Apartment Turnover Costs in Underwriting
On this page
Turnover cost is what an owner loses and spends each time a tenant moves out: rent lost while the unit is empty, the cost to clean, paint and repair it (make-ready), and the cost to market and lease it again. To underwrite it, estimate a cost per move-out from the building's own records, multiply by the number of move-outs a year implied by the turnover rate, and test a higher rate. Sponsors who raise capital with DoorRaise should know this number, because plans that push rents tend to raise turnover.
This post gives the formula, a hypothetical example with three turnover rates and what to ask for in the seller's records. It adds detail to the repairs line in our expense ratio guide.
How do you estimate the cost per move-out?
- Lost rent. Days the unit is vacant between tenants, times daily rent.
- Make-ready. Cleaning, paint, flooring touch-ups, small repairs and appliance fixes. Use invoices from the T-12, not a guess.
- Leasing and marketing. Listing fees, advertising, a leasing agent's time or commission and any move-in concession.
- Other. Utilities while empty and unpaid balances not recovered from the deposit.
A hypothetical example
This example is hypothetical, for illustration only. A 40-unit building with rent of $1,100 a month assumes the following for each move-out.
| Item | Cost |
|---|---|
| Vacant 30 days (one month of rent) | $1,100 |
| Make-ready (cleaning, paint, repairs) | $900 |
| Leasing and marketing | $250 |
| Cost per turnover | $2,250 |
Now compare turnover rates for the whole building:
| Turnover rate | Move-outs a year | Annual turnover cost |
|---|---|---|
| 40% | 16 | $36,000 |
| 50% | 20 | $45,000 |
| 60% | 24 | $54,000 |
Going from a 50% to a 60% turnover rate adds four move-outs and $9,000 of cost, and the cost to the budget grows if units also need flooring or appliances. If a rent increase of $50 a month on every unit adds $24,000 a year (40 x $50 x 12) but pushes turnover from 50% to 60%, the net gain falls to $15,000 before any other cost. Raising rent has a cost, and the model should show it. See loss to lease and the value-add renovation budget.
What should you ask the seller for?
- Move-out and move-in dates for the last 24 months
- Make-ready invoices and a list of units by condition
- Average days vacant between leases
- Reasons tenants gave for leaving, if recorded
- Lease expiration dates in the next 12 months
Compare this with the T-12 and with the property manager's reports. Our rent roll and T-12 guide shows how. A property management company that tracks turnover by reason helps.
How does turnover affect the plan?
- It sets how fast value-add renovations can happen, since units are renovated as they turn.
- It sets how fast below-market rents reset to market.
- It raises vacancy and make-ready costs, so it feeds both income and expenses.
- A property that turns slowly may keep below-market tenants for years.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5 or more units under Rule 506(b) or 506(c). It prepares the offering documents from the sponsor's inputs, coordinates escrow with Enterprise Bank & Trust, collects investor funds by wire only and handles filings. The deal page lets you show investors the assumptions behind your business plan. DoorRaise does not verify a seller's or a sponsor's numbers; sponsors must check what they present.
DoorRaise is for apartment buildings with 5 or more units, and sponsors can launch their deal here. Setup is $1,500 (non-refundable), and the administration fee is $5,000 a year from closing.
To get started, create your sponsor page or see the fees.
FAQ
What is apartment turnover?
It is a tenant moving out and the unit being prepared and leased to a new tenant.
How do you calculate the turnover rate?
Divide the number of move-outs in a year by the total number of units.
What does a turnover cost?
It depends on the unit, the market and the condition. Build it from the building's own invoices: lost rent, make-ready and leasing costs.
Is a high turnover rate bad?
It raises costs and vacancy, but some plans need turnover to renovate and reset rents. The question is whether the plan's income covers the cost.
Should turnover be an expense line?
Yes, many models include a turnover line or fold it into repairs and maintenance. Keep it visible so reviewers can test it.
Sources
- Fannie Mae, Multifamily fixed-rate mortgage loans
- 17 CFR 240.10b-5, Employment of manipulative and deceptive devices
This article is general information, not legal, tax or investment advice. Talk to a securities attorney and a CPA about your deal. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.