basic math
Let’s look at the math. In the example above, if our resident renews his or her 12-month lease for another 12-month term, we’ve increased the RLTV to $24,000 (1st year – $12,000 + 2nd year =-$12,000 = $24,000).
On the flip side, say that person choses not to renew. In the best case scenarios they leave the apartment in good condition, and receive their security deposit back. Most communities would still spend about $200+ to clean and make repairs before our new resident moves in. In addition, if we spent a minimal 1% per unit on marketing, we’d be adding in another $120 for a 12-month lease.
So, profitability-wise, we make about $320 more by simply retaining a resident through the next year. While this doesn’t seem like much, multiply this by a 200-unit complex and you’ve got a significant amount of increased revenue without much, if any, work to your already busy task list.
Retaining Residents: Tactics for Increasing Retention
Despite property managers’ best efforts, it can sometimes feel like an uphill battle reaching retention goals. Residents need to feel satisfied with their home, safe in the community and be happy with maintenance in order to renew their lease. YES, keeping units filled is the main goal of any leasing office, many may be going about it the wrong way. It becomes obvious that keeping residents satisfied is the best long-term way to achieve this goal.
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Inadvertent Poor Decisions can Discourage Retaining Residents
Many property managers view a rent increase as a way to reach profitability quickly. Once again we see how it is wise to track and assess your community holistically to ensure good decision making.
Some basic math
Evaluating your residents’ options first will help decide if the extra $100 increase is worth the risk of losing a long-term resident who may move to somewhere more affordable. It may be necessary to spend $100 to increase the overall RLTV by $12,000 vs increasing the lease amount and gaining only $1200 total. We can all see how $12,000 in RTLV is > $1200 increase in monthly lease fees.
Retention vs Recruitment: The Bottom Line
In general, what this all boils down to is the fact that gaining new residents costs more, than to retainining current residents. As a property manager, it is imperative to look at the bigger picture and analyze each resident’s lifetime value in order to weigh short-term solutions against long-term goals. Seeking ways to increase resident satisfaction will ideally help retain residents longer. This increases their lifetime value, which is ultimately more profitable than continually turning over residents and units, term after term.