It may be a forgone conclusion for many apartment property managers and owners to avoid resident turnover at all costs. But it's not always the case. They may not realize there are more costs that come with a turnover besides the lost revenue from rent.
With so many residents struggling to make rent, apartment property managers and owners need to optimize profits while minimizing costs. Even if every single resident pays on time, it won't mean much if turnover climbs.
You could get lucky and land new residents shortly after the previous one leaves. However, it's still worth putting serious thought into a retention program. Even if you don't lose one month's rent on a single apartment, you're still bleeding profits because of the other costs associated with a turnover.
The best way to earn and keep every dollar of your profits is to hold on to your residents. Adding Up the Financial Benefit of Reducing Moveouts provides some turnover math.
"The cost of a single move out including rent loss generally starts in the range of $1000 and can easily grow to a range of $2500 to $5000 depending on the capital replacements," writes Lori Hammond. "How often is the total annual expense of turnover at a property analyzed? Taking the total number of move outs (including unit transfers) and applying an average expense, even in a conservative range of $1800 per unit to determine the financial impact of turnover on a property?"
Hammond gives the example of an apartment property with 225 units and a 40 percent turnover rate. That's 90 move outs every year for an average of 7.5 move outs a month. Multiply 90 units by the conservative cost of $1800 per unit and it comes out to $162,000 per year. In some locations, this amount is more than the cost of one month's rent.
For more affordable apartments with lower average rent, the amount of revenue to support the move out expense will be higher. Just reducing the turnover by 5 percent could potentially save more than $20,000!
The National Apartment Association has good news in that the turnover rate is 47 percent, the lowest point on record since 2000. NAA says the reduction is largely due to owners and property managers increasing resident retention and renewal efforts.
However, be aware that turnover rates vary by region. Obviously, college towns are likely to have a higher turnover rate as students stick around for a couple of years and then leave when they graduate or transfer. Perhaps their roommate situation changes, so they must switch apartments.
Another factor affecting resident turnover is the job market. If a city doesn't have as many opportunities, residents may seek new opportunities elsewhere.
A potential new one that comes out of the pandemic is remote working. It may drive up turnover rates especially in cities with a higher cost of living. Residents may opt to move to be closer to family or live in a city that interests them.
Many companies have gone through a trial by fire and have discovered that remote working actually works! Now, they can hire talent from anywhere. They can trade expensive buildings for smaller, cheaper offices.
Here are the five top costs for resident turnover besides loss of rental income.
This is the biggest factor and happening more often since the pandemic. People lost their jobs and the Center on Budget and Policy Priorities report 1 out of every 5 renters with children couldn't make rent. Additionally, more than 1 in 7 renters hadn't caught up on rent.
The federal government implemented an eviction moratorium to protect residents who can't pay their rent. Fortunately, the American Rescue Plan will provide tenants and property managers with financial relief. The bill has slated $25 billion for rent assistance. The goal is to help American families who already owe $25 billion in back rent as of January 2021.
The White House called on Congress to extend the eviction and foreclosure moratoriums through June 2021. There are federal cases trying to appeal to the moratorium.
No one wants to move into a dirty apartment. As soon as a resident moves out, the apartment will need to undergo a thorough cleaning. You may need to hire professional cleaning services especially in the age of a pandemic. It's worth the extra expense to provide residents with peace of mind. A typical move-out cleaning can range from $160-$210 or more.
Unless you have all wooden or tile flooring, you may have to replace the carpet. Typically, the more successful apartment properties add a fresh coat of paint as well. Nothing like the smell of paint to make a prospective resident feel like the place is clean and like-new.
The apartment may need new light bulbs and other repairs. Moreover, disgruntled residents may inflict more damage on the apartment out of frustration with property management. That will increase the cost of maintenance and repair.
An often-overlooked cost comes with the need to assign employees to take care of turnovers. This takes their focus away from their other work responsibilities. Paperwork processing also eats into profits because it requires the employee's time, move-out paperwork, printing, processing, and resident screening.
Another responsibility affecting employees is the time and effort to manage property showings. Typically, these take place after working hours as prospective renters have jobs that prevent them from checking out the apartment unit. Employees may have to make regular trips to the unit to oversee maintenance and repairs as well as showings.
Even if you offer virtual showings, someone still has to take photos of the unit and post them. One unit can't represent all units as there have been many stories about frustrated renters who found the unit didn't live up to the photos.
Combat the costs of resident turnover by doing these things to increase resident retention for as long as possible.
Your residents most likely have connected devices. This is a good opportunity to build an online community for your residents. Whenever a new resident moves in, provide them with the details to join the online community.
The advantage of an online community is that residents all keep their own schedule. So, they may not be able to meet and get to know each other. When apartment property management creates a friendly community filled with valuable resources, it can make them feel included and valued.
You can also create a physical community in a communal space. This can be a resource for communications as well. Hang up a bulletin board with the latest news. Eventually, the pandemic will pass and residents can have a place to gather safely.
There's a big difference in the experience between no communication and regular communication. People who are informed feel like they are in the loop and don't miss out on anything. Communicate in both the online community and physical space. If there's an area where many residents frequent, post the latest news there as well as in the communal space.
Consistently ask residents for their input and feedback. No one wants to hear bad or negative news from an angry or frustrated resident. The fact is that you'll have unhappy residents. The feedback is critical because you can't fix or improve something if you don't know it's a problem. If you implement a resident's suggestion, thank the resident publicly for the suggestion.
Just because something is trendy doesn't mean it's a good idea to offer as an amenity. You might be surprised what residents value. So, it's important to have a conversation with them to determine the right amenities to offers. What's more is that apartment amenities are a must-have.
One amenity that's a no-brainer is to provide a fast, reliable connection. It's really not an amenity anymore as people often expect it. As more people stay home for work and school, they need to have dependable access. Stay on top of offerings and advances in technologies to ensure the property has the best service available.
The oldest members of Gen Z are out of college and may have been working for a few years by now. They're seeking a place of their own. Considering they're the first generation of digital natives, they expect their apartment to contain smart home technology.
NMHC and Kingsley Associates Renter Preferences Report finds that residents want voice-activated technology like Amazon Alexa and Google Home. One-third of the respondents already own one of these technologies. Additionally, 43 percent were interested in or won't rent from a place that doesn't have a voice-activated virtual assistant.
Another technology multiple generations want is apartment security and video surveillance. The National Apartment Association reveals that Gen X and Baby Boomers demand security. Considering some may work in their apartments, they're spending more time at home and want to feel safe. Besides, more than half say they'll pay more for security features according to an Assurant survey of renters.
You wouldn't forget to make sure your residents pay their rent every month, right? Taking steps to retain residents is just as important. Once you lose a resident, you'll deal with more than just the loss of rent.
Apartment residents renew their leases because the property building satisfies their needs. It gives them a safe space where they feel at home especially if they're working at home.
Any apartment property manager that doesn't put a priority on reducing resident turnover and increasing retention is going to lose to the competition. Adding these four things will boost the bottom-line while encouraging loyalty.
To learn about apartment security, check this free Complete Guide to Securing Your Apartment Building. Ready to learn more? Contact us.