Retention Budgets

With less cash to go around and an ever important focus to keep the current residents, what budget amounts are you alotting your properties for resident retention? Am trying to get a better idea of how much properties are spending to keep who they have.
Thans in advance.

I am not sure what the overall budget for the year for resident retention is as I don't take care of that, but this is what I have done and do at my property.

I am on a mature 608 unit property and I just had a $300 budget for a pool party. Then I have renewal parties every month where we spend between $40-$80 in food and $20-$25 gift card for renewal residents. We offer Sunday brunches as well every Sunday, I don't take care of that, but I think the budget is between $3-$400 for the month.

We have a 40 year old property with 346 units. Technically, we budget $0.00 for customer retention - no renewal parties, renewal gifts, etc. We don't offer renewal carrots, e.g., free carpet cleaning on renewal.

On the other hand, we spend a great deal of money on customer retention, because, essentially, everything that we do is customer retention and marketing. For example, the money we spend to properly maintain the grounds affects customer retention, as does a quality "make-ready" and same-day customer service.

We have one full-time maintenance person dedicated solely to performing customer service requests during business hours. We treat all services requests the same, whether during business hours or after business hours. So, if a customer needs a light bulb changed on Christmas Day or at midnight, we will do so. Consequently, we do about 2,500 service requests a year. Besides retention, customer referrals generate about 25% of our leasing, by far the cheapest and best referrals (we provide a $36 thank you gift of dinner for two, movie for two).

Another overlooked function of customer retention is quality leasing - we reject about 1/3rd of applicants. "Desperation" leasing makes customer retention more difficult. I would rather leave an apartment empty than rent to someone who is marginally qualified.

Our average turnover rate for the past 10 years is about 28%; the NAA national average is 60%. About 1 out of 3 of our customers have resided with us more than 5 years, 1 out of 5 more than 10 years, 1 out of 9 more than 15 years, and 17 more than 20 years. We have increased rents twice so far in 2009 and are virtually 100% occupied in a market with about 9% unemployment and steady negative population growth for more than 10 years.

Rick Hevier
Richard Hevier
Richard S. Hevier
[email protected]

Rick - you're amazing. That's all I've got.

I happen to think you're pretty incredible too!

Hey Everybody - First of all, there is a little thing in the discussion area called "Karma" - if you like what somebody is saying, feel free to give them a boost!

Rick, just out of curiosity, do you take the quality leasing concept into your marketing, as well? For example, do you ever try to identify non-protected class target demographics that tend to produce higher retention rates, and actively market to that demo? Seems like that would be right up your alley!

If I'm reading your comment correctly, it would be business suicide for an apartment property to design their marketing in such a way as to consciously target "non-protected class" demographics, and constitute an overt violation of the FHA. It would also be a poor business practice and I would certainly object to such a practice. But, forgive me if I'm misunderstanding your post.

In any event, we have a diverse demographic profile, with respect to protected classes, that may be more diverse than the area around us. For the 25% of our leasing that is derived from customer referrals, those referrals likely mirror those customers. The other 75% of our leasing is derived from our ILSs, our overall internet presence, including social media sites, and through the use of our automated email response system, which UNITS magazine wrote about in their most recent issue.

Consequently, we really have no control over the demographics of the rental inquiries that we receive.

Hey Rick - I obviously didn't state myself clearly. I meant targeting demographics that didn't cause issues with fair housing. For example, if data showed that school teachers tended to be more qualified and rent longer at one location, then proactively seeking that particular group, rather than advertising to a large swath of people and then weeding out unqualified applicants down the road.

Brent - I think I understand where you're going with it and think that most properties and companies do this without realizing it. When i advise a property on their prospect base for marketing, we hit the most stable avenues.
I have a friend in the Pittsburgh / South Hills area (affluent, and a hot spot to live) where they made their marketing efforts focused on "Community" - they hit new district teachers, emergency personnel, libraries, etc. ... all the bases of the community and it worked like a charm. The basis behind the marketing plan was exactly what you're talking about, Brent. They hit the prospects in their market who, statistically, were 3-5 year resident potential. It worked beautifully for them, they reported over 18% of new prospects came from referrals.

