5 Key Takeaways Regarding Renewals

Hi Friend,

Spring is here. I can tell because we’ve gotten more than a foot of snow in the past week or so, and it’s also hit near seventy degrees. I really do love the variety here in Colorado!

Spring is also a time of renewal, so I thought that would be a good segue into renewals—the poor step child of operations. Typically renewals comprise more than half an operator’s rent roll, yet I’ve conservatively estimated that we spend at least 4-5 hours of operational time on new leases for every hour on renewals. Worse, we spend at least 10 hours training around marketing and sales for every hour spent training around renewals.

Residents may be a “captured market,” but this is way too asymmetrical for our own good. So if you take the time to read the rest of this letter, at least you’re putting some incremental time into thinking about renewals.

Here are a few things I’ve learned about renewals over the past 15+ years:

• About a third of residents will renew no matter what and roughly a third will move out no matter what. So renewals are really only about the roughly one third (maybe as much as 40%) who are in play. Maybe that’s why we get away with investing so little in our renewal processes compared to new leasing, but there’s still an opportunity there—every renewal is one less unit exposed which, with a good pricing system, means increased rents on new leases as well.
• Rates of renewal stay largely unchanged until you get to a 10-12% increase. With very few exceptions, renewal caps below 10% are simply corporate charity…you’re leaving money on the table if you cap renewal rates that low.
• Except in deep recessions, renewal offers below the expiring rent don’t result in more renewals than simply a flat offer. In fact, in most cases a minimum 1-2% increase doesn’t change the rate of renewal.
• Rates can obviously change from time of issue until a resident has to make a decision. I’ve found that allowing some negotiating room when rents have gone down improves performance. The key is to provide communities with tools to show them how and when to make intelligent decisions on reductions from the initial renewal offer.
• There are 13 common objections residents bring up at renewal time. If you want your teams to learn what those are, and how to overcome them, check out my Multifamily Insiders webinar at http://bit.ly/1pEwwsq. I’ll be digging into the details of those objections and practical ways for dealing with them on June 22^nd at 2p EDT.

Another thing I find interesting about our industry’s renewal process is how often we run renewals like it’s a direct mail campaign. We spend so much personal time with prospects for new leases; yet when it comes time for existing resident renewals, we send them a letter with options…no discussion, no personal touch.

So as you contemplate this season of renewal, think about renewals in your company. Think about your renewal models, your renewal strategies and the business processes you have in place. And if you want to bounce any ideas off us here at D2DS, we’d love to talk to you.