What are some realistic tenancy terms and maintenance costs (turnkey)?

Question

Hello all,

I'm trying to analyze deals by plugging in the numbers into a spreadsheet, but I'm struggling to figure out what numbers to use for vacancy and maintenance?

Specifically, some of the deals I'm considering come from established turnkey companies (very reputable in these forums) that have been around for a long time and they claim very long tenancy terms.

One of them is claiming an average of 3.8 years (they deal in C class neighborhoods), and the other one is claiming 6 years or more (B- class neighborhoods). They're saying that's "average".

Furthermore, since these are turnkey companies and praise themselves on their renovations, the B class turnkey is using only 2% of rent (which averages around $1500/pm) for maintenance, and the C Class turnkey is using 7.5% of rent (avg about $1000/pm) in their calculations. They argue that the first few years maintenance would be insignificant since the properties are renovated, and so you're essentially stashing that money away for the future maintenance needs.

Do these numbers sound at all realistic?

Obviously every market is different, but what have you seen in your experience? Consider that a few big expenses (ie. roofs, HVACs, etc) are often taken care of for a little while, since they are replaced as part of the reno in a few of these example properties.

Thank you all in advance!

Sean Barnebey · Answer

This is a great question, and it’s smart to dig deeper into the assumptions turnkey providers are using in their calculations. While the numbers they provide might make sense under specific conditions, it’s always a good idea to apply a more conservative approach to ensure you’re prepared for the unexpected.

For vacancy, the tenancy averages they’ve shared (3.8 years for C class and 6+ years for B- class) aren’t out of the realm of possibility, but I’d treat them with caution. Vacancy rates can be highly market-specific and influenced by factors like the local job market, tenant demographics, and property management. Even with long-term tenants, you’ll still have turnover costs when they leave. A safe baseline is 5%–10% for vacancy, with C class properties often leaning toward the higher end due to more transient tenant populations.

As for maintenance, the percentages they’re quoting—2% for B class and 7.5% for C class—are on the optimistic side, especially for long-term projections. It’s true that freshly renovated properties should have lower maintenance costs in the first few years, but this doesn’t account for unexpected expenses. A more typical rule of thumb is to budget 10%–15% of gross rental income for maintenance and repairs over the long term, depending on the property’s age, class, and location. For example, in C class neighborhoods, you might see higher tenant turnover and more wear and tear, which can increase costs over time.

It’s also worth factoring in reserves for capital expenditures (CapEx), even if major items like roofs and HVAC systems are new. These big-ticket items will still need replacement eventually, and having a reserve fund helps avoid financial surprises. A good approach is to set aside an additional 5%–10% of gross rent for CapEx, depending on the property’s condition and renovation quality.

While turnkey companies often provide attractive numbers, it’s important to remember their goal is to sell properties. Running your own, slightly more conservative pro forma ensures you’re financially prepared even if things don’t go perfectly. It’s always better to overestimate expenses and be pleasantly surprised than to underestimate and get caught off guard.

Hope this helps, and good luck with your analysis—sounds like you’re on the right track!

Drew Sygit · Answer

@Rafael Ro to build on the great advice from @Sean Barnebey (give the guy some votes!), sales people in general - always stretch the truth!

Let's analyze each issue you've mentioned:

1) Tenancy Length: besides issues a landlord can't control, like death, sickness, job loss, etc., the actual management of the property & tenant play a large roll in how long tenants stay in their home. The only logical way a company would know their average tenant stay, is by running a report. They probably won't share said report, but you can ask them all kinds of questions related to the report - how many leases are on it? What period of time does it cover? What's the shortest and longest tenant periods?
-- Also, if they are really pushing this as a benefit, what type of guarantee are they willing to offer to back it up?

2) Maintenance Reserves: So many factors here to consider! First you need to learn to separate the following:
Maintenance: usually things related to wear & tear or tenant damage.
Repairs: usually broken items like doors & windows, caused by tenant or nature.
Capital Improvements: usually expensive things that wear out: hot water tanks, furnaces, roofs, etc.

