Rental Unit Turnover and Tenant Churn
Now in 2022, we’re seeing higher rental apartment and house rental churn rates because people are moving for new employment, lower rents, and making other post pandemic adjustments.
Property managers might feel powerless to reduce that occurrence and control the losses for landlord owners. Having to renovate and remodel are two issues that can result in one to two months rent loss. And finding contractors, cleaners, and acquiring great new, long term clients is another matter.
Those are big costs and expenses, yet managing properties and finances efficiently is a big help. The more time and resource you can funnel into rental unit turnover loss prevention the better. Helping owners fill vacancies quick is another big helper.
The Pain of Turnover Costs
The costs, extra work, extra phone calls, property visits, rental advertising, and financial transactions in downscale rental properties really mount up. If you’re renting in Miami, San Diego, San Francisco, Dallas, Los Angeles, New York, or Washington DC, losses could be sizable.
The Costs are Almost Always Higher Than Expected
Although the mortgage payment on a property isn’t a loss technically, it’s still a cost you must cover. The actual cost of losing rent for one month on one unit can be $2,000 to $6,000, with most of it being lost rent. If the vacancy gets extended for several months, it would be significant financial burden.
When novice property managers get into their new landlord business, with 5 to 12 properties, they soon realize a big factor in success is the turnover of tenants. And as a landlord, you’re already contending with:
- document processing
- paper document retrieval
- tenant issues
- late payments
- repairs and maintenance scheduling
- paying bills
- ensuring the owners are earning enough to pay you
When turnover gets bad, it shakes your confidence, raises stress, and makes you feel a property management business isn’t doable for small portfolios. It can ruin you financially.
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The Full Cost of Losing Tenants
In a recent post on how to reduce tenant turnover, we offered some interesting ways to reduce the incidence of lost tenants. We didn’t get into the financial aspects, so let’s do that now.
| Issue | Cost |
| Mortgage | $1,000.00 |
| HOA Dues | $350.00 |
| Property Taxes | $300.00 |
| Listing advertising | $75.00 |
| Landlord/property manager time to advertise, show, interview, and acquire new tenant | $360.00 |
| Time taken to screen tenant and costs to check out tenant | $40.00 |
| Maintenance costs/cleaning | $100.00 |
| Lost Rent if Vacant | $2,500.00 |
| Total Opportunity Cost | $4,725.00 |
If the total opportunity cost is $4725 per year per badly managed unit for 20 properties, the total cost might be as high as $90,000 per year. Wow, that could hurt any property owner or investor. And we aren’t talking about evictions and associated legal fees and your time wasted.
Numbers like these seem to justify hiring a professional property manager. At 10% of rent, you might be paying anywhere from $20,000 to $60,000 per year on a 20 property portfolio. And you may not have ensured the property manager takes responsibility for any lost rent or tenant vacancy.
As a professional landlord, or novice landlord, do you guarantee the owner?
Tenant Guarantee from a Property Management Company
A Tenant Guarantee is an assurance that the tenant will meet the requirements of rental lease. If the tenant breaks the lease, gets evicted, or leaves, the property management company must fill the vacancy at their cost with no leasing fee charged again.
The tenant guarantee does not normally cover the lost rent, return of property manager’s fee, and turnover costs. However, some property management firms do cover the lost rent, however they would be eager to take on a lower quality tenant just to get the unit rented.
Any property management company that offers this guarantee would want a higher service fee (since they reduce the risk for you and they offer a better level of service to you).
You’ll be asking whether a property management company’s tenant guarantee is pretentious promise, or a substantial benefit.
The best way to reduce your exposure to cash flow problems, extra work, lost revenue, and landlord fatigue is to screen carefully and make your rental unit as comfortable and desirable as possible.
In some buildings, neighborhoods, and cities, turnover is very difficult to reduce. You may want to screen for these low quality investments and steer clear of them.
A good property management firm might be a good option for you if you lack the expertise in selecting, screening and managing tenants, along with the everyday matter of property management. In this blog however, we’ve provided plenty of landlord tips and property investment strategies that help you do the work yourself and avoid trouble.
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