How Do You Account for Turnover Costs in SFH Rentals?

Question

Do you budget vacancy aggressively or conservatively?

Michele Fischer · Answer

Not aggressively or conservatively, realistically.

We assume 10% of our expected rental income will not be collected, either due to vacancy or more often folks who are not paying but we can't quickly evict.

For 12 doors we plan for four turnovers per year at $5,000 each.  Same as above, some tenants don't stay long and some stay years so it all averages out with enough properties.

We've had one move out so far this year, with $5,800 in cost for a repaint and repairs.  But last year we had no move outs and we had great cash flow.

Stephen Delahoussaye · Answer

We manage about 23 doors in Nashville and I've landed on a system that works pretty well for budgeting turnovers.

For vacancy, I budget 5% of gross rent across the portfolio. Some units turn over every year, some tenants stay for five years. It averages out. On an individual SFH basis, I'd budget one month vacant every two years as a baseline, which is roughly 4%.

For actual turnover costs, here's what we see on a typical SFH make ready in Nashville. Paint touch up runs $300 to $500 for a 3 bed. Full repaint is $1,500 to $2,000. Carpet cleaning is $150 to $250 and we do that every turnover regardless. If carpet needs replacing, that's $2 to $4 per square foot depending on what you're putting in. General cleaning is $200 to $350. Minor repairs and punch list items usually run another $200 to $500.

So a light turnover where the tenant kept the place decent runs around $800 to $1,200. A heavy turnover with paint, carpet, and deferred maintenance can hit $3,000 to $5,000 easily.

What I'd recommend is setting aside $100 to $150 per month per SFH into a dedicated reserve account. That covers your turnover costs plus builds a buffer for bigger capital items. Don't budget aggressively if you want to sleep at night. The $100/month reserve approach means you have $2,400 built up by the time a two year tenant leaves, which covers most turnover scenarios without dipping into cash flow from your other properties.