With more than 15 years as a doctor, I have worked in my fair share of hospitals and with several different emergency medicine physician groups. One of the groups I worked with was never fully staffed and ultimately ended up failing. In the minds of administration, the inability to recruit physicians lead to their downfall.
Despite high wages, it was true that recruitment was a challenge. Nevertheless, several new doctors did come. Regardless of this fact, the group’s administration remained wholly inept at keeping those doctors from leaving. Ultimately, they were blind to the fact that their failure was less about recruitment and more about retention.
It was a rigid group that was unaccommodating, unsupportive, and even secretive. I watched doctor after doctor leave only to be disparaged on their way out. The other ER groups in the area grew their staffs by becoming the beneficiaries of this group’s reputation of misery.
Long before this group folded, they had forgotten that medicine is a people business – so is apartment management. Just like with physicians, if you treat your residents well, they will be more likely to remain loyal, stay longer, and champion your brand by referring your community to their friends and family.
Maximizing retention starts with a mindset. These residents are not tenants or renters, but valuable members of my rental community. They have a choice in where they are going to live and I always appreciate when they choose to live at my property. By doing so, they provide me a renewable stream of income that frees me to practice medicine part-time and on my own terms. They also pay down my mortgage and grow my net worth over time.
Consequently, it is in my own best interest to show the residents appreciation for all that they do for me. There are many ways to do this. The overall goal should be to create a community environment in which the resident feels engaged and anchored. By making it my mission to make their lives easier and more enjoyable, I can achieve this goal.
There are innumerable ways that quality property managers can achieve these goals and I cannot create an all-encompassing list here. However, some of these ways include things like:
• Having a community newsletter
• Creating community contests
• Having occasional community parties
• Thank you and birthday cards
• Coffee and donuts in the office
• Services like free movie rentals, popcorn, shaved ice
• Handling maintenance requests in a timely fashion
• Hosting group events
• Arranging for restaurant discounts or coupons for residents
For the most practical amongst us, if I haven’t convinced you yet to focus hard on resident retention, let me leave you with some numbers. Let me show you why resident turnover is so expensive.
Between vacancy loss, concessions, marketing expenses, and turnover costs, it is estimated to cost anywhere from $3,000 to $4,000 to replace a single resident. Nationally, the annual resident turnover rate varies, but frequently hovers around 50%.
Now consider the economic impact of retaining your renters. Let’s take two identical 200 unit properties with the exact same financial numbers. The only difference between these two properties is that property A has a turnover rate of 50% (100 units a year) and property B has a 40% rate (80 units). At an expense of $3,000 per unit, apartment A will lose $300,000 in potential income due to turnover, but apartment B only loses $240,000.
Of course the owners of apartment B have $60,000 more in spendable cash-flow, but also consider the effect on value. That $60,000 reduction in expense equates to just over $850,000 in increased value at a 7% Cap rate.
The economic benefit of retaining your existing renters is undeniable. Couple that with the fact that only one-third of turnover is due to uncontrollable circumstances, means that you have a lot of opportunity to affect the moving decisions of your residents. Make them feel connected and appreciated and they will stay longer, pay more, and promote your brand.
Just like medicine, commercial multifamily real estate is a people business and a sound retention program creates a quality community that helps you make money in real estate.
To Your Wealth!
Dennis Bethel, M.D.
P.S. The best real estate investments create financial growth through retention of quality residents.