Managing Resident Turnover
- Jun 05, 2014
For most property management companies, how well resident turnover is managed is a huge part of the profit picture. There’s no more critical component in managing turnover than simply and effectively anticipating those turns.
Apartment buildings anticipate a 50 to 60 percent renewal rate, says Trudy von Keudell, property manager at Coast at Lakeshore East in Chicago.
If 30 leases are up for renewal at the end of June, it’s not uncommon for 15 of those to renew and an equal number to not renew. Those 15 residents may be buying a home or being transferred by their employer, or leaving for some reason having nothing to do with the building. “So you have to anticipate resident turnover,” she says. “If you’re not, you’re not being realistic.”
Anticipation is vital because best practices in managing turnover start before residents move out, says Shailene Casio-Smith, vice president of Austin, Tex.-based residential property management company FirstService Residential Realty. The property shouldn’t experience a mass exodus in one month or in the middle of its lowest leasing season. Ensuring it doesn’t “helps manage the property’s turn costs, so there’s not a spike in expenses, or a dip in NOI,” she says. “A lot of your lease optimizer software programs manage that for you.”
Many property managers find it helps to do as much pre-planning as possible, so they’re ready to hit the ground running when a current resident departs. “We try to get the client to allow us to do a pre-departure inspection so we understand the full scope of work we have to do,” says Dylan Pichulik, CEO of New York City-based XL Real Property Management, which manages individual apartments in small buildings for absentee owners. “That way we can line up all the necessary equipment, labor and materials we’ll need.”
Von Keudell follows a similar tack. “The moment the person relinquishes control of the apartment, it’s time to rock ‘n’ roll,” she says. “As soon as those keys are turned over, we want contractors picking them up within the hour.”
The contractor has plenty of notice, because at Coast, residents are expected to give notice at least 60 days out of intention to move. When they do, von Keudell sends an email to give the painting contractor 60 days’ notice.
Speaking of pre-departure inspections, there are essentially two reasons for conducting such reviews, says Nick Alicastro, vice president of business development at Irvine, Calif.-based Western National Property Management. First, he says, departing residents should know what they will and will not be charged for. Second, it’s crucial to evaluate the needs of the unit. “Regardless of who pays, the work needs to be done,” he says. “If the resident is vacating May 30th, I can have someone in there June 1st doing the work, and have that person done by end of day June 1st.”
Numerous financial considerations are impacted by resident turnover, Alicastro reports. Property management should ensure turns take place in such a way as to minimize the number of days the unit sits vacant. If you can cut an average of 10 days vacant to five, you’ve obviously become more cost-efficient. “To accomplish that, you need an in-house team to do the work, and a well-oiled leasing team to know when they can move that new tenant in,” he says. “That leasing team needs to be doing everything they can to mitigate that leasing loss.”
Another concern is balancing the advantages of available make-ready inventory against the cost of that inventory. Some companies hire vendors to turn 10 units in three days. But the cost is high if those units are not already leased, and may not reflect an owner’s cash flow goals. Some owners may take longer, perhaps 15 days, to turn over units and thus save on cost, he says.
Alicastro is another who stresses the importance of staggering move-outs. Doing so allows your on-site team more flexibility in scheduling work throughout the month. It also allows more work to be completed in-house and less work by vendors. “It gives them breathing room, reducing the vacancy loss,” he says.
“The ability to have the teams turning units throughout the entire month increases the chance the units will get done in a shorter period of time, because they don’t have 20 units to deal with all at once. They may only have five.”
Casio-Smith recommends adopting a consistent standard for the make-ready units that will be viewed by prospective residents, and training the entire team to deliver to those standards.
“What that does is keep the maintenance team in a consistent rhythm,” she says. “And it will reduce the man hours to turn a unit.”
Speaking of man hours, she also urges installing hard surface flooring throughout apartments as budgets allow. “That saves on carpet replacement costs year over year, and will save a day from turn time,” she says.
Quick and effective
Resident turnover can be made still more expeditious by alerting residents to management’s expectations, according to von Keudell. “We make an effort to educate residents,” she says. “We conduct a move-in interview with each resident, spending 15 to 20 minutes with each one, on the front end, to educate them on issues for which they might face possible charges. That helps.”
Residents are also given a move-out document, informing them of how management expects them to return the apartment. “If you educate residents on things that could cost money, they’re more likely to not cause a problem, and they generally give units back to us in really good condition,” she says.
At XL Real Property Management, Pichulk has found that his company can make resident turnover flow more quickly and economically by leveraging buying efficiencies. “We can access economies of scale for items like painting, using for instance a universal paint color that allows us to get volume discounts on paint,” he reports. “Our mission is to source the best vendors we can in smaller shops— whether painting or floor refinishing—that will give us the most immediate response. With bigger companies there tends to be much more bureaucracy involved. And that can mean longer turnarounds.”
Asked what resident turnover management lessons they’ve learned over the years, our experts wasted no time ticking off a number of them. Experience has taught Casio-Smith, for instance, that less costly apartment make-ready services aren’t always the best option. “It’s easy to romanticize the cheap rates, but it doesn’t always mean you’ll get quality service,” she observes. “And it could mean they have to go back a second or third time, wasting your turn days. The rule of thumb is just to vet your vendor’s pricing to make sure you’re comparing apples-to-apples service, and that you continue to get competitive pricing.”
Along similar lines, it’s imperative that management thoroughly inspect work that’s been completed, Pichulik says. “If we have to go back and make additional tweaks after the tenant moves in, it adds significant complications,” he reports. “Those include cost, time and scheduling, as well as the risk you face having trades in there working while tenants are also there.”
Alicastro’s number one lesson learned? Make-ready units rent.
“It’s old school, but time and again we take over buildings, they have low occupancy and are suffering from low leasing velocity,” he relates. “We ask how many units are made ready. And there’s none. Residents and customers want to see the unit they’re going to rent, look at the carpet they’re going to get and see how their furniture will fit in. They’re more likely to engage with property management if they can picture how they will live in the unit.”
The ultimate advice may be to limit the number of turnovers that have to occur in the first place. “We’ll get notice of a resident’s intent to move, pick up the phone and ask, ‘Why are you moving?’” says von Keudell. “And a couple times a month, we’ll save a resident by finding out exactly what their needs are and matching our apartment homes with their needs.”