We live in a very complex and economically challenging time in the real estate investment and in revenue continuity and managing of tenants and in real estate investing. There is a new standard and science in the leasing of vacant apartments, single family homes and commercial store fronts, while investors, landlords and investors must also remain agile and proactive in keeping current residents engaged and in place.
The challenge for landlords is that when you have renters in your apartments that aren’t paying rent, you’re not optimizing your rental revenue which devalues your property due to the CAP formula used in the industry to determine what your building is worth. And in simplest terms, if you don’t have enough money coming in, you literally can’t pay the bills, your mortgage or your investors. So what are the best investors and landlords doing to respond to these trying times?
The main focus is to maintain a high, stable occupancy rate as this is the ideal standard of a well-run and attractive apartment building for returns and reselling. With the onset of COVID in 2020 and the ups and downs in the economy, it hasn’t been easy to keep tenants in place and paying rent consistently due to job loss, economic downturn, lockdowns and all of the challenges that COVID brought with it. Before COVID became a factor, as long as rents weren’t absurdly high, investors rarely had to do more than keep the building looking and operating well – and to keep the roof in good condition to avoid rent loss and significant repairs. Since then however, nearly every major market has had occupancy rates north of 95% due to the shortage of housing, fear of recession and the pervasive instability of social, economic and rise of mortgage rates -as well as the lack of confidence in our banking system.
But the carefree times have come and gone, and circumstances have changed as has the profile of the typical renter. With the massive number of homes under construction and apartment buildings and units scheduled to deliver throughout 2023 and 2024, the multiunit sector will be tested in terms of occupancy and a tidal wave of commercial debt is coming due which may DOUBLE interest rates and debt service for many multiunit owners! Nouveau Enterprises expects occupancy to fall nationally by about 25 basis points this year. That’s significant — but it could get worse, as the rate could likely drop even further earlier in 2024.
Every multifamily owner and operator today, must conduct a full assessment and audit of their portfolio and renter strength data in order to identify and respond to potential occupancy and revenue issues, both today and in the future. The team at Nouveau and our peers have identified the following ways to prepares apartment buildings and keep rental investment portfolio occupancy strong and growing in good times and bad.
Multiunit Investor Takeaways
- Honestly analyze how you’re marketing your properties and the profile of your local renters.
- Ensure your prices are competitive and split test rental concessions in advertising to attract new and better-quality renters.
- Be sure to keep track of current multifamily loan rates to secure the most advantageous terms for your property investment and forecast your refinancing timeline as rates are two to three times rates from two years prior.
- Maintain your buildings to attract stable renters and make sure they look great, both in individual units, lobbies and common areas.
- Create robust relationships and commonalities with your current residents to improve retention.
- Verify you’re getting the best financing terms.
Step 1: Evaluate Your Marketing Channels
Effective marketing and guerilla advertising is obviously essential for attracting new renters. Honestly assess whether what you’re doing now is effective? Think of new ways and modern approach methods you can market your available units:
- Utilize online listing services
- Use social media ads and brand building
- Use local property lease websites
- Use print advertisements
- Schedule open houses and existing tenant events to build trust and confidence in your property
- Utilize public signage around the building and in local venues
You know where you’re advertising. You should also know if your overall marketing strategy is working. If it isn’t, it’s time to change your strategy, notice what’s working for the best local operators and properties and use their approach to see if it will work for you!
The question is however, do you know which components are working, and which aren’t in your marketing strategy and campaigns? Moreover, do you know your numbers, your vacancy rates, utility charges, and upgrades to increase rents and decrease vacancies? Do you know when the next tax assessment and insurance cost increase is coming….and it will come, it’s just a matter of when! You don’t need a complicated promotional branding process, but you need to track and document where your leads and promotions both converted into residents and those that didn’t came from. What is your contingency plan if you find the need to cut your marketing costs in the future based on which strategies and campaigns work and which did not? Throwing money away on ineffective methods is a poor way to run a business and if you’re not prepared and don’t know your best performing promotions and dogs, you won’t know how to make the most effective moves to reduce expenses without sacrificing the results of the methods that work for you.
Not sure where to start? I’d recommend reading the approach offered by the folks at ‘Rent Prep’ as a start which looked behind the curtain on the five time tested methods as well as vacancy tips and tricks to improve results.
Step 2: Verify that Your Pricing Is Competitive
This is Captain Obvious material of course. However, as rental rates continue softening across most of the country, you may be hesitant to lower your rents. That’s entirely understandable, and while you may need to eventually reevaluate your rental rates, it’s okay to utilize rent concessions if you’re above a 5% vacancy rate or you’re turning more than 20% of total units per year, as these are signs of a weaking retention rate and your vacancies and rental income loss over the course of the year.
Rent concessions are any one-time waiver involved in the leasing process. Because they aren’t recurring with each month’s rental payment, you’ll make up the costs of these over time with retention, and slowly increasing rental rates as you stabilize tenancy and property attributes.
Some examples of common rent concessions include:
- Waiving application fees
- Offering the first month’s rent for free
- Providing gift cards or other rewards as “move-in special” enhancements
- Allowing flexibility in lease terms and conditions
- Offering free trash, fitness memberships or utilities as appropriate
The key is to remain financially responsible and cost-conscious about what you’re offering. In the end, and based on your market and local competition, you may need to examine adjusting your rents as well and find new revenue streams which could include laundry, trash pick-up, storage space among other options. This is a decision you must make carefully but remember – a unit with lower rent income still generates far more money for you than an empty apartment or single family home.
