How much should I budget for a tenant turnover?
Here are some general guidelines as well as our philosophy when approaching tenants and turnovers with properties we personally own.
I for one, am happy when a great tenant stays in my property for a long time. One of the biggest frustrations tenants experience is when a landlord kicks them in the pants (so to speak) on their way out of the property by nickling and diming the tenant for every little charge. Some rental owners expect to not have to put any money into their property when a tenant moves out. They expect that the tenant’s deposit will cover everything. And if it doesn’t they get upset. Consequently, they also experience a lot of struggles over time with their rental. I believe these owners get frustrated simply because they are not prepared for the turnover and they don’t have the right approach.
Here are a few points to consider with maintaining your rental. You should be budgeting 10-15% of all gross rental income to go towards maintenance and repairs. And that may not even always cover larger capital improvements such as the roof and remodels.
You see, savvy investors plan on replacing carpet every 5-7 years, and even change out carpet to hard surface flooring to extend this timeline. They also budget to repaint every 5-7 years.
When it comes to turnovers, effective landlords will typically require the tenant to clean the property, have the carpets professionally cleaned, and have damages fixed. That said, if the tenant has been there for 2 years, they may thank the tenant (and avoid vacancy) by offering free cleaning now or when they move if they renew for another year. Or they simply won’t be super picky when the tenant moves out. They will plan on freshening up the place by recaulking, doing some paint touch-up (at their expense), sprucing up the yard, taking care of wear and tear items as well as even some items the tenant caused. Yes, I said effective landlords even budget to repair some minor tenant caused damages. Now why would they do that? Well, it reduces vacancy costs (which is the big killer of ROI) by increasing the average tenancy stay, making their property more attractive, having happier tenants which increases referrals, and frankly, it’s just the right thing to do to take care of their customer.
So how much should you budget for a tenant turnover? Unfortunately there’s no magic number or formula as each property varies, but one rule of thumb some investors use is to plan on putting a half to a full month’s rent for each year it’s leased back into the property at each turnover. Picture it as putting a little money into your retirement account. You can’t make money in mutual funds unless you keep putting money into it. With rental property, you have to put money into it, but you also get the advantage of the tenant and the market putting money into your property. That’s the trifecta of rental wealth creation!
With that, I hope you have minimal tenant turnovers, but when they happen, you will now be better prepared for them.
Thanks for watching, and take care!