Chris Knight: Welcome back to the Red Door Property Management Podcast. It is time for another Property Management Bonehead. And I know you guys love these boneheads. So do I. I love talking about them. The segment where we look at a real-world style mistake that can cost rental owners time, money, and a whole lot of frustration.

The Property Management Bonehead of the week. Here we go.

This week's bonehead goes to the property management company that renewed a tenant automatically without actually checking on the property, reviewing the tenant history, or thinking through whether renewal was the right move.

Yeah, this might connect to our Question of the Week.

Here's the scenario: an owner has a tenant approaching the end of their lease. The tenant reaches out and says they would like to renew. Sounds great, right? Stable tenant, no vacancy, no turnover, no leasing costs. On the surface, that sounds like a win.

So the property management company sends out a renewal, bumps the rent a little bit, gets the tenant to sign, and moves on. Easy.

Except there's one major problem. They never looked at the full picture. They did not review the tenant's payment history closely. They did not check whether there had been repeated lease violations. They did not look at maintenance history. They did not inspect or evaluate the condition of the property. That's massive. They did not compare the current rent to the market. That's step one.

They just renewed the lease because the tenant said they wanted to stay. That is a bonehead move.

Because a few months later, the owner starts finding out what should have been reviewed before the renewal was ever offered. The tenant had been late multiple times throughout the year. There were repeated complaints or issues that were never fully addressed. Maintenance notes showed possible neglect of recurring problems. Maybe there were unauthorized pets. Maybe the yard wasn't being maintained. Maybe the property had not been looked at in a long time.

And now the owner is locked into another lease term with a tenant they may not have renewed if they had actually been given the full picture. That is where automatic renewals can become extremely dangerous.

Now, to be clear, renewals are not bad, obviously. In fact, renewals can be one of the best things for an investor when the tenant is solid, the property is being cared for, and the rent is still aligned with the market. A good renewal can save the owner vacancy time, turnover costs, leasing fees, utility expenses, and the uncertainty of finding a new tenant, which nobody is really looking forward to.

But a bad renewal can be super expensive. It can lock an owner into another year with the wrong tenant. It can delay needed property corrections. It can allow lease violations to continue. It can keep the rent below market. And it can create a much bigger problem later when the tenant eventually moves out.

A more experienced property management company should have handled this renewal differently.

First, they should have reviewed the tenant's payment history. Not just, are they currently paid up, but how did they perform over the full lease term? Were they consistently on time? Huge. Were there repeated late payments? Did they require constant follow-up?

Second, they should have reviewed maintenance and communication history. Were there repeated issues caused by tenant behavior? Were there signs of neglect? Were there preventable problems that kept coming up?

Third, they should have evaluated the condition of the property. This is the biggest one. You hear it all the time from us. If the company has not laid eyes on the property recently, how can they confidently recommend another lease term? They can't.

Fourth, they should have reviewed market rent. The rent increase should not just be a random number. It should be based on the current market, comparable properties, demand, time of year, and the risk of vacancy. These are all factors.

And finally, they should have made a recommendation to the owner. That's the key. A property manager should not just process a renewal. They should advise the owner. Just processing the renewal is taking the easy route. They're not doing the proper job for the owner.

They should be saying something like: here's the tenant's payment history. Here is what we know about the property condition. Here is where the current rent compares to the current market. Here's the renewal amount we recommend. And here are the risks if we push too high or choose not to renew at all.

That is management. The bonehead version is simply sending a renewal because it is easier than having a real conversation. People want to avoid these types of conversations. It's crazy. And unfortunately, that happens more than owners realize.

The renewal process is a major decision point. It is not just an administrative task. It is a chance to evaluate the tenant, the property, the market, and the owner's long-term goals.

A top-rated property management company, like Red Door, should not be renewing leases on autopilot. They should be looking at the investment and asking: is this still the right tenant? Is this still the right rent? Is the property being protected? And is this renewal in the owner's best interest?

