The Importance of Unit Turns In Apartment Investing

When investing in apartment syndications, whether actively or passively as a limited partner (LP) it is important to know and understand the key successful factors from the property management team. First of all, the property management can make or break the investment opportunity by either underperforming to the plan or executing with solid performance. One of those key execution factors is reducing turn time when units are vacant.

As you may know, vacancy is a silent threat to gross potential income (GPI) and a huge contributor to the difference between GPI and Effective Income (Gross potential income minus concessions, loss to lease, vacancy, bad debt, etc.). To expand further, vacant units impact the net operating income for as long as there is no paying tenant. This highlights the importance of quick and timely turns of units.

When a tenant vacates a unit, it is now a non performing unit until it is cleaned, repairs are made, updates and improvements are made in accordance to the business plan and it is released to a new tenant, hopefully closer to market-level rents. The time that it takes for each of these things to happen is called turnover. The quicker the turnover, the lower the vacancy, the higher the net operating income and the happier owners are with the property management team.

Even as passive investors, it pays to know the property management team’s track record of performance. Know and understand your sponsor’s asset management skillsets and if they are not shared, asked what the current metrics are for turnover time in your current next investment.

What is not measured is not managed.

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Author: Rodney