Exactly what I was getting at, Tara! Here are a couple of other ideas:

1) Only accepting applicants that had lived at their current residence longer than 2 years, as a long term renter at one location will be more likely to be a long-term renter at their new home.

2) I wish I remembered the book, but I remember a story about an insurance agency that would not take any clients if they had recently moved to the area. Their stats suggested that those who had just moved to a new area were more likely to move again once they got settled, often to a different agent's territory. So their strategy was to only take clients who had lived in the area a certain amount of time. I think this would definitely apply to our industry, as many new in town don't know all their living options and tend to take something that will end up being short-term.

(Of course, those two examples aren't necessarily outward marketing, so not exactly in line with what we were talking about. But it does go along with merging marketing efforts with future retention plans...)

Whewww! Thanks for clarifying that! In our case, we are not in control of the demographics of our rental inquiries.

But, irrespective of targeting specific demographics, improving customer retention begins before the lease is even inked, i.e., at the point of application approval. Here are just a few of the approaches we take toward the goal of quality leasing:

1. Many things are easiest when they are discussed up front. So, during the leasing process we stress the fact that our lease is a minimum 12 months with no opportunity to break it, short of a military transfer or moving into senior housing. We want to screen out prospects that are looking for short-term leases. Then, when a prospect decides to complete an application, the prospect signs a separate statement that he/she understands the lease is 12 months with no opportunity to break it, even with a job transfer, purchase of a home, etc.

2. If during the leasing process a prospect asks how to break a lease, that question would be a clear red flag for our leasing staff and they are trained to determine whether the prospect is willing or capable of fulfilling the 12 months of the lease (e.g., the prospect has been told by his/her employer of an impending job transfer).

3. We are willing to leave an apartment vacant if it means rejecting a marginally qualified applicant. If a prospect will have difficulty affording the rent because of credit issues or income problems, we are not doing the prospect any favor, or ourselves for that matter, by accepting his/her application.

4. There two simple questions we have when approving applicants: "will they be good neighbors?" and, "will they pay the rent?" We look at 5 years of landlord history; many properties use as few as 2 years. We also look at the percentage of overall debt/rent in a way that mortgage companies use to underwrite mortgages before they lost their minds and approved people for homes they couldn't afford. We delve deeply into understanding the applicant's credit scores and credit issues. This more holistic approach requires a high sensitivity to issues related to the FHA, and that the approval decision is properly documented.

5. In circumstances where an applicant's credit does not meet our expectations, we have offered the opportunity to prepay the rent, generally 6 to 12 months of prepaid rent. A surprising number of applicants who would be rejected choose to prepay rent, amounting to hundreds of thousands of dollars of rent income. Why would someone prepay rent? - to live at a quality property, which is the derivative of quality leasing.

With 346 apartments, we average about one eviction every two years. Within the first 5 days of each month we collect about 96% of our rental income. A couple times a year we will have a customer become 30 days past due.

Further, as the residency of customers stabilizes, that stability itself begets improved customer retention; the converse is also true - instability begets instability. There is no question, however, that it is difficult to get out of the cycle of low customer retention.

There is a huge temptation for property managers to take marginal or short-term applicants because a key metric for gauging his/her success by his/her superiors is occupancy. The problem for many American companies is resorting to short-term, quarterly thinking. Short-term thinking, however, is like the effect of crack cocaine - a short burst of feel-good, and then an emotional crash. We need to realize that, in the long-term, customer retention cannot be accomplished through gimmickry or purchased with rent giveaways.

Customer retention is built on quality leasing and requires long-term thinking. It requires strong-willed management willing to say no to feel-good leasing, particularly during the transition of a property to quality leasing. The dividends of quality leasing, with the result of improved customer retention, are measurable and unmeasurable.

Rick - Your teams are such a great example of what resident retention is all about. Take away the parties, the newsletters, the breakfast-in-a-bag, and you've got top notch service delivery. Your residents feel good about their relationship with your team, they feel confident that their needs will receive an appropriate response, and living at your communities is easy. They don't have to worry about anything in their home. Great standards here!