Read this before investing in or acquiring an apartment complex

From working with individual apartment communities and various property management companies, we've learned that the sales transition process can be tricky and full of obstacles.

Much of the challenges arise from buyers not properly evaluating a community's entire operation before acquiring it. Being caught unaware of a problem becomes your problem, making the prosperous outcome you desire in acquiring that apartment complex harder to attain.

In this guide, we'll share our industry experience of what it takes to ensure a successful and seamless sales transition process for your property management company.

Continue reading if you're interested in:

• Knowing how best to evaluate the marketing, leasing, management, and revenue of an apartment community you're interested in buying.
• A helpful method for assessing rent at a prospective property that shows whether or not those apartments have historically been undervalued.
• What items within the purchase agreement your company shouldn't ignore.
• Developing a strategic launch process after purchasing an apartment community.

Evaluate the apartment community's marketing strategy

The first place to start is the community's marketing strategy, specifically its website and digital advertising. 

A poor marketing presence is a clear sign that a particular property is being held back from attaining long-term success, which should be good news for you, the buyer.

What to look for when reviewing an apartment website

It should be fairly easy to tell right away if a prospective apartment community's website is high or low quality.

Why is this? You, like most Internet users in general, have set high expectations for on-page experience (hence why Google has made it one of the top signals within the search engine’s ranking algorithm). Therefore, an evaluator should study the website as if they're personally looking for an apartment themselves.

Is the process of actually renting one of the apartments presented in a manner that's easy and seamless? Is it possible to gather all the details necessary to make the decision to rent the apartment based on the information and media content featured on the website?

At RentVision, we believe that apartment websites that provide a great user experience include a mobile-friendly design, floorplan-specific pages, walkthrough video tours, great media content, straightforward pricing and availability, and strategically placed Calls-To-Action.

Each of these essentials works in tandem to create a successful on-page experience. They make up the core of the templated design we build for our clients’ apartment community websites because they automatically facilitate the lead-to-lease generating process.

We recommend that evaluators use those essentials as rubrics. If an apartment community's website lacks one or more of these features, your property management company should be more confident in the acquisition because you know that improving the website could positively impact future revenue and performance.

Here's what to assess in each of those categories as you review a prospective property's website:

Is the community's website mobile-friendly?

Our current data across hundreds of clients’ community websites show that approximately 70% of all website visitors are from mobile devices! With this in mind, it is vital to check both the desktop and mobile versions of the community’s website.

The two experiences should translate seamlessly between devices and have the same functions present. If not (or if there’s no mobile site available), then that apartment community’s site may not be easily accessible for a majority of its target audience.

Are there floorplan pages or content featured on the website?

While many apartment websites offer a breakdown of each floorplan (or a diagram, at the very least), most still don’t build their sites with dedicated pages to each floorplan that let prospective residents gather all of the detailed information they’re seeking for that floorplan. 

After all, they want to know everything about a single floorplan—not about every floorplan that a community has to offer—as they likely have their mind made up on the bedroom count and rough size of a unit they are looking for. These pages should include the layout, photos, walkthrough videos, unit amenities, pricing, and availability. 

Check and see how they present their floorplan information. Is it all in one spot? Secondly, is it hard to navigate to? If you see photos, do you know which floorplan you are looking at?

Does the community website have virtual tour options or walkthrough videos?

Being able to see videos of units has become an expectation for apartment shoppers. This convenience allows prospects to see the inside of the units and amenities at an apartment community they're interested in from the comfort of their couch, which accelerates the leasing process. An apartment search can be incredibly time-consuming, and website features that save a shopper time will be much appreciated. 

The first thing to check, then, is whether or not the apartment community’s website utilizes walkthrough video tours. If not, you clearly know there’s an issue. If they do have them, though, are they featured for every floorplan? Do they actually show the inside of units, or is it more of an overview of the community and/or neighborhood area? 

Being able to make this distinction is important because simply having videos doesn’t mean they’re necessarily helpful or match the needs of prospective residents. At RentVision, we pioneered walkthrough video tours that provide viewers the desirable perspective of feeling like they’re actually ‘walking through’ the specific type of unit they’re interested in themselves, which we believe is more effective than community or neighborhood videos.

Does the community website have attractive, high-quality media content?

It’s important that the videos and photos featured on the apartment community’s website are visually appealing. This is because the part of the brain that is responsible for seeing is also responsible for making decisions. 

Unit photos or videos shot with an iPhone may give an idea of what your apartments look like, but they could be shaky or poorly lit. Prospects who react differently when viewing media content that's been professionally produced and edited would be aware of these imperfections. 

The other key thing to look for here is to see how well the media is organized and featured on the website. Do they have photos and videos dedicated to each specific floorplan that are labeled accordingly, or did they just put a bunch of random media content on one dedicated gallery page? This is a key question because prospective residents can be easily confused about which photos or videos feature the floorplan or unit they’re looking for when media content is presented that way on a website. 

You could significantly improve website user experience by pivoting to featuring great media content on floorplan-specific pages.

Does the website allow renters to apply or schedule a visit online?

This means having visible prompts throughout the website where a prospect can either call, email or schedule an appointment with the leasing agents at the apartment community in one click. Without them, the website is unable to truly work as a lead-to-lease generator because prospects will have to take additional steps to figure out a way to contact that community. 

For evaluation purposes, it’s again wise to look at the website as if you were the prospective resident wanting to rent an apartment and see if it has strategically placed calls to action that make it quick and easy to start the leasing process. 

Dig into the community's digital advertising strategy

The buyer will have an opportunity to see a financial review of that apartment community at some point during the acquisition process.

In it lies a key number that will help the evaluation process of that community's marketing: the amount the management team at the property has (or, in some cases, hasn't) spent on digital advertisements.

