Delinquency and Turnover - C Property

[Sanjeev Vij]

Hello, I have owned a 1972 built, 40 unit apartment deal for little bit over a year now. It's a typical C property in a working class C+ area managed by local property management that deals in multi family. Our average monthly rent is $775 + utilities for 2BR, 1Bath. We have onsite leasing & maintenance staff for few days a week. Our current delinquency rate is 8% of annual collections and annual turnover rate is 70%. Some of this was anticipated during first 6 months since property had management & maintenance issues & was a value add deal. However In last 3-4 months, we are evicting tenants that my management company put in place in last 6 months. I feel our turnover rate & delinquency rate is too high & we are not retaining tenants. My management company claims tenant screening is an automatic process based on minimum criteria of income should be minimum 3 times monthly rent & it does not mean leasing agent is not doing a good job screening tenants. For those of you who manage typical C deals, this size or over...I would like your thoughts if these delinquency & turnover rates are normal in a C deal. In your experience, what might be the issue? Any other clues that can help me drill this deeper. Thank you.

[Matt W.]

Your question is much better answered by looking within. What is the typical turn over, eviction, and delinquency rate for C properties in your vicinity? This will help guide you to see if your management company is doing a good job. While application criteria is good as a pass/fail, the acceptance standards need to be tweaked at least yearly to reflect the tenant pool and market. Would tighter standards leave you with more vacancies unfilled or would it increase retention? Again, only market data can help that question.

Not that it is the same as your situation, but in Los Angeles, the rents I charge are purposely kept under market to minimize turnover costs. On top of that, LA has a very low vacancy rate right now. Across my managed portfolio of several MF locations I'm seeing delinquency of less than 2%, maybe filing 2-4 evictions per year, and turn over is around 13% mostly due to job location or familial changes. My rents are not top of the market but neither are my vacancy/turn costs. After a full analysis of income vs expense vs time vs effort, I feel I am running a very balanced operation.
-Matt