The role of Tenant Lifetime Value in real estate

December 14, 2023

The tenant lifetime value is the cousin of the customer lifetime value within the real estate sector โ€“ and an emerging indicator of property profitability. The customer LTV has been used in various industries for many years. And in the increasingly competitive markets, rental real estate owners too should turn their eyes to the total value of their rental agreements instead of just focusing on monthly rents.ย 


Why is tenant lifetime value so important in rental real estate?

Tenant lifetime value (LTV) is a metric that measures the total expected revenue a tenant generates during their tenancy โ€“ in other words, it helps to determine the value of a tenant to your business. By understanding the tenant LTV of your property, owners can make informed decisions about pricing, tenant retention, and the propertyโ€™s overall profitability.ย 

Using the tenant lifetime value model for your properties, you focus on future-proofing your assets instead of concentrating on short-term profits.


How to calculate tenant lifetime value?

Tenant lifetime value is the total amount of revenue that a tenant generates for a landlord over the course of their tenancy. This includes:

  • all rent payments
  • fees
  • other charges that the tenant may incur during their stay.ย 

Your Tenant Lifetime Value (LTV) is the profit the tenant brings you during the time he/she stays as your tenant. LTV is calculated by multiplying the tenant value in a year by the average tenancy length (years).

In our latest guide The ROI of Tenant Satisfaction we thoroughly explain the elements of tenant lifetime value calculation as well as introduce a free and easy-to-use calculator for Tenant LTV, that helps you to explore the impact of reducing tenant churn and thus increasing your tenant lifetime value.ย 

Download the guide with the tenant LTV calculator here


What impact can a good tenant LTV have on ROI?

Improving ROI (Return on Investment) is usually the top priority for every business, also in rental real estate, where ROI means the profit gained from the investment compared to its initial cost.ย 

In the real estate sector, however, the profitability of a property is often measured with the term NOI (Net Operating Income), which basically shows if the property brings enough revenue after operational costs. While you get the NOI by subtracting the property's operating expenses from the revenue a property produces, the ROI is derived from the NOI by dividing the NOI by the initial cost of the property.ย 

By keeping tenants happy you encourage them to stay longer and thus reduce the costs associated with tenant turnovers, such as cleaning, renovating, advertising and onboarding expenses โ€“ and the possible void time of the apartments. Therefore, by focusing on the tenant LTV and the long-term profitability, you not only improve the NOI but also impact the Return On Investment.


How are tenant satisfaction and tenant lifetime value linked?

Tenant satisfaction is closely linked to tenant lifetime value because happy tenants are more likely to stay longer and generate more steady revenue for the property owner โ€“ as well as treat the property better and thus saving in cleaning and renovation costs as well as keeping the property more attractive for current and new tenants.ย 

By investing in amenities, maintenance, and other factors that contribute to tenant satisfaction, owners can increase the LTV of their tenants and improve the overall profitability of their property. Today, this is easier than ever. Advances in technology have made it easier to collect and analyse data on tenants' behaviour, thus helping to understand the factors that influence tenant satisfaction, tenant retention and tenant lifetime value.


What can a property owner concretely do to improve their tenant LTV

There are several things that a property owner can do to improve their LTV, including:

  • Investing in amenities and upgrades that will make the property more attractive to tenants.
  • Providing excellent customer service and being responsive to tenant concerns and requests.
  • Using digital technologies to streamline processes and improve communication with tenants.

Investments for tenant satisfaction, however, are good to do based on knowledge โ€“ meaning data and surveys about what is it that tenants would find the most useful in their everyday lives. Investments based on guessing might go wrong and cost you more than they give.


The effect of digital technologies on tenant lifetime value

Digital technologies can have a significant impact on tenant LTV, as they can help owners to provide a better tenant experience. For example, automated maintenance requests can ensure that repairs are completed quickly and efficiently, and digitally bookable extra amenities make life easier for tenants โ€“ who would not appreciate that?ย 


Better communication benefits everyone

Digital communication tools such as push notifications, emails and in-app messages bring communication to the level that today's tenants already receive everywhere else, it helps property owners to build stronger relationships with their tenants and makes tenant communication much more efficient.

Hococoโ€™s tenant experience and operations platform allows property owners to streamline processes and improve communication with tenants, leading to increased tenant satisfaction and ultimately a higher tenant lifetime value. By using digital technologies, we can enable self-service, streamline communications and automate maintenance requests, and other tasks, making it easier and more convenient for tenants to interact with their landlords.


Data gives an insight into the state of tenants โ€“ and the property

Decisions without data are guesswork. Our platform allows property owners to collect and analyse data on tenant behavior, which can provide insights into the factors that contribute to tenant LTV.ย 

For example, by tracking amenity bookings and maintenance requests, we can understand better what are the tenants' needs as well as identify areas where improvements are needed, such as upgrading amenities or addressing recurring maintenance issues.


The Community is like glue for tenants

Residents who feel part of a community have longer tenancies in rental apartments. Our Community Channels are residentsโ€™ own safe online space to connect over mutual interests and build a community. This leads to improved tenant satisfaction and loyalty, which in turn can lead to a higher tenant lifetime value.


Achieve more profitable properties with better tenant lifetime value

In conclusion, a tenant experience and operations platform can be a valuable tool for improving the tenant LTV of rental properties. By providing better service, improving communication, and leveraging data insights, property owners can increase tenant satisfaction, reduce turnover, and ultimately drive higher profits. If you're a property owner looking to improve your tenant lifetime value, consider investing in a tenant experience and operations platform to take your business to the next level.

If you want to know how to improve your tenant LTV with digital technologies, contact us to schedule a free demo!

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