The turn cost ate the margin before the second tenant was ever placed

Carpet on a 30-turn cycle is on a 3-year replacement schedule, not a 7-year one, and almost no reserve line reflects that.

The post is well-constructed, and the math holds. The vacancy drag reframe, annual to per-turn, is the right correction. A few things worth adding.

The assumption doing the most work is the exit cap application. Most coliving exits do not clear at a standard residential cap because the buyer pool is narrow. A buyer underwriting 30 turns a year at market labor rates is looking at a very different NOI than the seller modeled with free hours. That gap compresses valuation harder than a 10 percent EGI drop on a clean cap rate implies, because you are also compressing the buyer universe simultaneously. Fewer buyers means negotiating leverage shifts, and in a thin market the exit cap the seller assumes may not be the cap any actual buyer will accept.

The capital reserve structure is the risk you did not mention directly. Per-turn wear on carpet, door hardware, and fixtures should be reserved on a per-cycle basis, not an annual one. If you ran 30 cycles on carpet rated for, say, 5 years of normal use, the useful life collapses in ways a straight-line depreciation model will not catch until you are writing a check. A reserve built on annual assumptions against a per-turn wear curve will be underfunded at exactly the moment occupancy pressure makes it hardest to fund a top-up.

On the owner-occupant labor point: pricing your time at a market rate is correct, and there is a secondary effect. Owner-occupants who absorb operational load personally are often the only reason the model pencils. The moment life or a second property absorbs that time, the cost structure shifts faster than the income side adjusts. That lag is where margin goes.

What is the current reserve balance relative to per-turn replacement cost for the highest-wear items, and has that been stress-tested against a scenario where you hire out turns for six consecutive months?

The per-turn reserve is where I see models break most often, and most per-turn reserves are built on cosmetic cost only and skip the pro-rated share of bigger capital items that cycle fast under heavy turnover. A water heater or HVAC unit serving 18 rooms and cycling occupants 30 times a year does not wear on the same curve as a single-family home, and if the reserve line was sized using single-family assumptions, it is understated before the first turn happens.

The exit cap stress test you ran is the right frame, and the number that usually surprises sellers is how sensitive value is to vacancy-adjusted NOI at that cap rate. At 6.5 percent, every $1,000 of recovered effective gross income is worth about $15,400 in valuation, so the 360 vacancy days in your example, priced at $800 a month, is not a $9,600 operating problem, it is roughly a $148,000 valuation problem the moment a buyer underwrites it the same way.

What does your lease structure look like on term length, because a shift from month-to-month to a 90-day minimum moves the turn count materially and changes whether any of this math holds?