Maintenance and Turnover in Apartment Investments
by Omar Ruiz
Maintenance and turnover in apartment investments are constant activities. Because maintenance and turnover are common expenses, it’s important to understand each one separately. Understanding maintenance and turnover in apartment investments by separating them individually, will tell you a story of how your property operates. It will also provide clues to how efficient it’s running or possible bigger adverse issues with management and/or operations.
This is a good topic to consider because while reviewing deals for acquisition, I still come across financials from properties on the market with maintenance and turnover as one single category item. Many years back, when I was first learning about the business of multifamily investing, maintenance and turnover were not differentiated. It was typically one main category of “repairs and maintenance” that everything was lumped in together. Over subsequent years as I learned more about the industry and the focus on improving operations stayed consistent, the practice of isolating turnover activities separate from repairs and maintenance became common practice among savvy operators and investors.
“Keeping maintenance and turnover separate will help determine if your apartments are operating efficiently”
As prices on apartments increased with more investors competing for deals, there needed to be improvements in operation efficiencies. In order to accomplish a value-add strategy of increasing rents within the shortest period of time, unit turnover became the important metric to measure, not just for this reason but for other reasons as well.
What’s the difference between Maintenance and Turnover?
The easiest way to differentiate maintenance from turnover is that maintenance is concerned with common area maintenance and maintenance of tenant occupied rentals. For example: when a tenant needs repairs for a clogged plumbing drain; bad electrical outlet; leaky faucet, etc. these are normal repair and maintenance items due to the unit being occupied by a tenant. These types of repairs are common and expected while tenants are occupying your apartment.
Turnover is related to activities and costs (work, labor, and supplies) having to do with preparing a vacant unit for a new tenant to rent. Tenant turnover is one of the most costly expenses because you not only lose out on the income from the unit being vacant, but you also spend money to get the unit ready for a new tenant. Depending on the condition the previous tenant left it before, you could be handling an easy turnover or costly turnover.
Why It’s Important to Keep Maintenance and Turnover Separate?
Keeping maintenance and turnover separate will help determine if your apartments are operating efficiently. This separation allows you to analyze maintenance and turnover individually and create a base model or benchmarks for better budgeting into the future. More importantly, knowing what your typical expenses are for these items will help you spot inconsistencies and anomalies that can alert you that a possible deeper issue festers underneath.
This helped us out on a property we noticed unusually high amount of turnover. On larger apartment complexes there’s regular turn-over, but we noticed above average turnover that troubled us. The main concern was that the turnover was for tenants that had not completed their one year lease on first move-in. We regularly visited to find out what was going on. As we inspected deeper and one clue leads to another, we eventually audited tenant files of past tenants. What we discovered was that even though the 3rd party management company was supposedly “certified”, they failed to properly train the onsite staff on tenant qualifying and lacked supervision of their tenant qualification practices. The onsite manager was leasing up apartments to unqualified tenants, to make the occupancy look good, but it was costing more in the end because eventually the tenants could not afford the rent. We had to pay to evict them and pay to turn over the apartments. Shortly afterwards we replaced the management company with a better company.
The same can be done with maintenance. If there’s a common pattern or a consistent type of expense in the maintenance category, it can lead you to determine if there’s a reason and if addressing that root cause can reduce or possibly eliminate that expense. On another property that had high plumbing expenses, we determined that old plumbing and obsolete design was causing issues for tenants and their neighbors below them. We decided to invest in upgrading the plumbing and re-building showers to prevent and reduce major plumbing issues in the future.
It’s good practice to differentiate your maintenance and turnover expenses, instead of factoring them together. Separating these two expenses will help you run a more efficient property. You will get a better idea of what the expenses are or should be. Separating maintenance and turnover may also alert you of possible adverse issue that may be affecting the operations and that should demand your closer attention.
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