Is there a general rule of thumb that is used when underwriting the cost of tenant turn over?
I normally budget for $1-2k of work.
You can ask the property management company what their average turnover number is across all their properties.
They would have the best information for you.
And I'm assuming that's per unit? @Antoine Martel
Yes that is per unit
There is no general rule of thumb. It depends entirely on how you manage your property, how often you inspect and whether you hold tenants responsible for damage during their lease.
Generally a turn over should require paint and a few minor repairs. Depending on how long tenants stay, assuming the average of 2-3 years, cost is minimal but every 3-4 tennat turn over may require more extensive upgrading of many items. Flooring, cabinets, trim etc.
If you use a PM that does not do inspections, holding tennats responsible, your costs at turn over will be considerably higher. Deposits rarely cover the costs associated with turn over with this type of property management.
Mine run about $30 after deducting the carpet shampooing fee from the deposit per lease. That's if they haven't been there for a decade and I've upgraded to laminates already and stabilized.
That doesn't include my generally negative vacancy rate. I have someone new in before the end of the month. But I self-manage.
A PM will probably run $1-2k, plus an extra month of vacancy, plus their fill fee. 3-4 months rent per turn at one thousand per month. I've paid buildings off by turning and filling myself.
If you’re using a PM to do the work for you I’d say your maintenance/get rent ready cost will be 1-2k, unless something horrible happened.
PM lease up fees vary but typically 1/2- 1 month rent is what I’ve seen.
@Matt Morand If you use a PM, you always need to factor in the costs of bringing new tenant in. In my area, I have had to pay first month to PM + Marketing costs. If the property has been well maintained (I know, this can be relative), usually $1k is enough to turnover (carpet cleaning, professional cleaning of the rest of the house). Small paint job might be needed. If priming is needed, gets more expensive. A few things that are not typical "wear and tear", you can get the tenant to fix it.
I always self-managed, good salary job that I could take off from as long as people could reach me, this was prior to cell phones. I would inspect my properties in the early months of the lease but generally I didn't need to once I had a good handle on the amount of care they were taking.
What cut way down on my turnover cost was requiring a minimum of a two year lease. If they couldn't commit for 2 years I didn't want them and then they would usually stay 4 or more. I would sometimes "surprise" my tenants with upgrades during their stay. New entry way tile, new kitchen floor or something that could be done cheaply, easily and with little or no disruption to their lives. If I felt it was coming up on time for that upgrade I'd rather do it with them in there than add to my task during turnover.
I have had $0 but also $5,000.
Property Management is Key! I always say they can make or break an investment.
Some offer a standard "Turn Package" at anywhere from 2-5K.
Having said that there are times when more or less is required.
If using this for underwriting it's always wise to be conservative and budget towards the higher end of estimates.
No rule of thumb, but most people estimate one month vacancy when doing numbers. I never see turnover estimates so it must be included in the 10-12% maintenance estimate. The fact that it is never broken out indicates that it should really not ever run more than the two combined and that would be worse case scenario. I don’t know where the 2-5k responses hold property but that seems quite high unless rents are also high.
I am with @Steve Vaughan here. Ours generally run less than 50 bucks. Just general cleaning supplies or small repairs. All in it's less than 2-3 hrs work including screening new tenants/showings. We usually have a deposit from new tenant before the out going tenant is even out. Longer notice and good photos are to credit for that.
If we are doing a full remodel flooring,fixtures,paint,cabinets and appliances. I would say around 2k. We do all the work ourselves and can turn the units in less than a week.
If you are going through a management company these costs would probably be over 1k and 5k. Not to mention you need to bump up your vacancy to 5% or greater. (Ours is lees than 2%)
We figured with the time it takes us and what is considered acceptable charges/fees by management companies we could pay ourselves 200-300 bucks an hour.
Often, it can be as cheap as $50-$200. I have a couple of guys I turn to for this who will go in and do a good clean up. One in particular once worked for a small apartment complex as a maintenance man and he used to make apartments rent-ready at tenant turnover. I really like him because he knows all the tricks to make little imperfections right. He knows things I never considered.
Every so often, a place will need painting. But mostly, it's just a good cleaning with extra attention to kitchens and bathrooms, carpet cleaning if there is any carpet, and that's it.
I, too, self manage, and I'm glad I do. I couldn't imagine paying $1000-$2000 for this sort of stuff.
Originally posted by @Michael P. :
I have had $0 but also $5,000.
Yes, I agree, it could vary widely, and for me, it all happened in one year.
At one rental, a tenant left because of insect infestation. I had good tenants there of many years, one stayed for 12 years, and the place needed new carpeting which was last changed 15 years ago, repainting, and while I'm at it, some rehab. Figured it'll run me $6,000 in total.
Turned out we used a pesticide company who sprayed and told us we can go in and work there the next day. My wife did, and suffered poisoning, hospitalized, out of commission for over 2 months . Tenant left end of Oct, plan to re rent quickly before Dec. To make a long story short, we were delayed and rented as of Apr.
With rents of $2,500 in the area, lost 5 months rent. While the rental was vacant, thought it was a good time to install some windows, outside cement work. So besides not collecting rent, we spend over $12,000 in rehab, upgrades, all unplanned. Fortunately, the property was mortgage free as of the year before.
Been doing rentals for nearly 40 years, it's the first time it happened like this.
Then, when it rains it pours, another tenant decided to move in June. I said "oh, oh". But this time, the tenant moving advertised in Craigslist (didn't tell me), hired someone to clean the apartment. Presented me with 3 finalists, all qualified. I didn't have to do anything, he moved out Jun 26, and the new tenant moved in Jul 1. He had the new tenant pay a $250 more than what he was paying, about market rent. I would have kept the rent the same. His only complaint after moving was he should have been refunded 4 days rent.
Also in all the years doing rentals, the first time this happened.
There you have it. Two vacancies, at both ends of the spectrum, all in a matter of months. One cost $25,000 when it was all over and done with, and the other absolutely nothing, and rented for more than I expected. Oh, between the two properties, rents were increased by $500.00/month.
In the institutional investor world the method used to manage turn cost was $ per sqft. On average the turn cost was between $1 to $2, depending on the individual property amenities. The goal was to get the cost down to a more reasonable operating cost of around $.50 per sqft.
@Matt Morand In our experience, the costs to turnover a unit are directly tied to the class of tenant living in the unit and how long they have lived there.
If you are dealing with lower C and D type areas you can expect at minimum to have to repaint the entire apartment and any carpeting every time someone moves out.
I have spent 5k and lost a month's rent, and also replaced the outgoing tenant in a day and raised the rent so much I'd be ashamed to share it here! ;<)
Every case is different-but what it comes down to is always be diligent about whom you say 'yes' to.
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