This year has served as a good reminder. 2019 has been one of high tenant turnover, and managing rental properties has been time-consuming. Almost every rental property we manage has had a transition from one tenant to the next, which reminded me of just how vital a low tenant turnover rate is for landlords’ bottom lines.
Most experienced landlords won’t need to read this blog as they know how time-consuming and potentially costly it can be when a tenant moves out. But for anyone considering becoming a rental property investor, or landlords with minimal experience in the game, you’ll want to read this. It’s also vitally important for any of you investors brave enough to enter the vacation rental business, as weekly turnover is part and parcel…
I don’t mean for this to be a cautionary tale, but rather a preparatory one so there are no surprises. And I don’t think many landlords take into account the expense of tenant turnover when calculating their cash flow on a property. They should.
So let’s get into it.
Although you collect a damage deposit at the time of signing a lease, your agreement states tenants must have the place professionally cleaned when leaving, and you selected responsible tenants, when they move out there will be costs involved to get it ready for the next tenant.
Even with the best of tenants, your rental property will go through wear and tear which you’re writing the cheque to fix. Doors get dented, corners dinged, pictures are taken down and leave small holes in the wall, appliances eventually die, etc. Many issues such as these aren’t discovered or needed to be fixed until the tenant moves out. Thus, the beginning of tenant turnover expenses…
Typical expenses you can expect when a tenant leaves are as follows:
Cleaning costs: Yes, I know… in the lease agreement, it states the place must be professionally cleaned when the tenant leaves. Bottom line, there will be dirty things remaining. Fan covers need cleaning, drains need clearing, carpets must be shampooed (which is one reason why I advocate never to put carpet in rentals) and stoves are never given the cleaning detail they truly need (cleaning a stove is a labor of love). You get the point. Call it $150 to clean a typical 1,200 – 1,500 sq ft rental.
Paint touch-ups: Minimum you’re looking at to patch and paint the place will be $200-$500. All depends on how the walls were treated.
Locks will need to be changed: This is important, and I think overlooked by landlords sometimes. You have to change the locks every time a tenant moves out, for obvious reasons. Thankfully, there is a cost-efficient way of doing this: A locksmith can simply re-key the lock you already have in place – costs about $50. That way, you don’t have to replace all the hardware which can be upwards of $200.
Advertising the rental property: Of course, the world needs to know your place is available. Every major city has an effective online platform for rentals to be listed. And they all cost money. Ad costs are about $100 per unit.
The potential loss of rent: Depending on how quickly you spring into action once your tenant moves out, there’s a good chance that between the time it takes to prepare the property to be shown, and to get a lease signed, you will lose a month’s rent. Call it $1,500.
In the best case scenario, after a tenant has moved out, you’re looking at a little more than $500 in expenses. And that’s if everything goes swimmingly — meaning you had the perfect tenant who did little to no damage; you were able to rent it immediately without missing a month’s rent, and so forth. Reality is, many times it will cost you closer to $2,000-$2,500 if you take into account missing a month’s rent and the fact that most tenants (even the good ones) will naturally leave wear and tear behind, requiring more substantial fixes and touch-ups.
The cost of tenant turnover, often overlooked by enthusiastic landlords who just want to jump into the business of rental properties, is meaningful to the bottom line. It becomes an ROI-gouger when a landlord experiences a high rate of tenant turnover. This is one reason why I stress to seek out long-term tenants, and ones with the potential to renew their lease after the first, second, and third year. One of the keys to being a successful landlord is consistently finding multi-year tenants.
PS – As an investor, manager, and real-estate nerd, I have some interesting stories to share. Subscribe to my newsletter below. Only my best content will land in your inbox.