Executive Summary & Author’s Note

When I first published this analysis of Total Cost of Risk (TCOR) for rental housing, the focus was on unifying insurance premiums, retained losses, risk-control investments, and administrative overhead into a single metric risk and finance leaders could use to guide portfolio decisions. That framework drew on established definitions of TCOR from industry sources such as APTA and other risk management literature, which concentrate on insurable risk categories like property, liability, and workers’ compensation.^{[3], [4]}

Those traditional TCOR frameworks were developed primarily for corporate and commercial settings, where rent delinquency is not a core exposure. As a result, resident default risk is generally not included in formal TCOR calculations. In the context of multifamily and rental housing, however, resident delinquency and default have clear and recurring financial impacts that are documented across multiple sources—including rent payment tracking, eviction cost studies, and housing research.^{[1], [2], [9]–[15]}

These materials show that rent nonpayment, legal processes, move-out and turn costs, and collections outcomes create meaningful financial drag that is measurable over time and across portfolios. In multifamily, resident default shows measurable patterns in frequency, severity, and operational impact (as documented in eviction cost research, lender credit analyses, and delinquency data), giving it characteristics that are similar to other risk exposures rather than functioning purely as a routine operating expense.^{[1], [2], [11]–[15]}

This revised edition of the article updates the TCOR lens to reflect that reality. It proposes an expanded definition of TCOR for rental housing that adds the full lifecycle cost of resident default—unpaid rent and fees, utilities, legal and court costs, turn and make-ready, concessions, collections, and uncollected bad debt—to the more familiar components of property and liability risk.

Importantly, the underlying structure of the original piece remains intact. The premium, geographic, and illustrative TCOR uplift examples are unchanged and continue to reference widely cited industry sources for pricing trends, per-unit costs, and capitalization-rate math.^{[1], [5], [6], [8]} What this revision does is extend the framework so that resident default is treated as part of the same conversation, rather than as an unrelated collections or operating issue.

The result is a TCOR model that is better aligned with how financial exposures actually manifest in modern rental housing operations. It allows risk and finance leaders to evaluate initiatives that reduce default-related losses—such as fraud controls, screening, early intervention, and turn-time improvements—inside the same value-creation engine they use for premiums, retention, and loss prevention on the property side. The quantitative examples in the sections that follow remain illustrative in nature and are intended to show the logic and mechanics of this expanded TCOR view, not to represent a specific portfolio or empirical result.

In short, the original article argued that TCOR is an underused lever for NOI and asset performance in multifamily. This revision keeps that conclusion, but broadens the scope: once resident default is incorporated into TCOR, the potential impact of disciplined risk management on NOI and asset value becomes both more comprehensive and more transparent.

Executive Context: The Perfect Storm

Risk executives in rental housing are navigating a convergence of pressures: insurance premium increases since the early 2020s, carrier retrenchment in catastrophe-exposed regions, data fragmentation across legacy systems, evolving regulatory requirements, and persistent resident delinquencies and skips. Industry surveys and regional analyses suggest that many of these pressures reflect structural shifts in how risk is priced and capital is allocated, rather than short-term anomalies.^{[1], [2]}

From Expense to Investment: The TCOR Framework

In most corporate risk management frameworks, TCOR is defined as the sum of insurance premiums, retained losses (such as deductibles and self-insured layers), risk control investments, and administrative overhead.^{[3], [4]} In these models, resident default losses do not appear as a TCOR component; they are typically reflected elsewhere in financial statements.

That structure may be appropriate for many corporate portfolios. In rental housing, however, resident default has several characteristics associated with risk exposures: it produces measurable financial impacts over time, shows patterns linked to asset type and market conditions, and is influenced by policy choices, operations, and screening practices documented in industry and academic research.^{[1], [2], [9]–[15]}

Reframing TCOR for rental housing therefore means consolidating both traditional insurance costs and the full lifecycle cost of resident default into a single metric that can be managed, optimized, and communicated to investors.

Geographic Realities: Where Risk Bites Hardest

Premium levels and volatility vary significantly by geography. While national per-unit averages provide a helpful benchmark, properties in coastal and catastrophe-exposed markets frequently encounter materially higher insurance costs than comparable assets in less exposed regions, as reflected in lender commentary and insurance expense reports.^{[2], [5], [8]}

Market Dynamics You Can't Ignore

Recent years have brought sustained increases in property insurance rates for many multifamily owners, followed by indications in some segments that the pace of those increases may be moderating. At the same time, concerns about liability, litigation, and exclusions continue to influence program design and pricing.^{[1], [5]}

Resident Default Risk: The Missing TCOR Line Item

In standard TCOR practice, resident default risk is usually treated as an operating matter—captured under bad debt, legal costs, turnover expense, or miscellaneous write-offs—rather than as a defined risk category. In rental housing, this convention can obscure a distinct source of financial variability that is closely tied to rent payments, household resilience, legal processes, and property operations.^[9]–[15]

Even in well-run portfolios, resident default—driven by fraud, skips, lease breaks, chronic delinquency, and post-move-out bad debt—can represent a meaningful share of financial drag. Because these losses are dispersed across financial, legal, and operational line items, they rarely appear in a unified risk dashboard and are often discussed separately from insurance and retained losses.

For portfolios with average rents in the mid- to upper-range and non-trivial levels of delinquency, internal analysis frequently shows that fully loaded default costs can represent a meaningful share of effective gross revenue. In some cases, these costs can exceed what appears in a single “bad debt” line item, once legal, turn, and administrative components are incorporated.^[9]–[15]

Quantifying Resident Default into TCOR

To bring resident default into a TCOR framework, operators can use an approach that parallels traditional loss analysis:

1. Aggregate the fully loaded cost of resident default (lost rent and fees, utilities, turn, legal, collections, and internal time) for the last 3–5 years.
2. Normalize those costs on a per-occupied-unit and percentage of effective gross revenue basis, by market and asset class.
3. Consider what portion of that cost could be:
   • reduced through screening, fraud controls, engagement, and process improvements; and
   • transferred or financed via structured arrangements that an operator judges economically acceptable.
4. Incorporate the resulting resident default metrics into TCOR dashboards and board reporting alongside premiums and retained losses.

Once resident default is brought into the TCOR framework in this way, it typically emerges as one of the more visible levers for improving the stability and predictability of NOI, especially in portfolios where delinquency and turnover pressures are material.

Operational Inefficiencies: The Hidden Drain

Many rental housing organizations encounter similar challenges when pulling together the information needed for risk decisions: data relevant to claims, exposures, resident behavior, and collections is spread across multiple systems; renewal documentation requires substantial manual effort; and limited integration makes it harder to see patterns across insurance and resident default experience.

Board-Ready Metrics: Speaking the Language of Value

Risk executives are increasingly expected to explain complex risk dynamics in terms that boards and investors can connect to capital allocation and NOI. In multifamily, that conversation naturally spans property risk, liability, and—when TCOR is expanded—resident default and collections experience.

Strategic Approaches: Premium-Only vs Comprehensive TCOR

The gap between traditional premium management and comprehensive TCOR optimization isn't incremental—it's transformational. Nowhere is this more visible than in how portfolios manage resident default risk.

The Human Factor: Leadership Under Pressure

Behind every TCOR initiative is a leadership team balancing multiple demands. Risk executives in rental housing are managing expectations for cost discipline while premiums have been volatile, working to protect residents and assets while carriers refine terms, and modernizing systems while operating with lean teams. Increasingly, they are also being asked to address the volatility of resident default without undermining renter affordability or brand reputation.