Make Ready Costs
Most often seen on multifamily operating statements, ‘Make Ready’ costs refer to minor repairs and maintenance work to an apartment unit in order to ensure that the unit is in a suitable condition before being placed on the market and leased to a subsequent tenant. Activities included in this process range from cleaning services and painting to countertop resurfacing and trash removal.
Putting ‘Make Ready Costs’ in Context
Empire Student Living, a private real estate investment firm, recently acquired Big Red Commons, a 650-bed student housing complex near Cornell University in Ithaca, NY. The property is a mix of two-, three-, and four-bedroom furnished units, appealing primarily to undergraduate and graduate students.
Scenario:
Following the acquisition, Empire Student Living identified a significant opportunity to improve operational efficiencies and resident experience. One critical focus was “Make Ready Costs,” an essential line item in the operating budget. The firm observed that, due to high student turnover (common in student housing), nearly 80% of the units required turnover work annually.
Make Ready activities at Big Red Commons typically included:
- General Cleaning: Deep cleaning of kitchens, bathrooms, and living areas.
- Painting: Touch-ups or full wall repaints depending on tenant wear-and-tear.
- Furniture Repairs: Fixing or replacing damaged desks, chairs, or beds.
- Appliance Maintenance: Ensuring stoves, refrigerators, and microwaves were in working order.
- Trash Removal: Clearing leftover debris from outgoing tenants.
- Carpet Cleaning or Replacement: Addressing stains or wear.
Example Cost Analysis:
For the 650-bed property, with an annual turnover rate of 80%, approximately 520 beds (spread across ~180 units) required make ready work each year. The average Make Ready cost per unit was $400, broken down as follows:
- Cleaning: $100
- Painting: $150
- Minor Repairs: $100
- Trash Removal: $50
This equates to an annual Make Ready expense of:
180 units × $400/unit = $72,000 per year.
Operational Improvements:
To reduce costs, Empire Student Living implemented several strategies:
- Negotiating Vendor Contracts: Secured discounts with local contractors for bulk cleaning and painting services.
- In-House Maintenance Team: Hired a part-time maintenance technician during the high-turnover summer months.
- Resident Damage Policies: Introduced stricter lease terms to recover costs for excessive damage.
By reducing the per-unit Make Ready cost to $350, Empire achieved annual savings of:
$50/unit × 180 units = $9,000 per year.
Key Takeaways:
Make Ready costs are a vital consideration in student housing investments, where high turnover is the norm. By understanding and managing these expenses, operators can improve operational efficiencies, reduce costs, and enhance the property’s NOI.
Frequently Asked Questions about Make Ready Costs in Multifamily and Student Housing
What are Make Ready costs?
Make Ready costs refer to minor repairs and maintenance work needed to prepare a rental unit for a new tenant. These typically include cleaning, painting, trash removal, and minor repairs.
Where are Make Ready costs most commonly seen?
They are most often seen on multifamily operating statements, especially in properties with high turnover like student housing.
What types of activities fall under Make Ready expenses?
Typical activities include deep cleaning, painting, furniture and appliance repairs, trash removal, and carpet cleaning or replacement.
How did Empire Student Living manage Make Ready costs at Big Red Commons?
They negotiated vendor contracts, hired part-time maintenance staff for peak turnover months, and updated lease terms to recover damage-related expenses.
What was the cost impact of those changes?
Empire reduced per-unit Make Ready costs from $400 to $350, resulting in annual savings of $9,000 across 180 units.
Why are Make Ready costs important for NOI?
Controlling Make Ready costs helps preserve Net Operating Income (NOI), especially in properties with frequent tenant turnover, such as student housing communities.
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