In my last post on happy tenants, I described how keeping a long-term tenant (I like to actually call them clients) will help you be much more profitable in the end. We discussed how a single month’s vacancy could lose you up to three months worth of rental profits. If you neglect to set aside funds for vacancy, you could lose an entire year’s worth of profit! That’s where the power of a card can help you big time.
The Power of Loyalty – and a Card is Just the Start
Loyalty is a funny thing. A lot of us are loyal to our friends and family because we know and care for them. They have been there for us when we needed them and we like to repay that in our own way. We’ll even extend that loyalty to the businesses we’re affiliated with. Why do you think the auto insurance industry tries so hard for new customers? Because less than 10% of insured drivers will actually switch providers.
But loyalty in renters is not nearly as solid. According to NAAHQ, rental turnover rates in 2013 were 54%! That means half of you clients will be gone by this time next year. And that means lost revenue, added expense, and more time to manage your property. So what does this have to do with a card?
When was the last time you received a birthday card from your insurance agent? (For that matter, when was the last time you talked with your insurance agent?) Was that birthday card personally written by them or did it come from the corporate office with a bulk mail stamp?
What if you were to send your adult clients a birthday card with a $5 Starbucks gift card? How about the kiddos residing in your rentals? I think they might like going to DQ for a sundae or dipped cone.
It might be a good idea to get the cards from a “real” card store and to hand-write them, don’t you think? I mean, it would take you all of five minutes once a year to say thank you to a paying client… someone who is helping you build equity and giving you an income.
Having an Abundance Mindset
I can hear it now. “That’s going to cost me a lot of money!” Maybe it’s an investment you should make.
Using the example from the last post, my unit is making me $150/month in cash flow. It takes one month to find a new client and to place the unit into rentable condition. I also have one month of lost income, one month of fixed expenses, and turnover costs. In total, each turnover costs $1950. Note, just because I have a vacancy fund doesn’t mean my turnover costs are lessened. I just planned for them so it doesn’t hurt me as much when it happens. Even so, I do have the fund, so it costs me only $510 net per turnover.
Based on these numbers alone, I intuitively think investing about $100/yr on my clients is worth it.
But let’s make sure we’re receiving a good ROI. Example:
Your current average client stays for 14 months before moving. You turnover exactly one of your twelve units per month.
Under that scenario, your cash flow is $88,020 over the course of six years. Not too shabby.
The New System…
If you follow this advice, you’ll spend $600 on birthday and gift cards per unit over six years. If you have twelve units, that’s a whopping $7,200 of additional expense.
But now your average client stays 16 months because of the loyalty factor; you actually treat them like a person and they like that. Because you have an extra two months of rent, you also have an additional $120 in your vacancy fund. Your turnover “costs” you only $390.
Under this new way of thinking, your cash flow has increased to $94,320 over the course of six years.
You spent $6,000 and made an additional $6,300. You’ve improved your profits by 7.16% by “spending” money! How cool is that?
In addition to your increased cash flow, you had eleven less client turnover events over the course of those six years. You just cut your work by 18 hours per year – to make more money!
I don’t know about you, but making more money and reducing the time I spend are pretty awesome in my book.
One other thing that isn’t captured here. If your client is happy where they live, do you think they’re going to treat the place a little better? Will they tell their friends and family that you are a pretty good person to rent from? Do you think you might get a referral or two?
So what do you think of this advice? Can you see how making a small change in your mindset can actually make you more money in the long-run? I’d love to hear your feedback!
To your investing success,