Once a unit is vacated, the clock starts ticking. On a portfolio-wide scale, units being turned over can add up to thousands, and even millions, of dollars every day.
“This will vary greatly by market, as vacancy loss is driven by average rents. However, I would say that each vacant unit could cost an owner anywhere from $1,500 to over $5,000 per month when you factor in make-ready costs, advertising, and incentives to get the unit leased,” says John Rials, managing director of real estate for Charleston, S.C.–based Greystar.
There's no getting around the fact that turnover rates hover around the 50 percent mark nationwide, as that’s just a result of demographic trends, employment, and renter mobility driven by Gen Y and its adaptive approach to seeking employment and finding somewhere to live. But having control over move-out dates can be a crucial factor in cutting maintenance costs during the time between tenants. And apparently it’s not as hard as one might think when common sense is applied.
There's a science to timing move-outs, says Jerry Davis, senior vice president of operations at Highlands Ranch, Colo.–based UDR.
“If you can schedule which days your move-out dates occur throughout the month, and even which day of the week, you can cut down on the days your unit sits vacant and not ready,” says Davis, referring to how end-of-the-month move-outs aren’t always the best idea for your portfolio. If you can stagger your lease expirations throughout the month, you can make sure your units are sitting empty for a shorter period of time.
According to Davis, UDR’s units are typically sitting vacant anywhere from 20 to 25 days per year. But that adds up to almost 75 percent of a month’s rent annually, which needs to be accounted for. Davis says that lots of small things can add up to big costs.
“That cost of replacing a carpet can be a huge variable, but the total cost to turn vacancy lost plus cost can be pushing $2,000. So if you’re going to incur that, you want to make sure you’re getting enough of a rent increase that makes up for it.”
And bringing third-party functions in-house is a huge way to cut costs, adds Davis. UDR employs its own painters, for instance, to get vacant units turned over more quickly. The smaller savings add up big time in the big picture.
Davis says that if you can have tenants move out on a Sunday, such a seemingly small decision can end up saving your company lots of money.
“If you had 20 apartments all move out at the end of the month and a four-man maintenance team, they're probably not even going to be touching that 20th unit until 30 days has past," says Davis. "And that's really going to drive your cost up."
Policy is key in making this sort of simple cost reduction a mandate across a portfolio, ensuring that end-of-month move-outs aren't standard operating procedure. This is a policy UDR is testing in some of its markets and plans to roll out on a more portfolio-wide basis in coming years.
But UDR isn't the only owner that sees the piles of pennies for what they are really worth at the end of the day.
“Turnover is very important to our company," says Greystar's Rials. "We monitor and manage resident turnover and feel strongly that it can be improved with increased focus on customer service. We take our resident feedback seriously and respond to issues as quickly as possible."
Greystar has procedures in place to measure the time it takes its maintenance teams to turn a unit and places a premium on this aspect of the business, saying it can use the metric to reduce down time and, therefore, decrease vacancy loss. In the end, measures like these help owners avoid throwing money into an empty unit.