Because getting a lease signed, that's the easy part. Making sure it is the right lease with the right tenant at the right rent under the right circumstances, that is where experienced property management matters. That's what you should be really focused on paying for.

And automatically renewing a tenant without looking at the property or reviewing the history, that is absolutely bonehead material.

Mike, have you seen owners get stuck in bad renewal situations before because the decision was treated like paperwork instead of a true management decision? What have you seen?

Mike Taylor: Chris, it happens far, far too often. I think you hit the nail on the head when you said signing the lease is the easy part. Honestly, nowadays you could have an AI agent probably do that for you. That's just the task that goes along with it.

The real value is, again, taking a look from the bigger perspective, more of an asset management type of mindset of, hey, what's best for this property in the long term? What's best for the return on investment over the long term? Not just, hey, the tenant wants to renew, let's sign the lease.

That is the bonehead right there, not doing your full due diligence, not knowing the market, not knowing what the rent is. It's just so, so important to have that holistic picture.

And it does take a lot of things. Like you said, the inspection is so huge. You do not want to renew to somebody who is just trashing your property and let them trash it for a whole other year. That needs to either be addressed, or you need to get them out.

So there are so many factors that go into a lease renewal. It's actually a really integral part of the leasing process, and it can be a very, very costly mistake.

Now, don't get me wrong, we are always pro lease renewal, reducing or eliminating vacancy. Yes, we preach about it all the time on this podcast: tenant retention, tenant retention, tenant retention. But good tenant retention, not bad tenant retention. You don't want to retain a bad tenant. You want to retain a good tenant.

Chris Knight: Tenant retention, huge factor in ROI.

Mike Taylor: So do your due diligence. Make sure you have that good tenant, and then by all means, do what you need to do to keep that good tenant.

Chris Knight: Exactly. And one thing before we go into wrapping this up, the biggest thing that at least I personally try to push during these segments, and the reason we do this, is to educate people who maybe are just exploring property management options for the first time.

One of the terms that I've used that you should absolutely be looking for when you're in the market searching for a property manager is not just a property manager that checks boxes. Because that's essentially what I talked about during that entire segment, a property manager who was just checking boxes and just getting the lease renewal out and getting it signed.

What you're looking for is essentially a financial advisor. You're looking for a real estate investment advisor to advise you along all of these decisions in order to maximize your ROI.

Because Mike, you're exactly right. Maximizing your tenant retention is going to maximize your ROI. So that is the ultimate goal, but there are other factors, obviously, that I outlined over and over again in that segment that should be focused on in order to achieve that maximum ROI.

And not only that, if you're doing those things properly, you're going to secure a high-quality tenant who's going to appreciate that additional oversight. And that's what you ultimately want to retain, that type of qualified tenant long term.

That's what you're going through. You're looking for those five-year stretches of a well-qualified tenant who takes really good care of your property. And following that guideline, and not the bonehead property management company that I just outlined, is the way to achieve that, right?

Mike Taylor: Let me just add one more thing to that. I totally agree with the financial advisor kind of thing. But the hard part, or the beauty of having a professional property manager, is you get that, but you also should be getting somebody who has intimate market knowledge of the local market.

That's what we do. That's what we try to do in these podcasts when we do our market reports. So not only having somebody who has that holistic perspective of the real estate over the long term, but somebody who also knows, hey, right now it's June and our days on the market is about 45 days on the market. Rents went up about 4% year over year. Here's what we think we should do based on that.

Or if you're in Westfield and you know that the days on the market is through the roof, it's going to be maybe a different conversation. But somebody who has that local, intimate knowledge of where your property is is also of paramount importance.

Chris Knight: Nailed it. Nailed it. All right, that's going to wrap up this segment. If you want to see more segments like these so that you can, even if you're working with another property management company, make sure that they're crossing the right T's and dotting the right I's, be sure to like and subscribe.

We do these every single month. You can check out our Watch and Learn tab on our website, or of course check out our YouTube page, Red Door Property Management, and we'll see you in the comments.