Tenant referral programs — are they worth it?

Geoff Roberts
Geoff Roberts | 3 min. read
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Published on September 21, 2010

Let’s face it – keeping vacancy rates as low as possible is any property manager’s first priority. With the economy in its current state, this is truer than ever before.  We’ve written several articles in the past on combating a lousy rental market with strategies like lease renewal incentives and cross-promoting with local businesses. This week we are offering just another tool aimed at keeping vacancy rates low – a tenant referral program.

Tenant Referral Incentives – How Much is Enough?
By far the most common type of tenant referral program involves offering current tenants a monetary incentive to refer a new friend, family member, or colleague to their community – the current tenant is then paid for their referral when the referred tenant signs a lease.  Although monetary incentives can come in all sizes, one of the most commonly used programs offers $100 per tenant successfully referred. It’s important to note that if you go the monetary route, incentives should match your tenant demographic – we recommend starting with an incentive that is about 20% of one month’s rent. That being said, some of the most successful referral programs actually occur in more high-end properties. A wealthy person in a high-end property may be more motivated to refer a friend for a $1000 incentive than a less well-off person would be for a $100 incentive.

Get Creative with Your Program
You know your property better than anybody else. In order to achieve the highest adoption of your tenant referral program, it’s very important to implement a program designed specifically for your unique property. This may require a little outside-the-box thinking: Are you going to offer incentives to only current tenants, or to the general public? Will incentives be paid out on a per tenant basis or a per unit filled basis? Perhaps even more interesting are the array of incentives that you can offer. In lieu of monetary compensation we’ve seen programs that offer incentives ranging from flat-screen televisions to parking spots. We even found a program that offers referred tenants 20% reduced rent for 90 days if they lose their job. Talk about recession proofing a lease!

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A Word of Caution
Tenant referral programs can be a very slippery slope depending on the tenant make-up in your building. Always consider the history of the tenants who will be referring new tenants to you. If a current tenant is frequently late with their rent or has been the subject of several noise complaints, the tenant that they refer to you may act similarly. You must make sure that you are abiding by the Fair Housing Act, so if you have some major problem tenants it may be best to not offer a tenant referral program – you might find yourself with more of the same.

While offering monetary incentives or luxuries like flat-screen televisions and parking spots may seem out of your reach in this economy, you need to think about the income to be gained rather than the money spent. Ultimately a newly signed lease will almost always bring in much more money than a few hundred dollars paid out in incentives.

Read more on Resident Management
Geoff Roberts

Geoff is a marketer, surfer, musician, and writer. He lives in San Diego, CA.

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