Establishing Rent Tiers: Low, Med-Range, High: Where Does Your Property Fit?
Managing sales, recruiting/training staff and attracting new owners are top priorities for professional managers. Naturally, your main focus will fluctuate at times with the pulse and rhythm within your perimeter gates. Establishing rent tiers for your multifamily community is considered the single biggest issue for many management teams. Creating a competitive rental tier structure is imperative for maximizing revenue streams and keeping retention rates high.
If you’re not exactly thrilled with your returns, or your vacancy numbers, reviewing your pricing schedules may help put your property back on the track for success.
Riding the Rent Rollercoaster
Rent rates go up and down with economic conditions. But, that isn’t the only thing driving rising and falling prices. Inventory shifts, commercial development and consumer trends also drive prices. It’s not uncommon for a property to have multi-layered rental structures. Willingness to adjust rates in response to market conditions and local happenings makes the ebb and flow less stressful for management teams and owners.
Tip #1: Unless your property targets a hyper-narrow resident pool (for example, only Section 8 or top one percent wage earners), it’s important to consider diverse financial needs when establishing prices. The norm, if there is such a thing, is to establish three distinct tiers, bottom-, mid-range-, and upper-income, with internal variables that include referral bonuses, renewal incentives and longevity discounts for loyal residents.
Overcoming Long-Term Vacancy Levels
Long-term vacancies eat away at profit margins. If you own or manage property in a declining area you’ll have to make some tough decisions. It’s difficult to think about dropping prices when you’re running at or below 90 percent occupancy. But, the longer a unit sits vacant the more your property declines, and the more money you’ll lose.
Conversely, an uptick in new apartment building can increase, or decrease, average rental rates. Zillow released a report in March 2015 that highlights the importance of understanding local tolerance levels. While the national apartment rental rates shot up almost 4% over 2014 numbers for the same period, Chicago and St. Paul/Minneapolis rates fell.
Tip #2: Utilize rent comparisons tools available with your property management software and keep a close eye on upgrades, promotional marketing campaigns and online reviews for competitors to gain a realistic snapshot of available housing.
Improvements and Upgrades
A survey sponsored by California based Tenants Together revealed some surprising details about tenant perception and rental rates. Most of the more than 5000 respondents renting single family homes owned by corporate entities felt their landlord was overcharging and about 20% reported their landlords failed to respond to repair requests for service, or made only minimal repairs.
Updating flooring and wall colors gives your property a fresh, inviting appearance which is very attractive for tenants. Before you make major renovations or upgrade appliances, consider touring a few competitor properties in your area to see what a prospect will experience from the moment they arrive at the property until they complete a walk-through. Seeing the competition through an apartment seekers eyes gives you valuable insight.
Tip #3: Balancing profit expectations and tenant perception is critical, especially if you’d like to increase rental rates.
Establishing a multi-layer pricing structure may bring your property more in-line with local inventory. Remember to consider the local economy, your target audience, condition and age of your property and competitor price tiers. It’s a balancing act, and one that often changes frequently. When it comes to rental rates, it’s a good strategy not to get too comfortable with your numbers. Sometimes dropping your rates may be just what you need to boost retention and occupancy rates, which ultimately may improve your revenue stream.
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AppFolio, Inc. develops Property Management Software that helps businesses improve their workflow so they save time and make more money. Appfolio submits articles & blogs including topics of Resident Retention, Improved Owner Communication, Time Management, and more.