3 Key Concepts for New Landlords: Understanding the Tenant Lifecycle in a Rental Business
In this blog post, we’ll outline the 3 key tenant lifecycle concepts and what to expect from them.
As a new landlord, it’s important to understand the different stages your properties will go through during their time renting from you. This knowledge will help you manage your properties more effectively, provide a better experience for your tenants, and keep your rentals at profitable as they can be.
1. Vacancy and Occupancy Rates
You may have heard of the term “vacancy rate” or “occupancy rate” thrown around in the real estate industry. These are two sides of the same coin and are basically the percentage of your rental units that are unoccupied or occupied at a particular time. To avoid confusion, we’ll stick to the term vacancy rates.
Here are the key factors to understand about vacancy rates:
- Each neighborhood or area has its own average vacancy rate. The US Census Bureau provides us with quarterly residential vacancies, so you know what to expect per area.
- A vacancy is inevitable, but there are better real estate markets with lower rates. These give you a better opportunity to earn consistently from your rental property.
- A rental vacancy is a good time to refresh and repair your property before a new tenant moves in, but you never want to have your home empty for too long.
Your goal is to keep tenant turnover and vacancies to a minimum, as they’re the biggest cash flow killer for rentals. When you retain tenants for longer, it’s better for them and for you. But, of course, vacancies are inevitable.
To make the best out of a temporary vacancy, use the opportunity to do the following:
- Clean, repair, and prepare the unit for someone new to live in.
- Take new photos, and videos, and update your description of the place to create an impressive listing.
- Organize your tasks into an operating plan, ensuring that you don’t miss any of them.
- Update your standard lease agreement to deal with late rent payments, lease violations, tenant complaints, and emergency repairs.
Once a tenant occupies your rental again, you can focus on property management and building a solid tenant relationship with your new renters again.
2. Leasing and End of Lease
After you’ve marketed your rental and gone through tenant screening, the next step is to enter a lease agreement with your prospective tenant. This involves everything from creating the lease to scheduling a move-in date.
Your tenant will then stay in your rental property until the contract ends. Assuming that they won’t renew the lease anymore, you can proceed with ending the lease, signing a new lease, or switching to a month-to-month agreement.
The party who wants to end the tenancy will have to provide written communication—either a letter of intent from the tenants or a notice to vacate from you—and follow state-specific regulations.
For example, here are some of the rules in Michigan for ending a lease:
- Landlords can terminate a lease simply by giving a one-month written notice to tenants, specifying the date on which the tenancy will end. The notice can be even earlier if it’s due to unpaid rent or lease violations. Note that acting with retaliatory or discriminatory motives is illegal.
- Tenants are not required to provide a termination notice for fixed-date leases, but they have to do so if they are on a week-to-week, month-to-month, or yearly lease with no end date.
- Tenants can only break the lease if they meet the early termination clause specified in the agreement. This occurs typically if there are relocated due to military duty, if the unit is uninhabitable, if there are any harassment issues, or if they have a particular health issue.
Always check the rules of your state so you can create leases without any i
issues.
3. Move-In and Move-Out
Finally, the last two terms to get yourself familiarized with, are move-ins and move-outs:
- Move-In is the process of collecting move-in fees, reviewing any final rules, scheduling when and where the tenant can pick up the keys, and going through a move-in checklist for the property.
- Move-Out, on the other hand, is the opposite. It’s the process of collecting move-out fees, getting back the keys, and going through the move-out checklist for finalizing the security deposit.
For the move-in process, we recommend that you have a “welcome packet” that includes all the vital information potential tenants have to remember. For example, you can include information like:
- Your contact information & how to contact you
- A copy of the lease agreement
- Rent payment instructions & consequences
- Move-in inspection paperwork
- Property rules and regulations
- Tenant portal details if applicable
For the move-out process, you will usually:
- Provide detailed instructions on the logistics and timing of the move-out
- Conduct the move-out inspection
- Check if the tenant has complied with your requirements
- Note any maintenance issues to address before the next tenant
- Calculate all the costs and return any security deposits
Once that’s done, you can proceed to clean, fix, and freshen up the place for your next renters. As always, you want to do your best to market your rental well, so you’re not stuck without income for too long.
Understanding the Cycle of Your Rental Returns
If you’re struggling with any of these things in your rental properties, it’s best that you seek the advice of landlords with more experience, or hire a property management company to put your investments in the right direction. That way your properties remain profitable—and you get to enjoy a stable cash flow from your investments.
Are you looking for a property management company? Our team of experts is ready to help.
With decades of experience operating in Metro Detroit, we’re fully equipped to navigate the complex market. Get in touch with us today!