Amid the housing market downturn, more buyers are being pushed into the rental market. Rent growth, which soared for the better part of 2022, has begun to stall, and various financial stressors like rising consumer inflation and mortgage rate hikes have started to eat away at owner asset value margins. While renters and multifamily owners are feeling the pinch, apartment communities are benefiting from higher resident retention.
As a result, operators are in a stronger position to combat economic pressures and increase cash flow.
Compared to 56% of renters who said they would relocate in 2021, an all-time high 57% of renters renewed their leases in 2022. Luckily, corresponding wage increases mean market-rate renters aren’t overly concerned with the rent hikes, which has allowed many properties to maintain high resident retention.
In uncertain economic times, renters tend to be less likely to search for a new apartment. This is largely due to the fact that they’re already seeking relief from higher prices for essentials like groceries and gasoline, so the preference to avoid further financial strain from moving expenses and move-in costs is stronger. Even with rent price increases, residents who are satisfied with their current living situations generally opt to stay put when it comes time to either renew their lease or move out.
Resident retention is high, but property managers still must optimize renewal offers in order to remain competitive and boost revenue. By retaining residents, operators also realize the following benefits:
Many management companies still rely on the ‘one team member for every 100 residents’ model, which means leasing associates spend most of their workday tending to current residents’ needs. However, they also need to juggle the responsibilities of attracting and vetting new residents. Between giving tours, gathering documentation, and screening applicants, leasing professionals spend 4-10 hours per application, equating to hundreds of hours every month.
Retaining residents takes hours off the plates of overburdened onsite teams. Instead of managing the administrative burdens associated with standard move-in and move-out processes, improving resident retention allows them to focus on maintaining the property, improving the community, and enhancing the resident experience.
Because operators must absorb the mortgage cost and utilities until a new resident moves in, unoccupied rental units leak income every day. And in order to refill them, the property must burn money and manpower to continue operating and marketing the apartment. The average amount spent to acquire a new prospective resident can be several hundred dollars that would otherwise be kept at a minimum when leases are renewed rather than turned over.
The longer a rental unit sits vacant, the more money left on the table. Resident turnover can often cost upwards of $1,000, meaning minimizing financial loss associated with high churn is critical to an operator’s bottom line. When properties retain residents, they mitigate the risk of losing revenue to renters who move out owing rent or excess damage costs. This means less time spent and less revenue lost trying to recover the industry standard 12-18% of debt.
When residents opt to renew their lease, it not only solidifies the relationship between the community and residents, but also helps establish stronger relationships between management and ownership groups. Because operators have a responsibility to create more valuable properties, there’s incentive to improve renewal rates to help achieve owners’ financial goals and earn their trust. Whereas if a community has low resident retention, owners may begin to doubt management’s operational efficiency and ability to drive portfolio performance.
Renewal incentives, like security deposit refund programs, offer a mutually beneficial strategy to increase resident retention.
With LeaseLock’s renewal incentive, operators can return security deposits to residents who renew while gaining customized, adequate protection at the property level and unlocking greater asset value portfolio-wide. As a result, properties see the following benefits:
When properties implement LeaseLock, residents who renew benefit by freeing up cash that would otherwise be locked up in security deposits—while the property gets better protection than said deposits can’t offer. Ultimately, this security deposit refund incentive helps operators create more profitable, dependable, efficient properties with happier residents.
Request more info about the LeaseLock deposit refund program here.
