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Why Property Managers Hate Turnover Too

Scott Pastel
Property Manager from Newport Beach, CA

On several occasions, I’ve had a rather inexperienced investor ask me the following question: “If property managers make money off of leasing the property to a new tenant, then don’t they want as much turnover as possible?” This is a huge misconception, and here’s why:
While it is true they collect a leasing fee to place a new tenant, typically around 50% of the first month’s rent, any disruption in their regular cash flow becomes a loss for them and can be a costly endeavor on their part as well. A typical rental will be vacant about 30-40 days between tenants. This represents a decrease in their annual income. Since their cash flow as a business is dependent on rent collected, they are incentivized to do whatever possible to keep a good tenant in place that has a record of on-time payments.
Property managers make the highest rate of return by renting to good quality tenants with a gross income of at least 3 times the rent that doesn’t require a lot of their time after initial placement. There is a category of tenant that calls to have every little thing fixed that most people would fix themselves. These nuisance tenants can take up a lot of the property manager’s time and are not ideal.
Some property management companies manage several hundred or even thousand properties. They can only do so by having an extremely efficient operation with minimal maintenance requests and little tenant turn over. There will always be some repair necessary of course, but usually, not more than a couple of service calls a year per property. I once had a tenant that would call the property manager every time a light bulb burned out. The service call to change a light bulb was $25.00. We finally solved the problem by supplying a box of light bulbs and informing them that light bulb changing was not a service covered by their rental agreement. The newer LED light bulbs may actually help reduce expenses over time. What a bright idea!
Tenant turnovers can also be costly depending on the property class of your rental. It starts with the property manager arranging for a professional cleaning service, carpet cleaning, gardening service, and painter if necessary. All property managers have a “go-to” vendor list for these services. These are people they have used before and trust to do a good job. It’s not unusual for owners to spend $500 to $2,000 or more to get a house “rent ready” in-between tenants, not to mention the loss of rent. Then the work of advertising, showing, screening, and setting up the new lease begins for the property manager.
A good property manager will always look out for your best interest which turns out to be in their best interest as well. While owners hate to fork out money to make their place rent ready, property managers prefer to not have to spend the additional time and overhead necessary to schedule, supervise, advertise, and show the property to prospective new tenants.
It is in everyone’s best interest to have a good tenant renew their lease and stay in the property! Less turn over means more profit for both owners and property managers. Make sure that your property manager only charges a monthly fee based on income collected and not during a vacancy, and remember that a good relationship with your property manager is key to maximizing profits.