Rental Property Expense — Turn Cost
The largest frequent expense you will incur on a residential rental property is the “turn”, which is the cost to get the unit ready for new tenants. Many new investors are shocked by how expensive this can be. A common misconception is that tenants are expected to deliver a unit in rent-ready condition when they move out, and that you can charge them (by holding back their deposit) for anything that doesn’t meet that standard. Nothing could be further from the truth. It’s helpful to break down this expense by looking at the three different components of what contributes to the cost:
Tenant damage. Anything blatantly destroyed or damage caused by the outgoing tenants. Holes in the wall, junk left behind, missing light bulbs, doors falling off the hinges, etc. You will use their security deposit to pay for these items. This is usually the smallest component of the turn cost.
Normal wear and tear. Everything inside and outside a home wears out and breaks down over time. This is known as the “useful life”. Carpet and paint are the classic examples. You can’t expect the carpet and paint inside a unit that has been occupied for 4 years to be like-new, and if you attempt to charge the tenants for normal wear and tear, you will eventually get sued and lose. This is typically the largest part of the turn cost.
Previously-broken items. Many property owners who are not professional landlords attempt to charge tenants for items which were already damaged or inoperable when the tenants moved in. This could be because the property owners “inherited” the tenants (bought the property when it was already occupied), or the property owner may have simply overlooked them during the last turn.
When preparing or evaluating the scope of a turn, be aware of these three categories and how they can affect your overall cost.