A fourplex is a landlord's job. A twenty-unit community is an operating business, and the owners who struggle with one are usually running the second like the first. The rent roll looks full, the bank balance drifts, and nobody can say exactly where the money went, because the numbers that would say are not being kept.
This is the tenth article in a series on how to read your own building. The earlier articles were mostly about office, retail and industrial. This one is for owners of multifamily communities of twenty units and up, where the same discipline applies but the numbers that matter are different.
Three things, and they arrive together.
Turnover becomes constant rather than occasional. With four units, a move-out is an event; the owner handles it over a weekend and the building is full again. With twenty-four units, several turn every year, and in many communities a unit is turning most months. Turnover stops being an event and becomes a process, with a cost per turn and a number of days per turn. Both can be measured, and both drift upward when nobody is measuring them.
Leasing becomes a weekly function. A vacant unit needs a listing, showings, applications, screening, a lease and a move-in, every time, and the units do not wait for each other. That is a pipeline, and a pipeline needs someone whose job it is, whether that is an on-site manager, a leasing agent or a management company. An owner fitting it in around another job is the most common reason units sit.
The expense ratio replaces gross rent as the number that describes the property. At four units the owner knows the building's costs in their head. At twenty-four, repairs, turnover, payroll, utilities, insurance and tax add up to a share of collected rent that moves from year to year, and that share, not the rent roll, tells the owner whether the property is performing. A community with rising rents and a rising expense ratio is standing still.
Economic occupancy. Physical occupancy is units occupied divided by units. It is the number on the rent roll on the first of the month, and it flatters every community. Economic occupancy is rent actually collected divided by the rent the community would collect if every unit paid full rent every day. Vacant days, concessions, bad debt and units sitting between tenants all come out of it. The gap between the two is the number most self-managed communities never see.
Make-ready cost per turn. Paint, flooring, cleaning, repairs, appliances when they go: everything spent to take a unit from move-out to rentable, divided by the number of turns. Track it per unit and per year, because it tells the owner both what a turn costs and whether units are being handed back worse than they were let.
Days vacant per turn. From the day the keys come back to the day the next tenant's rent starts. It is the number that most rewards attention and most punishes its absence, because every day of it is rent at full price. A unit that takes five weeks to turn instead of three has lost two weeks of rent, which on a $1,500 unit is $700, and the community does that many times a year.
The operating expense ratio. Total operating expenses divided by collected rent. It is the multifamily version of the per-square-foot sheet from the third article, and it does the same job: a trend about this property, not a market average.
The figures are illustrative, not a property we manage.
A twenty-four-unit community, every unit at $1,500 a month. The rent roll says $432,000 a year, and on the first of most months twenty-three units are occupied, so the owner thinks of the property as about 95 percent full.
Twelve units turn in the year. Each turn, as the owner runs it, takes thirty-five days from keys back to rent starting, and costs $2,600 in make-ready and about $300 in listing and screening.
Collected rent comes to about $402,000 against a rent roll of $432,000. Economic occupancy is 93 percent, not 95, and the cost of turnover, $55,800, is about 13 percent of the rent roll.
Now the same community run as a process. A make-ready checklist and a standing contractor bring the turn to twenty-one days and $1,900, and the listing goes live the day notice is given rather than the day the keys come back.
Turnover now costs $39,000, about $16,800 less than before, which is about eleven months of rent from one unit. Nothing about the building changed. Two numbers were measured, and then managed.
The transition point, somewhere between a dozen units and thirty, is where most self-managed communities lose money without anyone deciding to. The rent roll stays full on paper. Vacancy loss rises underneath it. Make-ready costs creep because the same contractor is never asked twice. And nobody is tracking the gap between what the rent roll says and what the bank account received, because the owner is still reading the property the way they read the fourplex.
The fix is not necessarily a management company. It is the four numbers, kept monthly, on one page. An owner who can say what a turn costs and how long it takes is running a business. One who cannot is running a landlord's job at a scale where it no longer works.
Pull the last twelve months. Count the turns. For each, find the days from keys back to rent starting and what was spent to make the unit ready. Divide collected rent by the rent roll. Four numbers, one afternoon.
If you have never seen a make-ready cost per unit or a days-vacant number for your community, that is the place to start, and it will tell you more about the next year than the rent roll does. Whether the person running the property gives you those numbers unasked is one of the signs covered in the next article in this series.
Gain Property Group manages office, retail, industrial and multifamily property across Hillsborough, Pinellas, Pasco, Polk, Manatee and Sarasota counties. We also own commercial buildings ourselves, in other markets, so we read these numbers the way an owner does.
If you own a multifamily community of twenty units or more in Tampa Bay and want its four numbers put next to the communities we manage, request a free management assessment. In writing, no obligation, whether or not you change managers.
This article is general information about commercial and multifamily property operations. It is not investment, legal or tax advice.