I have said it before and I will say it again, positive cash flow is king in the landlording business. My goal as a buy and hold investor is to try and maximize my cash flow. Over the years I have learned that there is one item that kills cash flow more than any other:
Tenant Turnover
When talking about tenant turnover killing cashflow, I am talking about all of the processes and costs involved in moving a tenant out of an apartment, fixing it up and moving another tenant in it. These processes and costs include:
- Administrative costs – The time and effort it takes to process tenants out and process new ones in.
- Advertising costs – Depending on your market, you may need to run print and web based classified ads, put up signs, hold open houses, etc.
- Showing Costs – Someone generally has to field the phone calls, set showing appointments, drive to the property and show it to potential tenants.
- Application costs – You have to run credit and criminal background checks, verify work and income information and process the application.
- Repair costs – Could be a biggie. Ideally you would be able to immediately re-rent the unit. But that rarely happens. There is always some amount of repair costs.
- Lost income costs – Of course when your apartment is vacant, it is not generating any cashflow at all, much less a positive cashflow!
Avoiding Tenant Turnover
All of these costs can add up quickly. So what can you do to keep tenant turnover as low as possible?
- Avoid yearly jumpers – Some folks, for what ever reason, just like to move around a lot. They will change addresses every year or so and you can see this on …read more