Tenant Turnover Model

1. Turnover Cost Components

1.1 Direct Turnover Costs (Per Suite)

Recommended Model: Use $975 (mid-range) as base estimate.

1.2 Direct Costs by Suite Tier

Larger suites incur proportionally higher turnover costs:

1.3 Vacancy Costs (Lost Revenue During Turnover)

Industry average vacancy between tenants: 2-4 weeks

Recommended Model: Use 3-week vacancy as base assumption.

1.4 Continued Fixed Costs During Vacancy

Even when vacant, the facility incurs fixed costs allocated to that suite:

Note: Occupancy costs (rent) continue regardless — not included as "turnover cost" since paid whether vacant or not.

1.5 Onboarding Costs (New Tenant)

Owner time valued at $50/hour opportunity cost

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2. Total Turnover Cost Summary

Per-Suite Total by Tier

Cost Breakdown Visualization

Standard Suite Turnover Cost: $2,230
├── Direct Costs (38%)     ████████████████░░░░░░░░░░░░░░░░░░░░░░░░░ $850
├── Vacancy Loss (38%)     ████████████████░░░░░░░░░░░░░░░░░░░░░░░░░ $855
├── Fixed Costs (7%)       ███░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░ $165
└── Onboarding (16%)       ███████░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░ $360

Executive Suite Turnover Cost: $3,080
├── Direct Costs (45%)     ██████████████████░░░░░░░░░░░░░░░░░░░░░░░ $1,400
├── Vacancy Loss (37%)     ███████████████░░░░░░░░░░░░░░░░░░░░░░░░░░ $1,155
├── Fixed Costs (5%)       ██░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░ $165
└── Onboarding (12%)       █████░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░░ $360

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3. Break-Even Tenant Tenure

How Long Must a Tenant Stay to Recover Turnover Costs?

Formula:

Break-Even Tenure = Turnover Cost / Monthly Margin

Impact of 6-Month Minimum Term Policy

*NPV = (Min Term - Break-Even) × Monthly Margin

Key Finding: The 6-month minimum term ensures profitability on every tenant across all tiers. Executive suites have the thinnest cushion (0.3 months / ~1 week).

Recommended Minimum Terms by Tier

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4. Turnover Rate Sensitivity

Industry Benchmarks

Annual Facility-Wide Turnover Cost

Using blended average turnover cost of $2,561 per suite: (8×$2,230 + 5×$2,495 + 3×$2,760 + 2×$3,080) / 18 = $2,428

*At 85% occupancy ($228,372 annual revenue)

Impact on Portfolio Margin

Each 5% increase in turnover reduces margin by ~1%.

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5. Retention vs. Turnover Decision Matrix

The Retention Question

When a tenant signals intent to leave, is it better to:

1. Let them go and find replacement (incur turnover cost)
2. Offer incentive to retain (reduce revenue but avoid turnover cost)

Break-Even Retention Discount

Formula:

Max Discount = Turnover Cost / Remaining Retention Months

Scenario: Tenant leaving at end of 6-month term, potential 12-month retention if incentivized

Interpretation: If you can retain a Standard tenant for 12 months with a discount under 15%, retention is more profitable than turnover.

Retention Incentive Options

Decision Matrix

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6. Turnover Cost Reduction Strategies

6.1 Minimize Direct Costs

Estimated Direct Cost Reduction: $200-350 per turnover (20-35%)

6.2 Reduce Vacancy Duration

Target: Reduce average vacancy from 3 weeks to 1.5 weeks = 50% vacancy cost reduction

6.3 Improve Tenant Quality (Reduce Turnover Rate)

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7. Turnover Financial Summary

Key Metrics

Annual Operating Budget Allocation

Based on 85% occupancy = $228,372 revenue (rounded)

Turnover Impact on Tenant Lifetime Value

Using Standard suite at $1,234/month, $675 costs, $2,428 turnover

Key Insight: A tenant staying 24 months generates 9.3x the net margin of a 6-month tenant after accounting for turnover costs.

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8. Recommendations

Policy Recommendations

1. Maintain 6-month minimum for Standard/Plus/Large
2. Consider 9-month minimum for Executive suites (thin margin cushion)
3. Budget $9,000/year for turnover costs (~4% of revenue)
4. Target 15-20% turnover rate through quality tenants and service

Retention Investment Guide

ROI Calculation:

• 5% turnover reduction = 0.9 fewer turnovers/year
• Savings = 0.9 × $2,428 = $2,185
• Investment = 18 × $200 = $3,600
• Net cost of retention program: $1,415/year
• But: Reduced vacancy, less owner time, better community = intangible value

Operational Takeaways

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Turnover Model Complete - Phase 7 Unit Economics Finished Ready for SUMMARY.md creation and Phase 8: Facility Financial Model