The seller is correct that Repairs & Capital Improvement items should not be a factor for awhile (ALWAYS get your own inspection to confirm). Some investors prefer to start saving for these ASAP, while others plan to deal with them when they happen.

The unknown is Maintenance costs, which are often dictated by how "hard" a tenant lives in a property. In our experience/opinion, there's a direct correlation between these costs and the tenant demographic profile, or Class. You can get away with using 5% for Class A tenants, but we use 10% for Class B and lower.

3) Tenant Payment Performance: you didn't mention this, but it is important! Take a look at this chart:

FICO Score

Pct of Population

Default Probability

800 or more

13.00%

1.00%

750-799

27.00%

1.00%

700-749

18.00%

4.40%

650-699

15.00%

8.90%

600-649

12.00%

15.80%

550-599

8.00%

22.50%

500-549

5.00%

28.40%

Less than 499

2.00%

41.00%

This is how likely a borrower is likely to default on credit extended to them. How different will it be for rent? Not much in our experience/opinion.

You mentioned that the seller has Class B and C properties. Well, those properties will statistically attract corresponding Class B & C tenants.

So, how should an investor account for Tenant Payment Performance/ DEFAULT in their analysis?

In our experience/opinion (factoring in security deposit to defer some of the losses):Class A - 0%Class B - 5%Class C - 10%Class D - good luck

Hope this all helps!

Sean Barnebey · Answer

Absolutely incredible in-depth information from an expert in the field!

Nicholas L. · Answer

@Rafael Ro

you're not crazy, and you're right to discern that they're not guaranteeing you anything. turnkey is just a bundle of services. that's all. if i buy a rent ready house off the MLS, and put it under management with a good PM... that's basically turnkey too just without the label and the provider.

one thing i notice on BP is how many new investors think they're being guaranteed outcomes rather than processes. outcomes are on you, the investor.

you may want to review these threads to see what others experiences were.

https://www.biggerpockets.com/forums/48/topics/1137397-balti...

https://www.biggerpockets.com/forums/12/topics/1215726-break...

Rafael Ro · Answer

Thank you so much both of you!

I think there is a weird balance here, among professionals, where people may not want to bad mouth fellow professionals, particularly from the same areas, which can create a skewed picture.

Specifically here, I've considered a few of the things that you both brought up, but the word "average" has a very specific meaning... It's one thing to say that "a typical tenant would likely stay for X years" and another to say that "on average, across our properties and thousands of leases, we see that tenants stay X years" -- the first one is a bit of an assumption and the second one is a stated fact.

If we take that fact for granted -- that, for example, the average tenancy is 6 years -- then that means that some tenants stay 1 year and others stay 10 years, but when you're running numbers for a property as such then the realistic scenario is that you won't have any vacancies or turnover costs for about 6 years. To me - that sounds outrageously optimistic, rather than realistic.

Would you agree? In general, for a B or B- class neighborhood.. of course there are exceptions here.

Same question for the 3.8 years for the C class neighborhood.. if you're running numbers, would you think that "realistically" your tenants will stay for 3.8 years?

None of the turnkey companies I've talked to offer any type of tenancy guarantee (outside of guaranteeing that they'll re-tenant the unit within a couple of months) -- if you know any that offer guarantees of tenancy that would sound very interesting! I don't see how they could, since things happen... but again, granted there is no guarantee, these companies are claiming such high averages and they have such huge portfolios and good reputations, so it makes me wonder. Maybe I'm crazy.

What are some realistic tenancy terms and maintenance costs (turnkey)?

What are some realistic tenancy terms and maintenance costs (turnkey)?

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FICO Score	Pct of Population	Default Probability
800 or more	13.00%	1.00%
750-799	27.00%	1.00%
700-749	18.00%	4.40%
650-699	15.00%	8.90%
600-649	12.00%	15.80%
550-599	8.00%	22.50%
500-549	5.00%	28.40%
Less than 499	2.00%	41.00%