Calendar icon October 10, 2023

How to Calculate Tenant Turnover and Tips to Reduce It

Photo of Andrew Smallwood

Andrew Smallwood

Chief Customer Officer - Second Nature

Tenant turnover is the process that occurs when a current tenant vacates a rental property, and a new tenant moves in. It’s just the natural process of residents moving in and moving out. Sometimes, it’s a sign of a challenging property, but often, it’s just a natural part of the renting journey.

While tenant turnover is a standard part of the rental business, the downside is that it often comes with associated costs and potential revenue loss due to vacancy periods. Tenant turnover costs can exceed thousands of dollars per month and hurt your cash flow.

Understanding the ins and outs of tenant turnover meaning is essential for effective property management and profitability. It’s key to reduce the time of a turnover and to know the average tenant turnover rate in your area.

Second Nature's Outlook: 

"Tenant turnover” is an industry term used from time to time. But we here at Second Nature are trying to evolve the word "tenant." We’ve seen the incredible work property managers do day in and day out to make renters feel like they’re so much more than just a tenant – they’re residents. Making renters feel like residents isn’t just philosophical, it also encourages them to invest in care for their home and add value to the property. This is why, at Second Nature, we prefer to call renters “residents.” Like you, we think of them as people first – making your property their home.

 

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How to Calculate Tenant Turnover Rate

Getting the tenant turnover rate calculation correct is essential for property managers and landlords to understand their property's performance and the effectiveness of their management strategies. 

The good news? The math isn’t complicated!

Go through these three simple steps in our tenant turnover formula to get your rate:

  1. Determine the number of move-outs in a year: First, identify the total number of tenants who moved out of your property during a specific period, usually a year.
  2. Identify your average number of total units: Calculate the average number of rental units you have available for that same period. For example, if you started the year with 10 units and ended with 12, your average would be 11 units for the year.
  3. Calculate the turnover rate: Divide the number of move-outs by the number of total units and multiply by 100 (to get a percentage). 

Tenant Turnover Rate = (Number of Move-outs) / (Number of Units) X 100

For instance, if you had three move-outs in a year and an average of 11 units, your tenant turnover rate would be: (3/11) X 100 = 27.27%.

This means that 27.27% of your units experienced tenant turnover that year. Understanding this rate can help you set targets and measure the success of your retention initiatives.

Understanding Tenant Turnover Costs

Vacancies create disruption to your income stream and your investors' cash flow. The longer the vacancy, the more you're spending on marketing and management to find a new tenant. Here are four ways tenant turnover costs property managers.

1. Maintenance & Repair

After a tenant leaves a property, you have to restore it to a marketable condition. Ideally the tenant leaves it in excellent condition. But you'll still likely need to pay for deep cleanings, some light repairs, and some updates like fresh paint, patching holes, etc. Additionally, as a property sits vacant, it will slowly deteriorate to some degree. The longer the vacancy, the more need for maintenance, upkeep, or repair. 

2. Showings

Whether you do in-person showings or virtual/remote showings, there is a cost to prepping and opening the property to prospective tenants. You may need team members on site, or to make time to set up virtual showings. 

3. Marketing

A vacant property is a property that needs to be filled. You may primarily use services like Craigslist or Zillow, which require time and cost within your own team to build and maintain listings. Or, you may also pay for ads to get more viewings. And, of course, in some cases you'll need to include real estate agent commissions in your budget. 

4. Overhead

The whole process of turning a property involves hands-on effort from yourself and your team (if you have one). The cost in time and team member's salaries can add up. 

How to Reduce Tenant Turnover

We don’t have to tell you that high tenant turnover is a property manager's nightmare. It incurs significant costs, from marketing the property and screening new tenants to potential lost income during vacancies. Tenant turnover costs can add up to thousands for each unit each month. 

However, with the right strategies in place, reducing tenant turnover is more than achievable. Let’s explore these tenant retention strategies that not only enhance the resident’s living experience but also boost the value of your client-investor’s assets and your business’s reputation.

