Putting a Price Tag on Tenant Turnover
In a perfect world, you will find long-term, reliable tenants who pay rent on time, take excellent care of their property and have no intention of moving. Unfortunately, the world is not perfect. If one of your tenants does decide to move out, understanding exactly where your expenses are coming from will help you better understand the importance of retaining renters and minimizing tenant turnover.
Understand How Tenant Turnover Affects Your Bottom Line
Whether you own one rental property or a thousand, turnover is something that all property owners deal with. Most landlords know that reducing their turnover rate makes sense financially. For this reason, it’s vital to grasp the impact it has on your business. It’s estimated that the cost of a single move out starts in the $1000 range and can easily grow up to $5000 depending on the type of replacements that are needed. The average cost of turning over a unit today amounts to $2,500.
Breaking down the costs can help you see the benefits of reducing turnover. For example, a 225-unit apartment community with a 40% turnover rate (assuming each unit has an average rent of $650), is calculated to have an $1,800 per-unit turnover expense. This results in an annual price tag of $162,000 just from turnover-related costs. If that same apartment community reduced its turnovers by just one per month, it would save $20,000 per year- AND free up 96 maintenance hours on their schedule at the same time. If you manage fewer than 225 units, you may think that these costs don’t apply. But, there’s a good chance that you don’t have the same systems and efficiencies in place, and therefore tenant turnover can be even more costly on a unit-by-unit basis, requiring you to pump more money into marketing, spend hours cleaning and painting, and waste effort finding tenants that fit your requirements.
So, What Are the Real Costs Associated with Tenant Turnover?
You may be wondering how these expenses are generated. Not only does turnover kill cash flow, but the time and money associated with preparing a property for a new occupant makes it the most substantial expense a landlord must face. Costs can be summed up in the following categories:
Administrative costs – Paperwork processing can be a major headache- think fees associated with photocopying, printing, processing lease agreements, move-out paperwork, screening new applicants etc. Costs of marketing and advertising also may be significant if you need to run print and web-based ads.
Showing the property – Showing and listing the property to prospective tenants will not only cost you time and effort, but it can also generate considerable travel expenses. Driving to and from your rental property to show it to prospective tenants, coordinate maintenance repairs and make improvements before a showing racks up a considerable amount of money spent on fuel, and also wastes your time.
Cleaning – The property will need a deep cleaning between tenants, which means you’ll either need to commit hours of your time doing it yourself, or you’ll need to pay someone to do it for you. Either way, you’re not going to like the cost.
Repairs – Turnover is an optimal time to coordinate maintenance repairs that may have gone unnoticed during the previous tenancy. Often times, there are a greater number of repairs that need to be made then you may have assumed, causing a greater out-of-pocket expense than you initially budgeted for.
Forfeited Income- The longer amount of time your property is left vacant between leases, the longer amount of time you are left without a source of rental income. If you are relying on your rental income to cover a mortgage payment or pay the bills, you could notice a severe hit to your funds until you find a new tenant.
Uncooperative Tenants- If you and a tenant end on bad terms, there is potential for damage that goes beyond the completion of normal turnover tasks. An angry tenant can damage your property, which will only require further repairs. Even worse, if the tenancy ends with an eviction, you could find yourself having to go to court to collect the money that is owed to you.
Tenant turnover is inevitable. Fortunately, there are ways to stay organized, and efficiently breakdown the expenses associated with preparing a property for new occupants. By being aware of the costs affiliated with turning over properties, not only are you are able to plan ahead, but you are also more likely to find innovative ways to keep costs to a minimum. The ultimate solution to avoiding these expenses is by maintaining happy tenants to ensure a low turnover rate in the first place. A great suggestion is to periodically check in with your tenants using a survey to make sure they’re happy, or to see what you can improve. In any case, finding ways to lower the costs and effort associated with moving new tenants in and old tenants out is essential to managing your properties well.
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