Chris Knight: Welcome back to the Red Door Property Management Podcast. In today's Question of the Week, we're talking about something that may not sound exciting at first, but it can have a major impact on the long-term performance of your rental property: lease renewals.

How do you handle lease renewals? This is one of those questions that sounds simple at first, but it is actually a very important question for rental property owners to ask when they are interviewing a property management company. A lot of owners ask questions about tenant placement, screening, maintenance, fees, and those are all important, but lease renewals are where a lot of long-term performance is either protected or slowly damaged.

Because getting a tenant placed is one step. Keeping the right tenant at the right rental rate, under the right lease terms, while protecting the condition of the property, that is where good property management really matters.

So the better question is not just, do you handle lease renewals? The better question is obviously going to be something a lot more like this: what is your process for determining whether a tenant should be renewed, whether rent should be increased, and whether the lease terms should be adjusted?

That is the question that tells you whether a company has a real renewal strategy or whether they are just sending out a renewal notice and hoping for the best. Because a lease renewal should not be automatic. That's not the way it should work.

Before renewing a tenant, a property manager should be looking at several things. First, has the tenant paid rent on time? A tenant who pays consistently, follows the lease, and takes care of the property may be worth keeping even if you choose a slightly more conservative rent increase to reduce the vacancy risk. But if the tenant has been consistently late, difficult to communicate with, or has created repeated issues, the renewal decision needs to be looked at a lot more carefully.

Second, what is the condition of the property? This is a big one. You do not want to blindly renew a lease if you have no idea how the property is being maintained. If there are signs of lease violations, unauthorized pets, excessive wear and tear, or deferred maintenance, that needs to be addressed before simply extending the lease.

Third, what is the current rental market doing? A lot of owners want to push rent as high as possible, and that makes sense. It is an investment. But the renewal rate needs to be based on current market conditions, comparable rentals, demand, seasonality, property condition, and the risk of vacancy.

Sometimes a rent increase makes sense. Sometimes a smaller increase is a smarter move. And sometimes, if the tenant is under market and the demand is strong, a more meaningful adjustment may be appropriate. The key is that it should be a strategy, not a guess.

Fourth, are there lease terms that need to be updated? This is another super overlooked part of renewals. A renewal is not just about the rent amount. It can also be a time to clean up lease terms, update policies, adjust pet terms, clarify responsibilities, or address recurring issues that came up during the previous lease period.

And finally, the owner needs to understand the recommendation. A good property management company should not just say, the tenant wants to renew, here is the new rent. They should be able to explain the logic behind the recommendation.

Why are we renewing? Why are we increasing the rent by this amount? What does the market support? What is the tenant's history? What is the condition of the property? And more importantly, what is the risk if the tenant chooses not to renew?

That last question is important because every tenant increase has a risk-reward conversation attached to it. If you raise rent too aggressively and the tenant leaves, now you may have vacancy, turnover costs, cleaning, repairs, utilities, lawn care, and leasing time. That does not mean you should avoid rent increases. It just means they should be thoughtful.

On the flip side, if you never raise rent, you can slowly fall behind the market and hurt the long-term performance of the investment. So the goal is balance.

At Red Door, this is why we look at lease renewals as part of the overall management strategy. We are not just trying to get another signature on a lease. We are trying to help the owner make the best decision for the performance of the property.

Sometimes that means recommending a renewal. Sometimes it means recommending a rent increase. Sometimes it means addressing the property condition first. And occasionally, it may mean deciding that renewing the tenant is not in the owner's best interest.

That is the kind of conversation owners should want their property manager to be having because a lease renewal is not just paperwork. It is a decision point. It is a chance to protect income, reduce vacancy, evaluate tenant performance, review property condition — I can't say it often enough — and keep the investment moving in the right direction.

So if you're interviewing property managers, do not just ask, do you handle lease renewals? Ask, what information do you review before recommending a lease renewal? That answer will tell you a tremendous amount more, and a lot about whether the company is managing your property strategically or just processing the paperwork.

Mike, when you are looking at lease renewals, what do you think owners sometimes overlook the most? The rent amount, the tenant history, the property condition, or the risk of vacancy? I feel like I know the answer to this.

Mike Taylor: It's all of the above, Chris, and I think you made so many excellent points. To me, what really sums it up is looking at a lease renewal from a long-term ROI point of view.

So it's not just about, can I get this person to sign a lease, or can I increase the rent amount to the maximum amount? It's like, okay, how can I maximize this tenant? I want this tenant to be there as long as possible, but I do want to maximize my rent. I want to increase my rent, of course.

But if market rents have gone up two hundred dollars, let's just say in a year, which is a lot, maybe it makes sense to not fully capitalize on that full two hundred dollars. Maybe we step it up seventy-five bucks, seventy-five bucks, in order to keep that tenant in there, reduce vacancy, and ultimately get a better ROI for the owner.

So for me, all of the excellent points that you just pointed out are really just about having a long-term view and a long-term strategy versus trying to get the most out of that one. Yeah.

Chris Knight: Yeah. I mean, you see a lot more, at least in my perspective, I talk to these investors on a daily basis, and you do see a little bit more perspective on whether or not the condition of the property has been held to a standard in which you feel like it should, right? And how much of a factor that should be in a lease renewal.

In fact, in the last couple years, we just started doing the pre-lease-renewal inspection for that purpose alone, because there were too many times where we were being pressured by an owner to pursue a lease renewal, and it turned out that the condition of the property was continuing to be dilapidated. And that, of course, is going to result in much larger turn costs in the long run.

So I can't stress how important it is to be aware of the property condition before you're even having those lease renewal discussions. Agree or no?

Mike Taylor: A hundred percent. The condition is huge. Getting in there, taking a look at the property. We're in there at month three. Like you said, we are in there before lease renewal, usually around month nine, to get an idea of, hey, okay, well, these people pay on time, but do they treat the property properly? Are they keeping it in good condition?

That is a huge factor of lease renewal. Do you want to continue leasing to these people? Or is it time to say, hey, you know what, you're not treating the property correctly. It's time for you to get out and for us to get a better tenant in there.

Chris Knight: Yeah, exactly. So it's about keeping the sight focused on the long term. It's all about the long term.