1. Offer Competitive Rent Prices

Ensure your rent prices are in line with the local market. Overcharging can lead to tenants seeking more affordable options elsewhere. Fortunately, with the interconnectedness of the real estate market, and a proliferation of software and apps that help track it, property managers can easily stay on top of the latest market trends.

2. Foster a Strong Property Manager-Tenant Relationship

Regular communication and a respectful attitude can go a long way. Make tenants feel valued and heard. Address their concerns promptly and maintain transparency in all interactions. Clear and consistent communication goes a long way to protect this relationship.

A Resident Benefits Package is an excellent way to prioritize the PM-resident relationship. It shows them you really care about their lived experience and offers solutions to their most common pain points. 

3. Address Maintenance Requests Promptly

Swiftly responding to and resolving maintenance issues demonstrates that you care about the tenant's comfort and safety. Regular maintenance checks ensure small issues don't become major problems. When tenants see that the property is well cared for, they’re more likely to stay – and to take care of it themselves. 

Another important factor is offering on-demand pest control, not just preventive care. Residents will rest easy knowing that, should any issues arise, they know exactly who to turn to and that it will be dealt with promptly. 

4. Update and Renovate

Modernizing appliances or adding new amenities can make the property more attractive and encourage tenants to stay longer. Modern, functional amenities can be a significant draw. 

Periodically update or add amenities like a dishwasher, laundry units, or improved outdoor spaces to enhance the property's appeal.

5. Offer Lease Renewal Incentives

Consider providing discounts or other benefits for those who renew their lease, making the option more enticing. A resident rewards program can accomplish this along with incentivizing on-time rent payments and extra TLC for the property.

 

download rental inspection checklist template

 

6. Ensure Security

One of the top priorities for any resident is feeling safe in their home. This extends beyond just locking doors; it involves well-lit outdoor areas, potentially installing security cameras, etc.

But did you know that identity theft has actually surpassed home burglaries as a risk to renters in the past two years? That’s why our Resident Benefits Package includes identity protection and renter’s insurance. Insurance protects your property, and identity protection preserves the resident’s financial stability – and, therefore, their ability to continue making rent. 

By proactively ensuring that security measures and insurance are up-to-date and effective, property managers can instill trust and peace of mind in their tenants, encouraging them to stay longer. And by providing identity protection, you can ensure that payments are safe, too.

7. Conduct Regular Inspections

Routine inspections aren't just about ensuring that tenants are treating the property well; they're also an opportunity to identify and address minor issues before they escalate. 

By regularly checking in and maintaining open communication, property managers demonstrate commitment to the property's upkeep and the tenant's well-being. 

These inspections also give residents the confidence that they're in a proactive environment. They know you’re looking out for them and likely won’t feel the need to look for alternatives that might be less proactive. 

8. Implement a Rewards System

Resident rewards are an integral part of an RBP for good reason. Recognizing and rewarding responsible behavior can play a significant role in fostering loyalty among residents. 

By introducing a rewards system, property managers can incentivize timely rent payments, property care, and long-term leases. Whether it's a discount on a month's rent, a gift card to a local establishment, or points that can be redeemed for various perks, rewards make tenants feel appreciated. 

Over time, this builds a positive relationship, encouraging them to renew their leases and view their rental as more than just a temporary dwelling.

9. Vet Tenants Thoroughly

One of the best proactive steps in ensuring long-term tenancy is by meticulously vetting potential tenants. 

The process of screening new tenants, with background checks, evaluates a tenant's rental history, financial stability, and overall fit for the property. By identifying individuals with a history of timely payments, respect for previous rental properties, and stable employment, property managers increase the likelihood of having residents who will care for the property, abide by lease terms, and remain for extended periods. 

This approach not only minimizes potential conflicts and evictions but also fosters trustworthy and transparent relationships with your residents.

10. Seek Feedback and Act on It

Actively seeking feedback from tenants provides invaluable insights into areas of improvement and showcases a genuine commitment to enhancing their living experience. 

Whether it's through regular surveys, suggestion boxes, or casual conversations, understanding tenant concerns and promptly addressing them helps build trust and rapport. 

When residents see that their opinions matter and lead to tangible changes, they feel valued and heard. This proactive communication strengthens your relationship and often encourages longer stays as residents recognize the effort made to optimize their living environment.

Tenant Turnover Checklist for Property Managers

Here’s a checklist template for managing tenant turnover at your properties. 

1. Pre-notice Period

  • Review lease expiry dates.
  • Initiate renewal conversations with tenants.
  • Survey tenants on reasons for move-out if they choose not to renew.

2. Once Notice is Given

  • Provide move-out instructions to tenants.
  • Schedule a pre-move-out inspection.
  • Inform maintenance team of upcoming vacancy.

3. Inspection and Repairs

  • Conduct thorough move-out inspection.
  • Document and photograph any damages beyond normal wear and tear.
  • Get estimates and schedule repairs and upgrades. 
  • Clean or replace carpets if necessary.
  • Paint walls where required.

4. Marketing the Property

  • Update online listings with current photos and features.
  • Set competitive rent based on market research.
  • Host open houses or private viewings.

5. Tenant Application and Screening

  • Collect applications from prospective tenants.
  • Conduct thorough background and credit checks.
  • Check references from previous landlords.

6. New Tenant Onboarding

  • Prepare and sign a new lease agreement.
  • Offer a welcome packet, gift, and orientation for new tenants.
  • Hand over keys and ensure they understand property rules.

7. Post-move-in

  • Seek feedback on the move-in process.
  • Provide information on reward programs or other incentives.
  • Remind new tenants of maintenance request procedures.

8. Financial Matters

  • Finalize any previous tenant's security deposit returns, accounting for any deductions.
  • Set up new rent collection methods with the incoming tenant.

9. Continuous Improvement

  • Analyze reasons for turnovers.
  • Update property features based on tenant feedback.
  • Consider conducting a yearly review to address potential concerns before they lead to turnover.

Print or save this checklist to ensure a smooth tenant turnover process and mitigate potential challenges. By following these steps, property managers can streamline the transition period and maintain a high standard of service for all residents.

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Resident Experience

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Single family home

How to Create a Rent Increase Letter that Provides Complete Transparency to Your Residents [Free Template]

