Why It Matters
Turnover cost = Lost Rent + Repairs + Cleaning + Marketing + Leasing Fee. A typical single-family in Memphis: 1 month vacancy ($1,200) + $800 repairs (paint, flooring touch-up) + $200 cleaning + $150 marketing + $600 leasing fee (50% of first month) = $2,950. For a 6-unit, one turnover per year might cost $2,500–$4,000 per unit. Vacancy rate in your pro forma captures lost rent; operating expenses should include a turnover reserve—$200–$400/unit/year for typical tenant turnover.
At a Glance
- What it is: Total cost when a tenant moves out and a new one moves in
- Why it matters: Eats into NOI; must be budgeted in operating expenses
- Typical range: $1,500–$4,000 per turnover for single-family; $2,000–$5,000 for multifamily unit
- Reserve: $200–$400/unit/year in operating expenses for turnover
Turnover Cost = Lost Rent + Repairs + Cleaning + Marketing + Leasing Fee
How It Works
Lost rent. Vacancy period between tenants. 2–4 weeks is typical for a well-maintained unit in a decent market. 1–2 months in weaker markets or for value-add. At $1,200/month rent, 1 month = $1,200 lost.
Repairs. Paint, flooring repair or replacement, minor fixes. A 5-year tenant might leave more wear—$1,000–$2,000. A 1-year tenant might need $300–$500. Capex for full flooring replacement ($2,000–$4,000) is separate—turnover repair is routine.
Cleaning. Deep clean, carpet cleaning if applicable. $150–$300 typical.
Marketing. Listing fees, photos, signage. $100–$200.
Leasing fee. If you use a property manager, they often charge 50–100% of first month's rent for placing a tenant. $600–$1,200 for a $1,200 unit.
Total. $1,200 + $800 + $200 + $150 + $600 = $2,950 for a $1,200/month single-family. Multifamily: similar per unit, but you can amortize—6 units, 1.5 turnovers/year = 9 turnovers over 6 years. Reserve $2,500/unit × 9 ÷ 6 = $3,750/unit/year... or simpler: $300/unit/year in operating expenses.
Real-World Example
Indianapolis 8-plex. Average rent $1,100. You assume 1.5 turnovers per year (12 units × 12.5% annual turnover). Per turnover: 3 weeks vacancy = $825, repairs $700, cleaning $180, marketing $120, leasing fee $550. Total: $2,375. Annual turnover cost: 1.5 × $2,375 = $3,563. You add $450/unit/year ($3,600 total) to operating expenses as a turnover reserve. Your pro forma NOI drops by $3,600—but you're not surprised when Year 2 has two bad turnovers (damage, long vacancy) that cost $5,200. The reserve covered most of it.
Pros & Cons
- Predictable—you can estimate from market data
- Budgetable—reserve in operating expenses
- Reduces surprise—when turnover happens, you've planned for it
- Improves tenant screening—better tenants = less turnover = lower cost
- Variable—some turnovers cost $1,500, others $5,000
- Market-dependent—vacancy length varies by market
- Condition-dependent—older units need more repairs
- Can spike—bad tenant = damage, eviction, long vacancy
Watch Out
- Under-reserving: Sellers often omit turnover reserve from operating expenses. Add $200–$400/unit/year. A 10-unit with no reserve is $2,000–$4,000 NOI too high.
- Turnover rate assumption: Class C can see 20–30% annual turnover. Class A might see 10–15%. Use market-appropriate rates.
- Damage turnover: Eviction or damage can 3x normal turnover cost. Tenant screening reduces this—but have reserves.
- Capex vs. operating: Full flooring replacement every 10 years is capex. Touch-up paint and patch repair are turnover costs. Don't double-count.
Ask an Investor
The Takeaway
Turnover cost = Lost Rent + Repairs + Cleaning + Marketing + Leasing Fee. Typical $2,000–$4,000 per turnover for single-family. Budget $200–$400/unit/year in operating expenses as a turnover reserve. Tenant screening reduces turnover and damage—invest in it. Don't let sellers omit turnover from pro forma—recast with a reserve.