Step 3: Keep Your Building Well Maintained
This is the issue we see with most of our clients we consult with and in the units we buy and have to improve before we can activate any of the principles noted here, as apartment buildings with no visible issues attract more renters and lease rates than those that need maintenance. Residents today desire a low-stress renter experience and knowing that you or your property manager are on top of maintenance and repairs is essential to showcase and compete in today’s highly competitive market. This most often doesn’t require a major renovation. The first step however is an honest assessment by someone with fresh eyes that can see things you don’t see as you’ve been there for years and may not see what potential renters see. So, walk the halls of your property, take pictures, notes, survey your tenants and ask what they love and don’t like about your property. Check out the common areas and the outdoor spaces. Inspect the parking area. Document all issues and potential opportunities to improve, minor or major, and address them immediately – and tell your tenants that you’re making improvement – but don’t break your word if you do!
Keep your individual units well maintained as well. If a resident has moved out, don’t just give it a basic cleaning. Be honest with yourself. Does everything in the apartment look brand new? (Hint: The answer to this question is always no.) You don’t have to gut-rehab a lightly worn apartment, but a fresh coat of paint and replacing the blinds or carpet, bathroom sink/toilet may be just the thing to make your unit stand well apart from the crowd.
Step 4: Maximize Your Resident Relationships
Don’t forget about your current residents! It’s far easier to keep a resident than it is to find a new one. It’s also considerably less expensive. If you manage your property yourself, ask yourself what your residents wish your community, or their apartments had. If you use a third-party property management company, ask them how they would answer the same question. One of the areas that hurt property owners most often by the way is a poor property manager who adds no value for you or your tenants.
If they can’t answer this clearly, you’ve almost certainly got some work to do. Don’t underestimate the importance of checking in with your residents to ensure they’re having a great experience living in your building. Don’t overdo it and ask for problems of course, but checking in with them quarterly is a great way to check their happiness quotient and to measure their potential to release so you can better manage your promotion process for new tenants.
You can’t give every resident everything they want, and in our experience, we wouldn’t recommend doing that anyway. But, if you understand that you have unsatisfied renters, justifiably or not, you can plan accordingly and proactively address vacancy issues before they become issues.
Summary-
Occupancy isn’t a mystery or difficult to manage if you have a plan, process and are prepared.
It’s easy to measure, and it’s relatively straightforward to address. However, the longer you hold off identifying the source of your occupancy challenges and identifying the best way to remedy them, the more you stand to lose. As we move through 2023 and 2024, occupancy will begin to soften, especially in those markets with major construction activity and new growth, especially if mortgage rated recede. What we’ve learned and teach our client that we consult for is that you’ve got to be prepared to act to keep your apartment complex in a strong revenue and lease position.
Thankfully, it’s not all that difficult to prepare, and most of it is common sense. Above all, don’t just look at your building as an investment, but view it through the eyes of your renters — prospective and current.
Top Client Questions-
What are the best strategies for increasing apartment building occupancy?
The best strategies for increasing apartment building occupancy include offering quality amenities, such as a community garden or updated fitness center equipment and keeping up with the competition by making necessary renovations. Additionally, you can command higher rents by offering quality amenities and services.
What are the most effective ways to market an apartment building?
The most effective ways to market an apartment building depend on the target demographic and the budget available. Potential marketing efforts could include online paid advertising and social media, local radio and television ads, fliers, and sponsorships of local organizations and events. For apartments geared toward college students, campus-wide promotions may also be ideal. Adding amenities such as a community garden or replacing fitness center equipment can also be beneficial.
What are the benefits of offering incentives to tenants?
Incentives can be a great way to attract tenants to your property. Offering incentives can help you stand out from the competition and make your property more attractive to potential renters. Some of the benefits of offering incentives to tenants include:
- Reduced Vacancy Rates: Offering incentives can help you fill vacancies faster, reducing the amount of time your property is empty and increasing your rental income.
- Increased Tenant Retention: Offering incentives can help you retain tenants for longer periods of time, reducing the amount of time and money you spend on tenant turnover.
- Increased Rental Rates: Offering incentives can help you increase your rental rates, allowing you to make more money from your property.
Incentives can come in many forms, such as discounts on rent, free amenities, or even free rent for a certain period of time. It’s important to consider the cost of the incentive when deciding what to offer, as well as the potential return on investment. For example, offering a free month of rent may cost you more than offering a discount on rent, but it could also help you attract more tenants and increase your rental income in the long run.
How can I make my apartment building stand out from the competition?
You can make your apartment building stand out from the competition by investing in upgrades and adding amenities. This could include something as small as adding a community garden or replacing fitness center equipment. Additionally, you can command higher rents by offering quality to your residents.
What are the most important factors to consider when setting rental rates?
When setting rental rates, the most important factors to consider are the average rental rates in the target area, the expenses associated with the acquisition, and the historical performance of rent asks in the area.
According to Apartment Loans, it is important to try to match your property’s rent with the average rent price for the area and slowly adjust your rates to match the quality (or potential quality) of the asset. Additionally, it is insightful to calculate what the property will actually cost you — and then determine if the rent is enough to cover that.
According to Commercial Real Estate Loans, investors should make sure any property under consideration can collect enough rent to cover the expenses that go into an acquisition. A deep-dive analysis of the area should be done to gauge where rent prices may be headed in the foreseeable future.
What are the best ways to attract long-term tenants?
The best way to attract long-term tenants is to make sure you are selecting quality tenants. This means running background checks, reviewing rental history, and evaluating tenant income and credit. You may also want to consider creating a point system to help you pre-screen tenants for your final approval.
For more information on selecting quality tenants, check out this article from our Nouveau Enterprises professionals. Additionally, you can find more tips for new landlords here.
Call us at 727.304.3320 or email Nouveau Enterprises TODAY at nouveauenterprisesllc@gmail.com for a FREE consultation and more information about our services!