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Resident Retention: The True Cost of Turnover
Resident Retention: The True Cost of Turnover
In my last post, I made the bold claim that every time a resident chooses not to renew his or her lease, it costs the property an average of $4300. One reader asked me to break down the $4300 cost, and I thought that was an excellent opportunity for all of us to compare some notes. I have just updated all our figures, and the economic landscape has improved... a bit. Based on national average rent and concession data from Axiometrics, turnover costs have dropped to just over $4000 per move out - still quite painful! Here's the breakdown:
Obviously, different markets are experiencing different average rental rates, different concessions, different vacancy loss days, etc. But this gives a starting point to begin evaluating what the true cost of turnover is for your community.
I went through this exercise with a group in the Orlando, Florida area and a group in the Rochester, New York area recently. Two very different markets, but with surprisingly similar turnover costs. Each group calculated turnover costs ranging from $2700 to $4000 per move-out.
What turnover costs have been overlooked here? Over stated? Under stated?
Jen Piccotti is the VP Consulting Services for SatisFacts Research, the experts in resident feedback and retention programs. www.SatisFacts.com
Comments 15
I would like to be making the $16.96 per hour!!!!! :'(
What kind of costs have your been able to assume for retaining the resident at end of lease term?
BTW ~ Idaho average salary for leasing staff is close to $11-13/hr.
@Jenifer and A.J. - I hear you! Keep in mind, these figures are national averages, so think about cost of living in places like NYC or L.A. vs. Boise, Idaho or Madison, Wisconsin.
@A.J. - We have case studies that show by reducing a 5000-unit portfolio's turnover by just 3% (150 saved renewals), net operating income can be boosted by $600,000 and asset value increased by $8 million.
@Mark - Yes, there is definitely a lot of variability in the list. And while some items are somewhat fixed (such as marketing costs), a property would add or hold back on certain marketing opportunities depending on occupancy or traffic levels. Thanks for your insight!
The impact to the bottom line has to be a wake up call for many (hopefully they already knew that). Based on how multifamily is valued is has to be a huge impact. I recall reading an article showing the impact in the valuation of a property from an improved operating income perspective.
I don't know how the world of lending works in multifamily but with higher valuation I have to believe it is easier to get credit (refinance with better terms) or sell a property? This could exponentially impact the value of improving resident retention.
@Frederic - You're exactly right. We actually were on a panel at NAA in New Orleans this year on this very subject. A property's ability to protect or grow NOI has a direct impact on the property's value, which has a direct impact on a bank's willingness to refinance or lend to the property's owner. Typically, a property can make a significant impact on their NOI if they can save one to two residents per month - a very realistic goal.
Jen, what is better for increasing a property's value?
1) RETENTION GOALS to lower turnover and saving residents at lower rental rates or concessions
2) RENT GROWTH by means of turnover, re-renting at higher market rates (or in our case lower recurring concessions)
We currently are averaging 15 days vacancy loss.
My question is whether the lease time/costs include the time required after the resident actually moves in. New residents require significantly more time and hand holding than an existing resident who already knows the ropes.
Plus, I would say there is a slight domino effect when someone moves out. For example, let's take an extreme example that everybody surrounding a resident's apartment moves out, replaced by new residents. Considering that people like stability in their home and surroundings, this transition will undoubtedly affect their comfort level in their home. Now granted, one person moving might not have that much of an effect, but somehow it should be accounted for in my opinion...
@AJ - From all the numbers I've seen, lowering turnover ultimately provides the best, most concrete way to increase both NOI and asset value. Even if your turnover costs per move-out is $2000, and you are able to re-rent the apartment for $25 more per month, it's going to take you 80 months, or 6.6 years, to recoup that initial turnover cost.
@Brent - These costs don't include that extra TLC that staffs provide new residents, though you make an excellent point. New residents = more staff time. And consistency is something we as humans crave. When there is disruption around (lots of move-outs) residents may begin to wonder, "What do they know about this place that I don't know?"
Great breakdown Jen...thanks. Although I think everyone knows that this number will be "greater or smaller" depending on their market area..
Thanks!
Jackie
@Jackie - Yes! It's important to reiterate that depending on your market, the costs could be much more or much less than what is listed here. Thanks!
There will also be a flux in TO cost depending on the age of the unit. Advertising should not change unless you are advertising that specific unit. In an NOI calculation some may agrue that lost rent is accounted for in occupancy. But if anything is known for sure; it is cheaper to keep the resident.
Great post Jen!! It is true that the little things truly make big differences.
@MaX - Age could certainly be a factor, but I have heard that advertising costs can vary depending on current occupancy, current market conditions, etc. But I wholeheartedly agree - it is definitely more profitable to keep your residents!
@Luke - Thanks!
I'd also like to get paid those wages and recieve any kind of bonus. As a manager for over 10years Ive never been paid your Leasing wages
Lesson for smart tenants: Give sob story and propose rent reduction of $1500 to $2000 per year in exchange for lease renewal. No reason landlords should keep full savings of renewal.