Why Vendor Leasing Loses Money

Money down the drain

Vendor leasing is like money down the drain.

The vendor gets unrestricted use of your space while you pay all the utilities, room maintenance, insurance, and taxes.

It begins with human nature. Ask almost any resident how much they spend on laundry and the answer will be 25% to 50% more than the actual per unit collection. People think they spend more than they do.

More interesting than that, however, is that residents include their laundry cost when computing their total rent. Which means that every dollar they actually spend on laundry is a dollar less spent on rent.

If residents think they spend $25 per month in laundry, then you lose that in rent. Even worse, what’s really happening is the vendor collects the $20 the resident actually pays, and gives you half ($10). Utilities cost $5 and indirect expenses take another $2. You make $3 and lose $25. If the competition offers in-unit laundry, the perceived costs to your resident is $25 less than the rental increase. You then lose more on discretionary turnover.

Vendor Leases Work for Vendors, Not Owners

Most vendor agreements are real estate leases for the space with a weird inversion of the “triple net” principal. They get unrestricted use of the space while the apartment owner gets to pay all the utilities, room maintenance, insurance, and taxes. This frequently includes both property taxes and the vendor’s personal property taxes.