Incentives to attract tenants
While the current economic crisis may mean less people can afford to buy their own homes, it does not necessarily follow that let properties are filled to capacity. Many existing tenants are giving up their rentals and trading down to less expensive properties or moving into cheaper flat shares, while young adults who might have been tenants in a better economic climate are simply staying put longer at their parents’ homes before flying the coop. Meanwhile, thanks to a surplus of available let properties, people who are renting instead of buying, or renting because of foreclosed homes, are proving to be more discerning about what they choose.
In this competitive letting market, landlords must give themselves an edge or risk being stuck with an unprofitable unoccupied property. Not only do you need an edge to attract tenants (because if you do not make an effort to entice prospective tenants, another landlord will) you also need to retain that edge with existing tenants or risk losing them to another landlord who lures them away with a better deal. If that happens, the vacated property, which could sit empty for months, will cost you money in lost rent, and cleaning, decorating and marketing costs.
So the question is, how do you give yourself an edge? Imagine that you are a prospective tenant looking for a small one or two bedroom property to rent. You view several properties within the rent range you are willing to pay and in the locations where you are willing to live, and after eliminating dowdy properties that are poorly maintained or hideously decorated, you are left with two attractive choices. The first, with rent that is ?38 a month more expensive, has a washing machine, curtained windows, a bathtub with a shower and a fully fitted kitchen, complete with dishwasher, stove and fridge/freezer. The second choice has plumbing for a washing machine, but no actual machine, no curtains, a bathtub without a shower and an almost fully fitted kitchen, minus a dishwasher. Which option do you choose?
If you are my friend Sue, you choose the first. For what amounts to an additional ?456 a year in rent, she chose to avoid trips to the Laundrette (or the cost and hassle of buying her own washing machine) and the detested task of washing dishes by hand, and to avoid going curtain and shower shopping. More importantly, though, she chose the landlord who had shown a willingness to go that extra mile.
That is the first way you give yourself an edge – offer value for money, meaning a property that is in stellar condition, well maintained and decorated, and upgraded with appealing fittings. Certainly you will have to spend money to go the extra mile, but it will be money well spent if it leads to an occupied property and rent money coming in.
These days with landlords offering additional perks to encourage applicants to sign a lease, you must consider doing likewise to stay competitive. Last year a couple of friends were planning to relocate to a different city and needed to find a place to rent, so they contacted a relative who lived in that city and charged him with the task of finding suitable accommodation for them. He spent the next couple of weeks viewing properties, then my friends visited for a weekend to view the four on his shortlist, at the end of which they came away with three they really liked. At one viewing, the landlord mentioned that his policy with new tenants was to pay for the first six months of gas and electricity, and afterwards when they had to decide which of the three they wanted to rent, they chose that property to save a bit of money on utility fees to help defray their hefty relocation costs.
Such a policy may not be to every landlord’s liking, but this particular landlord made it work by stipulating in the lease agreement that any amount exceeding a set acceptable figure must be paid for by the tenants. That way he avoided tenants taking advantage of his generosity by running up a hugely ridiculous bill. Other suggestions of incentives you can employ if your rental is not snapped up fast enough include offering a month’s rent free (or, to help ensure the tenants get into the pattern of paying rent, offer the fourth month’s rent free if they pay the first three months of rent on time) or providing free broadband or a digital TV package. If those options do not sit well with you, another idea is to discount the security deposit or pet deposit, assuming your let property insurance includes solid buildings and contents coverage, so you are fully protected. Alternatively, you can talk to applicants and find out if there are any particular goods they require, such as a microwave, lamps or shelving, and offer to throw in that item if they sign a lease.
Keeping tenants is as important as attracting them so obviously, it is imperative that you treat your tenants well and do all you can to maintain the property in a good condition. However, tenants may require additional encouragement to renew their lease for another term, and this is where incentives come into play. One friend informed his landlord of four years that he would be moving out of his flat at the end of the lease, and when the landlord discovered it was because my friend felt his surroundings were out of date, the landlord offered to repaint the unit and upgrade some of the kitchen fixtures. That offer did the trick, and my friend stayed put.
Offering upgrades or renovations to long-time tenants is appealing to them and is an excellent way for you to keep your property in good condition. In a similar vein, another idea is to offer renewing tenants new carpeting or flooring. Alternatively, you can reward renewing tenants with a gift, such as a flat screen TV or a store voucher, or by not raising the rent for the new term. More drastically, even rent cuts might be worth your while, if the alternative means an unoccupied property with zero rent coming in. One landlord of an acquaintance of mine reduced a tenant’s rent by ?70 a month, after the tenant approached her to discuss the possibility of breaking his lease due to a recent layoff. Together they resolved the problem by agreeing to the rent reduction, with the provision that if he had not found employment by the time the lease was up, he would move out. He got a new job within four months, and went back to paying the original rent amount.
As with any business that depends on customers to survive, the viability of your property investment depends on your ability to attract and hang onto tenants, so keep in mind the above-mentioned suggestions and conjure up ideas of your own to help you stay ahead of the competition. However, do not forget to protect yourself from the possibility of long vacancy periods. Let property insurance includes a rent guarantee option, which not only will compensate you if tenants neglect to pay their rent, it will also cover your rental payments during periods when the property is between tenants.
Ladaniel McNaughton is a professional landlord and home improvement expert who has written prolifically on the subjects. His musing can be seen at Landlords Insurance, and multiple property insurance
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