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Resident Retention – A Turn Costs What? – By Jen Piccotti

Posted on 01. Feb, 2014 by in all

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Turnover. We’re always going to have it. In some cases, turnover is good – saying goodbye to a delinquent or unruly resident who sucks up valuable staff time and resources. Some cases are uncontrollable – a resident is relocating to a new cityor state, or they are buying a home. But most turnover is not only bad, but something you can directly control. Let’s break that statement down.

Most Turnover is Bad

In the 2012 NAA Survey of Operating Income and Expense, the average national turnover rate was 54%. This number has remained fairly consistent over the past several years, but the bottom line for our industry is that on average a community has to replace half of its customers every year.

Traditionally, our industry has accepted this with the thought that the units can always be leased again at a higher rate. A higher rental rate equals more income, right? Wrong.  Here’s why:

 

Move-Out Costs

   
Assumptions: Average
Average Rent*

$1,115  

Average vacancy   loss days

20

Average concessions

$16

Calculations:  
Vacancy loss

$743

Concessions*

$16

Leasing staff/time   cost

$170

Marketing,   advertising/rental  
  referral/locator fees/leasing commissions

$881

Hard turnover costs   (cleaning,  
  painting, repairs, misc. costs

$886

Maintenance staff   time/cost

$165

TOTAL

$2,811

Source:  SatisFacts Research – www.satisfacts.com  
*Source:   Axiometrics – www.axiometrics.com – average asking rent and concessions as of   7/31/13  

Taking into account all of the costs associated with turning and re-renting a unit, on average, a community loses $2,811 every time a resident chooses to leave your community. In some markets, this number is much higher, and if we look at tough economic times, you’ll see this number got up to over $4,000 per turn.

Even if you can re-rent that unit for $100 more per month, it will take over 28 months (that is more than two years) to re-coup that move-out cost. (By the way, how many of your residents stay for more than two years?)

If we apply that move-out cost to the NAA’s report that the average national turnover is 54%, that means an average 300-unit property loses $455,382 every year! (162 turns x $2,811)

On the flip side, if you are able to reduce your community’s average turnover by just 4% (that is saving one notice to vacate per month for a 300-unit property), you’ll be adding $33,732 to your bottom line ($2,811 x 12).

As we’re wrapping up budget season, I don’t know about you but I’d personally like to have that additional $33,000 to work with!

Most Turnover is Something You Can Directly Control

According to the 2012 SatisFacts Index, residents were asked why they were not “Very Likely” to renew their lease. Here is the breakdown of the top reasons.

As you can see (and no surprise), there is a high percentage of residents who say their decision is due to financial reasons. Other top reasons have to do with a perceived lack of response by the office staff, whether it is handling complaints about their neighbors or returning calls and emails same day or not reacting to pest control issues. While it’s tempting to step onto my usual soap box and preach the all-importance of providing an exceptional customer experience, I’m going to address the financial issues head on. The reason?

I know we have all used this as the easy excuse, the irrefutable explanation of why a resident simply had to move. “It was too expensive. They just couldn’t afford it any more.”  Buh-loney.

In her article, “Can You Afford to Lose 67% of Your Residents, Lia Nichole Smith writes that all residents expect beyond a shadow of a doubt that there will be some kind of rent increase each and every year. It is up to us as community teams to make it worth it – to demonstrate Value. The challenge has been that we haven’t had a solid definition of how residents define value…until now.

Based on a recent study conducted by SatisFacts andBallStateUniversity, the top five factors that impact a resident’s perception of value are:

1. The “Sense of Community” you feel among residents and the staff

2. Appearance and condition of your apartment

3. Appearance and condition of building exterior

4. Safety and security

5. Responsiveness and dependability of the staff

If this is how residents perceive “value” than we have to be honest with ourselves and evaluate how we really do in these areas.

Do you consistently:

  • Make a concerted effort to learn the names of your residents and their families and then use their name at every interaction? Do you ensure they know yours? (Sense of Community)
  • Ensure that long-term residents of five plus years get the updates they deserve, or do they have to beg for a carpet cleaning, touch-up paint, or a stove whose burners all work all the time? (Appearance and condition of apartment)
  • Clean and freshen up the exterior of every building, especially the entrance, every day? (Building exterior)
  • Enforce community rules and regs with actual consequences and communicate safety information when informed of potential threats or trends? (Safety and security)
  • Return calls and emails same day and follow through on your promises? (Responsiveness and dependability)

Each of these factors are things that community teams can directly control. But you don’t have to try and change everything overnight. Choose one thing. Challenge your team to focus on that one thing together. And if you really don’t know what will impact your residents the most, ask them.

Most turnover is indeed bad. But most turnover can be directly controlled by you and your team.

Jen Piccotti is Senior VP of Education and Consulting at SatisFacts Research and a blogger at Multifamily Insiders.    Reprinted with permission.