How Real Estate Accounting Can Help Tenant Retention Rates
Tenant retention rates directly affect rental profitability. Here are the accounting best practices that property managers can implement today for better tenant retention tomorrow.
Tenant retention rates directly affect rental profitability. Here are the accounting best practices that property managers can implement today for better tenant retention tomorrow.
If you’re a property manager or owner, then you have likely given a lot of thought to tenant retention rates, but you may not have considered just how much your real estate accounting can increase tenant retention rates.
Here at Proper, we’ve sourced key insights from our expert property accountants and investigated the real estate accounting factors that affect retention rates.
Defining and Calculating Tenant Retention Rate
Tenant retention rate is the turnover rate of tenants at a specific property, and according to our internal property management accounting experts, it’s one of the biggest factors when it comes to a rental property’s profitability.
Your tenant retention rate also impacts how often you need to spend money during turnover. The most common costs for tenant turnover include:
How To Calculate Tenant Turnover Costs You can use this handy calculator in your budgeting to more accurately forecast your annual budget. How To Calculate Tenant Retention Rate To calculate your tenant retention rate, collect a couple of data points over a 12-month period: (1) number of tenants and (2) number of tenants moving out. Divide the number of tenants moving out over a 12-month period by the total number of tenants in the same period. Then, multiply by 100. |
How Does Real Estate Bookkeeping Affect Tenant Experience?
There are a myriad of factors at play impacting tenant retention. While some are out of your control (global pandemics, natural disasters, neighborhood crime) there are many that are very much within your control, so we’ll focus on these specifically.
The top factors impacting tenant retention rates are:
*Bonus Read: Ways To Decrease Tenant Turnover.
Property Accounting From The Tenant’s Perspective
Our property management accounting experts say that accounting and maintenance are neck and neck in tenant experience. Here’s why: The fewer reasons a tenant has to contact you, the better. If your tenant knows your accountant’s name, they’re probably not happy!
If payments they’ve made haven’t been posted to their account, or if they see surprise fees, or balance miscalculations, chances are they’ll be calling your accountant.
Remember: Any kind of negative interaction has an impact on the tenant’s experience and their desire to stay, and because most properties now utilize online portals, tenants have access to everything in their ledger any time of day or night.
You can minimize negative interactions by ensuring your ledger is always accurate and up to date. An accurate ledger means your tenants have less reason to reach out with questions, and fewer chances of making incorrect payments. Accuracy instills trust in you as a property manager, which is crucial to your relationship with the tenant. If payments are not processed on time or tenants are receiving notices for money they don’t owe, it not only reads as unprofessional, it breaks your tenant’s trust.
What Could Go Wrong With Property Management Accounting That Might Negatively Impact A Tenant’s Desire To Stay?
A question that almost always precedes disaster: What could possibly go wrong?
Awareness of common property management accounting mistakes will help you steer clear of them.
Accounting Mistakes That Impact Tenant’s Desire To Stay
For example, if receipts are not applied to charges and do not show as available funds in the owner’s account, then vendors and utilities may not get paid, and power and water can be shut off. Tenants who have to unexpectedly forgo showering before work or are unable to charge their devices (a truly terrifying scenario) are not likely to stay.
Accounting Mistakes That Could Result In Tenant Nonpayment
For instance, let’s say Connie in 23G’s toilet began to leak like the Titanic on a Friday night and she had to call an emergency plumber to have it repaired. Having paid for this out of pocket, she then deducted the cost of said repair from her rent payment… only to then be slapped with a late fee for not paying the full amount. Due to this billing mishap, Connie’s now a doubly unhappy tenant.
Legal Ramifications
Shoddy bookkeeping has larger ramifications with tenants as well. There can be legal consequences if you’re not sending out security deposits on time (under the fair housing act). For example, under California law, tenants can take landlords to small claims court if their security deposits are not returned within 21 days of move out and accompanied by an itemized statement (and receipts for items over $125) for deductions.
Your Checklist To Get Ahead Of Bookkeeping Mishaps
How Does Tenant Retention in Commercial Real Estate Accounting Compare To Multifam?
While many of the fundamentals for retaining multifam tenants remain the same for commercial ones, accounting for the two is significantly different. When assessing the risks between the two, keep in mind some of these key differences.
Commercial Versus Residential Accounting
Is Your Tenant Retention Rate Indicating You Need Help With Real Estate Bookkeeping Services?
If you find yourself struggling with tenant retention due to less than desirable accounting practices, talk with us! Proper provides expert accounting and bookkeeping services to property managers, asset managers, and anyone in the world of property. We can implement property management accounting best practices today that will impact better tenant retention tomorrow.