The cheapest tenant placement that exists is the one you don’t do.
Six weeks into operating and the most useful number we've produced is a small one: the renewal rate on the leases that came up between mid-March and the end of April. Eleven of twelve. The twelfth tenant moved for a job in Calgary, which is the kind of reason there's no operating answer to.
The reason the renewal rate matters isn't that eleven of twelve sounds like a tidy number on a slide. It's that the cost of not placing a tenant — the listing fee we didn't pay, the vacancy month we didn't carry, the cleaning we didn't schedule, the showings we didn't run — is the largest line item on a small-portfolio P&L by some distance. Nobody puts it on the statement because it's a negative space rather than a charge. You can only see it by comparing the statement to the statement you would have written if the tenant had left.
We sent a renewal proposal ninety days before the lease ended. The proposal was a short note, in plain language, with the new rent, the rationale for the new rent, and a sentence about what was changing in the unit (a kitchen faucet, a smoke alarm, in two cases nothing). Eight of the eleven accepted at the asked-for number. Two countered, and we negotiated. One said yes after we agreed to repaint a hallway in May. The whole exercise cost less than the listing photographer we didn't have to hire.
The interesting question isn't why a renewal is cheaper than a placement — every operator knows that. The interesting question is why the industry default is to wait until the lease ends, list the unit, and pay the placement fee. We think the answer is incentive. A property manager who charges a tenant placement fee makes money on turnover. A SaaS that charges per door makes money on doors filled, however filled. The default isn't a strategy. It's the shape the incentives have left after everyone responded to them rationally.
The version that we're running — seven percent, no placement fee, year-one month-to-month — is a different shape. The math is simple on our side: a renewed lease at the asked-for number is the same revenue line for us as a placed lease would have been, minus the work of the placement. That work isn't trivial. It's listing photos, three or four showings, screening that takes a week of back-and-forth, a lease drafted, a deposit collected, a move-in checklist. Replacing that with a half-page renewal note is a margin event for the property manager, not a cost event. We absorb the margin and pass through the benefit — to the landlord, in the form of a tenant who stayed and a rent that moved on the first, and to the tenant, in the form of not moving.
A few operating details from the eleven that worked.
The note matters more than the number. We tried two versions of the renewal proposal — one with the new rent at the top, one with the rationale at the top. The version that led with the rationale got better engagement. Tenants want to know why before they want to know how much. The number that's explained is easier to accept than the number that isn't, even when both numbers are identical.
Ninety days is the right window. Sixty days is too short — tenants who would have moved have already started looking. One-hundred-twenty days is too long — neither side has the next year's rent dynamics in mind yet. We tried both. Ninety days is what stuck.
The hallway-paint trade was worth it. The tenant who asked for it was paying us $2,400 a month. The paint cost $340. We agreed in the same afternoon the request came in. The fastest cost-effective concession is the one that signals the rest of the relationship.
One landlord didn't agree with our recommendation. A unit in north Etobicoke. We recommended a flat renewal — the market hadn't moved, the tenant was excellent, the building was due for window work in the fall. The landlord wanted the guideline increase. We sent the increase. The tenant renewed anyway. The landlord was right; we were not. We told the landlord that on the call, then in writing. Telling the landlord we were wrong is the part of this that scales, not the version where we were right.
The statement, this month, has fewer line items than it did last month. A few of the line items that left were ones the landlord was happy to see go: a placement fee that wasn't going to happen, a listing budget that didn't need to exist, a vacancy month that wasn't going to be carried. Other line items appeared instead: a furnace repair that should have been done in February, a paralegal note about a tenant who is one month late and on a payment plan we wrote together. The work, in other words, moved from things we charged for last month to things we did this month. That's the trade.
Next month's letter, on the first of June, will be about how we run the maintenance bench — Marco at Aurora Plumbing, Eli at Cedar Electric, and the four or five other people whose names appear on invoices that month. The short version, ahead of the long one: the bench is a relationship, not a marketplace, and the relationship is enforced by paying on the day they invoice. Anything more elaborate than that is a SaaS pretending to be a trade bench.
If you'd like the letter by email on the first, write to hello@jaraygroup.com.