The real cost of an empty unit is not one month of rent

A tenant gives notice. The sponsor update says the unit will be re-leased within a month. It sounds like a small thing. One month of rent, gone once.

That is the line most owners carry in their heads. It is also the line that makes turnover look cheap.

Some context first. Yardi Matrix put national occupancy at 94.2% in July, down half a point from a year earlier. In the same report, the average advertised asking rent was $1,773 in August. Put simply, about six of every hundred apartments in its sample were counted as unoccupied. Each of those units is running up the bill below.

Here is that bill, in round numbers. This is an illustration, not a real property. Take a unit that rents for $1,400 a month, below the national average.

• Thirty days with no rent: $1,400.
• Make-ready, meaning paint, cleaning, carpet and small repairs before the next tenant moves in: $1,500.
• Marketing and leasing costs: $300.
• A half-month concession, a discount offered to sign the new lease: $700.

Total: $3,900. That is close to three months of rent for one turn. And the expenses that do not care about occupancy keep running. Taxes, insurance and the loan payment arrive whether the unit is full or empty.

Now compare the alternative. Say the old tenant would have renewed at $50 above their current rent. The owner pushes harder, lets them leave, and signs a new tenant at $100 above. The extra $50 a month adds up to $600 a year. At $3,900 per turn, it takes six and a half years to earn that money back. Most tenants do not stay that long.

This is why renewal rate matters as much as rent growth. A business plan that raises rents on every lease can still lose money if it pushes too many people out the door.

The same math scales up to value. Take the same example with 200 units at $1,400. If occupancy slips from 95% to 93%, four more units sit empty. That is $67,200 of rent a year. At an example cap rate of 6%, the yield buyers use to price a property's income, that lost rent removes $1,120,000 of value. Four apartments. Over a million dollars.

Concessions deserve a second look. A rent roll, the list of every lease in the building, usually shows the face rent. A tenant paying $1,400 on paper after a month free is really paying about $1,283 across a twelve-month lease. If the rent roll does not show concessions, the income is overstated before anyone does anything wrong.

Three questions worth asking a sponsor. How many days does a unit sit empty between tenants, on average? What does a typical make-ready cost, and how has that moved? What share of expiring leases renewed over the last twelve months?

None of these numbers appear on the cover page of an offering. All of them shape what the building actually earns.

When you read an occupancy figure, do you know whether it counts the units that are leased, or the units that are paying?