As a landlord, it’s crucial to know how often the average tenant moves and their reasons for doing so. Each time you lose a tenant, your profit margin takes a hit. Over time, those losses can erode a big chunk of your profit.
In the rental industry, the rate at which renters leave a rental unit is called tenant turnover. A high tenant turnover increases your business’s expenses:
In this article, we’ll explore the factors that affect rental turnover rates, such as economic trends, location, tenant demographics, and property type. We’ll also cover some tips you can employ to entice your tenants to renew their lease instead of packing up and leaving.
Understanding how these factors interact and affect your rental’s turnover rate is valuable. Armed with this knowledge, you’ll be in a better position to attract renters who are happy to remain your tenants for the long run.
According to the Canadian Association of Movers, the average Canadian will move five or six times during their lifetime. However, this figure likely represents both tenants and homeowners. There’s little Canadian data that covers only renters.
However, a national research study by ResidentRated in the U.S. found that the average American tenant remains in one rental property for 27.5 months.
Suppose this figure closely resembles the moving habits of Canadian tenants. In that case, the average tenant stays in one rental for a little over two years. That’s a lot of moving!
Of course, turnover rates vary from province to province. Here are the numbers from the 2021 Rental Market Report by the Canadian Mortgage and Housing Corporation:
If you’d like to view the turnover rates in various Canadian cities, the CMHC makes the data available here.
To determine your tenant turnover rate: divide the total number of tenants that move out in 12 months by the total number of tenants you have during that period.
So, if you have one tenant that moves out over 12 months and three in total that have stayed at the end of the 12 months, your turnover rate is 33%.
The average turnover cost of your rental business involves more work to figure out. But you can quickly crunch the numbers with a turnover cost calculator.
According to data from Mi-Box, a mobile storage firm with operations across North America, most Canadians move for the following reasons:
A deep understanding of the most common factors that impact tenant turnover rates can help you:
Let’s explore these factors in detail.
The state of the economy plays a key role in a renter’s decision to move or remain in their current location.
For example, during a recession, tenant turnover typically rises. The reason is that renters who’ve lost their job or are experiencing financial hardship seek cheaper housing options. However, sometimes during great uncertainty, such as the height of the COVID-19 pandemic, tenants are more reluctant to take the risk of moving to a new home.
Let’s say rent prices are soaring rapidly as the economy recovers from a recession. In that case, renters will likely stay put for longer, especially if they’ve recently locked in a favourable rental fee. However, they’re more likely to seek new rental opportunities as rent prices drop.
Depending on your rental’s location, it may be more beneficial to pursue long-term tenancies in some regions and short-term tenancies in others. There are various reasons for these regional disparities, including differences in local consumer demand and government regulations.
For example, long-term tenancies are more common in Alberta and Saskatchewan. Alternatively, short-term rentals have more opportunities in Ontario and British Columbia.
Both long-term and short terms rentals offer benefits and drawbacks.
Do you have a specific type of individual you prefer as a tenant? This is a key question to consider, as some tenants will hop from one place to another more frequently than others. Attributes like age, income, and family status play a role in shaping their moving habits.
Broadly speaking, you can classify tenants in the following boxes:
Each tenant type will have different needs from a rental property based on their current life goals and trajectory. These needs will influence how long they choose to remain in one rental.
Generally, you can expect the highest turnover among students. Retired individuals are more likely to stay in one place longer than the general population, so they’re typically the most stable tenants. Families and young professionals are somewhere in the middle.
The rental property type you own will impact how often you have to press the “reset button” with a new tenant.
Starter apartments attract students, as they’re relatively cheap, require little maintenance, and provide basic amenities. Thus, you can expect a higher turnover rate with this property type.
Young professionals find upscale condos and apartments appealing, given their greater income power. They’re more likely to commit to a rental for longer than students but may upgrade to a new rental as they advance in their careers.
Detached homes and townhouses are well-suited for couples with children, as they offer plenty of space and multiple bedrooms and bathrooms. You can anticipate lower turnover rates than students and young professionals, as family units prefer stability.
Basement suites typically cater to individuals in transition. Some examples are recently divorced individuals, those going through bankruptcy, or those working temporary jobs. Typically, such individuals are looking to rebuild their finances and upgrade their living space soon. As a result, you can anticipate higher turnover rates.
Reducing your tenant turnover rate can boost your bottom line. As a result, it pays to find ways to encourage your tenants to stay for as long as possible.
A rental unit that provides tenants with the amenities they desire will make their stay more pleasant and convenient. Thus, they’ll be less inclined to leave. Do some research to become familiar with the needs and preferences of your target demographic.
Depending on the current state of your rental, it may be worthwhile to perform a large-scale renovation. Regularly modernizing your property can maintain its appeal with your tenants. Not only will they stick around longer, but you can justify charging a higher rent price.
Ask your tenants for their ideas and input before you begin. By doing so, you not only make them feel valued but can tailor the improvements to meet their needs.
Being aware of the average rental fees in your neighbourhood is vital. If your rent price is too steep relative to what similar rentals are charging, you risk having your tenants bailing once they secure a cheaper lease.
Your tenants won’t be thrilled if you don’t raise the rent for a long time, only to hit them suddenly with a massive price hike one year. If you must increase the rent, do so gradually each year so your tenants can budget for the extra cost.
When screening tenants, examine their rental and job history to see how often they switch one property for another. Ensure they earn enough from their job to cover the rent by asking them to provide recent bank statements. As a landlord, you want to do everything possible to avoid tenants likely to default on their payments -evictions will increase your turnover rate.
The right incentives can encourage tenants to extend their lease when the renewal date arrives. Here are some ideas to consider:
Fostering positive landlord-tenant relationships is one of the keys to retaining long-term tenants. And it doesn’t take much work – just common sense, mostly.
Always maintain open communications with your tenant. Respond to their emails and calls promptly, answer any questions they bring up, acknowledge their concerns, and resolve any issues in a timely manner.
Switching properties every few years is common among renters. A new job, a raise at work, a growing nest egg and other life events can cause someone to seek a new living space.
Do you own rental units that cater primarily to short-term renters? If so, tenant turnover rate likely won’t be an issue for you – it’s to be expected, given the nature of the business.
However, let’s assume your goal is to retain tenants for the long term, as you value stability, consistency, and low maintenance. In that case, it’s essential to analyze the economic trends in your region, tenant demographics, rental property types, etc. All these factors can impact your turnover rate; you can create a strategy to minimize it by becoming familiar with them.
In addition, exploring different incentives you can offer your tenant can encourage them to renew their lease.
SingleKey offers a suite of three different services to help you find and retain long-term tenants and lower the risk that comes with renting: