Resident Retention: Alert! Alert! That Deposit Won't Cover Your Turn Costs!

Touch up paint for the entry? The deposit will cover it. Tub needs new caulking? The deposit will cover it. The carpet is 7 years old and it's looking terrible from all that daily wear and tear. It's going to need to be replaced... the deposit... Hmm. The unit is sitting empty for 10 days, 20 days, 30 days. The deposit?

It has not been that long ago that conventional wisdom said that turnover was not a bad thing. In fact, it was a good thing because more often than not, the unit could be re-rented for a higher monthly rate.  It's time to take a closer look at that "old wives' tale" and examine the facts, and not just because the economy has been challenging. It's time to take a closer look because often, I believe, our industry may not be looking at the whole picture when it comes to true turnover costs.

When evaluating an individual property’s true turnover costs, one must have a clear picture of the impact each resident’s move-out decision has on the property’s financial well-being. So, how do you calculate turnover costs?

Average market rent

Average vacancy loss days

Average wages for the leasing team to re-rent the unit

Average wages for the maintenance team to turn the unit and make move-in ready

Advertising and marketing costs

Referral or locator fees

Concessions

Leasing commission

Repair and replacement costs to make the unit move-in ready

Here's what it looks like on the national average:

When you stop to evaluate all of your costs associated with a resident choosing to move, it quickly becomes apparent that the deposit can not possibly cover those costs. Nor should they. The deposit is to protect against damage to the unit, not to soften the blow for our own turnover costs that may have been avoided had we been a little more focused on service delivery and creating value for the resident on a day-to-day basis.

I encourage you to do the math and be able to tell your staff what each turnover costs the property on average. Because based on the data in the table above, even if you were able to re-rent the vacant unit for $25 more per month, it would take 172 months (14 years!) to recoup those initial losses. The solution is not to charge a higher deposit. The answer lies in your ability to meet the needs of your existing residents and reduce your overall turnover.

Jen Piccotti is the VP Consulting Services for SatisFacts Research, whose focus is on resident surveys and taking the guesswork out of retention. www.SatisFacts.com