As a property manager, navigating rent increases can be a delicate task, particularly at a time when the cost of living is rising all around. And while raising rent is a necessary part of maintaining a financially viable property, it's crucial to do so in a way that fosters trust and maintains positive relationships with your residents. The key to this process? Transparency. By clearly communicating the reasons behind the rent increase and providing all the necessary information, you can ensure your residents understand the rationale behind the decision and feel valued as part of your community. In the end, open communication fosters a sense of trust and respect between you and your residents. When residents understand the reasoning behind a rent increase, they're more likely to accept it and remain satisfied with their living situation. 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Mention the end date of their current lease agreement. 2. Clear announcement of rent increase: Unequivocally state the effective date of the rent increase. Clearly outline the new monthly rent amount. If applicable, mention any changes to additional fees like pet rent, parking, or utilities. 3. Justification for the increase (transparency is key!): Highlight specific reasons for the rent increase. This could include rising property taxes, increased maintenance costs due to inflation or repairs, market value adjustments based on comparable rentals, or significant property improvements you've made. Be specific and provide data or evidence to support your claims whenever possible. For instance, mention the percentage increase in real estate property taxes or highlight the specific property improvements that are enhancing the resident's living experience. 4. Resident options (maintain a positive tone): Briefly remind residents of their right to review their new lease agreement. Express your willingness to answer any questions they may have regarding the rent increase. Clearly state your contact information (phone number and email address) for easy communication. How to send a rent increase letter Delivering a rent increase letter requires a balance between convenience and ensuring you have verifiable proof of the notification. First and foremost, you’ll need to consider local regulations. Ideally, consult with a lawyer specializing in landlord-tenant law to determine the mandated method for delivering rent increase notices. Some states or municipalities may require certified mail or another verifiable method (e.g., signed delivery receipts with regular mail). Don't skip this step – non-compliance with local regulations can lead to legal issues down the line. Delivery method options Certified mail: This is generally the safest option. Certified mail provides a receipt confirming the letter's delivery and the date it was received. This documentation can be crucial in case of future disputes or legal proceedings. It is typically more expensive than regular mail, but the added security it offers can be worth the cost. Regular mail with signed delivery receipt: This option offers some level of proof of delivery but may be less secure than certified mail. Residents can potentially refuse to sign for the receipt. Hand delivery: If feasible, handing the rent increase letter to the resident in person and obtaining a signed receipt is the most secure method. Note that while some residents might appreciate the convenience of email, this is not always the most reliable notification method. Consider your residents' demographics and preferred communication channels. In any case, the original lease agreement you have with your residents should explicitly state acceptable methods for delivering important notice letters, including rent increases. For instance, if lease terms include email as an acceptable form of communication, then you may choose to use it for rent increase notifications. A note on property management software Property management software can be useful for maintaining a centralized repository of all your communications with residents, including rent increase letters. It is also a useful tool for furnishing clear audit trails and documentation in case of disputes. Do, however, remember to make updates if the software handles rent collection reminders, in order to reflect the conditions of your new rental agreement. Rent increase FAQs Q: How many days’ notice of rent increase do residents need to be given? A: The required notice period for a rental increase can vary depending on your location and the terms of your lease agreement. In general, most states require that residents be given 30 to 60 days' written notice before a rent increase takes effect (this can vary for year-to-year lease renewals vs month-to-month). It's important to check local rent control regulations for specific details on timeframes. Q: Can the rent increase be contested? A: Depending on your location and specific circumstances, residents may have the right to contest a rent increase. For example, rent control laws in some jurisdictions allow residents to challenge rent hikes that are deemed to be excessive (statewide in California and Oregon, or locally in New York, New Jersey, and Maine). It's best to obtain legal advice from lawyers specializing in applicable local laws and state laws to understand your options. Q: What resources are available for residents? For residents who ask about their rights or renting in general, here are some resources you can provide: HUD Tenant Rights: The U.S. Department of Housing and Urban Development (HUD) website offers a wealth of information on tenant rights, including resources on rent increases and eviction processes. Local tenant rights organizations: Many cities and states have local tenant rights organizations that can provide residents with specific guidance and support for renters based on their location and situation. Sample rent increase letter template Below is a template you can use for your rent increase letter. Simply customize the highlighted sections with your specific information. [Your Property Name and Contact Information] [Date] [Resident names] [Address of rental property] RE: Rent increase effective [effective date] Dear [Resident names], This letter is to inform you of an upcoming rent increase for [property address], effective [effective date]. Your current monthly rent of [current rent amount] will be adjusted to [new rent amount]. Additionally, [mention any changes to additional fees, e.g., "the monthly pet fee will increase to $XX"]. We understand rent increases can be disruptive, and we want to be transparent about the reasons behind this adjustment. The increase is necessary due to [list specific reasons for the increase, e.g., "rising rental rates for comparable units… ," “neighborhood revitalization resulting in enhanced value…”]. [If applicable, provide data or evidence to support your claims]. We value you as a resident and appreciate our relationship. You have the right to review your lease agreement if you have any questions about its terms. We are also happy to answer any questions you may have regarding this rent increase. Please feel free to contact us at [phone number] or [email address]. Sincerely, [Your name and the name of your property management company] Final thoughts Prioritize clear communication and transparency, and you’ll find you can navigate rent increases constructively, while ensuring a healthy and positive relationship with your residents. Such communications are a unique opportunity for positioning with your residents by reconnecting on terms, updating expectations, and more. The way you compose these letters – and the way you position the changes – can make all the difference in your renewal rate and resident satisfaction. It’s also the perfect opportunity to introduce a Resident Benefits Package (RBP) and remind residents of your role in adding value to their living conditions. Learn more about the benefits of Second Nature’s fully managed RBP.

Calendar icon May 7, 2024

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