Resident churn, or the cost of tenant turnover, can signiﬁcantly cut into your cash ﬂow. Once you know the economic cost of each resident, you’ll know why satisﬁed tenants add value to your business. You can measure the costs of resident turnover by calculating a "churn index."
The data needed to calculate the index is found in your monthly ﬁnancial statement. A good index will tell you the cost, in dollars, of losing a resident, as well as the annual cost of residents who are lost. On top of lost rent, what are your turnover costs?
Example: if each tenant turnover is costing you $4,000 and you have 10 empty units in your 100-unit property, you’re losing $40,000, despite your 90% occupancy rate. From the surface, a 90% occupied building seems like a healthy rental property, when in reality you’re losing $40,000 due to churn. Add in a result of the SatisFacts retention survey, where 60% of turnover is controllable with better customer service, and you’ve identiﬁed how you can reduce the 10-unit vacancy. By ﬁguring out your churn and identifying the most common cause of turnover, you’re able to make better decisions to keep residents happy.
Know how much churn is costing you. When costs are spread out in your expense categories, it’s hard to catch how much and where you’re losing money – this is why knowing your churn index will help you manage your property. It will clearly identify the costs associated with a turnover and tell you how those costs are cutting into your cash ﬂow.Stay tuned for More On the Economics of Rental Retention and How Keeping Residents Happy Drives Profit. In Future Newsletters, we’ll break down more on the economics behind tenant retention and look at how applying strategies to reduce turnover will have a positive impact on your profits, operating budget, and long-term success as a rental property manager.
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