Knowing that number is helpful because it enables you to easily discern whether or not the amount of money spent on digital ads resulted in the online visibility the previous management company had hoped to earn.

The other value of reviewing a community’s ad spend is seeing a breakdown of the various marketing channels they’re funding.

One specific thing to check for is if they’re paying for one or more ILSs. That’s because the more they’re spending abundantly on an ILS, you will have the opportunity to save money because there are better, affordable strategies to advertise apartments than simply relying on an ILS to generate leases for you. 

Even if you don't happen to know a particular community’s ad spend, you can still do a quick Google search of it by name and do an audit of all of the links on the first few pages of the search results to get a sense of its digital ad strategy. Was the apartment community’s website prominently featured, or were there a slew of Internet Listing Service (ILS) or competitor property links above their link? Was the paid ad link at the top of the search engine results page for a different website? Is it difficult to find the correct website for those apartments? 

If any of the answers to those questions above are yes, you can assume their digital ad approach is ineffective and that prospective residents interested in that community are having a difficult time finding its website (which, again, is another area where you know improvement is needed).

Evaluating the community's leasing performance before acquisition

Now, let's shift the focus to how to evaluate the leasing and management of a property and discover if there are any problems that need to be addressed after acquiring it.

Mystery shop the apartment community

The most effective way to see how an apartment community handles the leasing process is to go through it as if you were a prospective resident yourself. There are three tactics we'd recommend you try:

1. Call the leasing office

This gives you a chance to evaluate how leasing agents at that community perform during phone calls. As these conversations are typically held with highly qualified leads, it's vital that the leasing staff executes them successfully.

Is your call answered promptly, if at all? Is there a way to easily leave your contact information should no one answer?

It's also smart to time the length of the call. If the conversation lasts less than a minute, it's probably because the leasing agent failed to gather your contact information, establish urgency, or set an in-person showing. 

2. Schedule and take an in-person tour

This next step lets you evaluate leasing agents' performance during tours by experiencing one yourself. You can judge their etiquette, communication, and selling ability.

Additionally, you can see how that community approaches in-person showings in general. Do they show occupied, modeled, and/or vacant units? Does the maintenance staff properly turn over those units before the showing?

3. Check how the leasing staff follows up with you post-tour

This will help you assess whether or not the leasing agents at that apartment community are trained to close.

After taking an in-person tour, the agent you interacted with should communicate with you to see where you're at in your apartment search and if they can be of any assistance.

If the agent follows up with you via email, it'd be ideal that they include links to the floorplan page or photos and videos of the unit you toured so that it could be shared with secondary stakeholders.

While you're evaluating leasing, check on the community's management

Go a step further while mystery shopping the apartments. During your in-person tour, take the time to review the condition of the units, amenities, grounds, and overall appearance of the property. This can give you valuable insight into the existing management at that community.

One particular thing to look out for are signs of deferred maintenance, or areas where there are obvious maintenance issues that haven't been addressed that your property management company would be responsible for fixing after acquiring the community.

It's also worth checking whether or not that community is staffed appropriately. Some properties could have more employees than necessary working on-site in the clubhouse, while others may have individuals handling multiple roles like managing, leasing, and bookkeeping. This can be helpful for understanding whether or not the staff has the capacity to do what is required of them in their roles.

This should include the count of maintenance personnel as well. Is there enough to address both the size and age of the property? Older properties with a high number of units should have more maintenance staffers than newer properties with fewer units.

Critical: Evaluate rent prices before acquiring an apartment complex

The last—and likely most important—thing to evaluate before acquiring a property is rent. Why?

Rent can illuminate a community's operation and performance because it is a primary contributor to many other things. If that community has a higher turnover rate, it could be a rent issue. If occupancy is consistently below target and they need to spend more on marketing throughout the year, rent may be the culprit, too.

In all areas, evaluators should look for signals that indicate the apartment community in the possible acquisition has been underperforming. But only after they've ascertained whether or not the rent is set correctly will they be able to know the specific things that'll need to be addressed to improve that community's financial situation truly.

Below is the best method to evaluate rent before acquiring an apartment community. While this method requires more detailed calculations and is a longer process than other areas of evaluation, completing this rent evaluation may help you generate thousands more in revenue annually.

1. Compare floorplans with the same bedroom and bathroom count

Only comparing floorplans with the same bedroom count and not properly taking into account the other distinct differences is a common mistake we've seen made here. Most know, intuitively, that a 2 bed/2 bath unit is worth more than a 2 bed/1 bath unit. As such, the only way you can evaluate rent—and know whether or not that property has been undervaluing itself—is to manually compare the listed rent prices of a specific floorplan at the community with the listed rent prices of a competitor's floorplan with the same bedroom and bathroom count.

The other problem with comparing floorplans by bedroom count only is that not all square footage is equal. Oftentimes, evaluators will just assume that if there’s a 1,000-square-foot unit at another property that rents for $1,000/month, or $1 per square foot, then the correct value for a 1,200-square-foot unit at the property they're acquiring should be $1,200/month, and so forth. This line of thinking isn’t true when comparing rents between properties because we typically find that larger units usually will rent at a lower price per square foot. 

2. Study how rent is set based on square footage

In order to truly evaluate rent, you need to study and find the differences in how the rent price of competing communities gets determined based on square footage and then use that as a standard to see whether or not the community you’re interested in acquiring is priced accurately. 

Here’s a scenario to help you do this correctly. Let’s say we’re evaluating the rent for the 2-bedroom/2-bath floorplans at four separate communities—the one you’re interested in, which we’ll call Ocean View Apartments, and three of its competitors (Palm Tree Flats, The Landing At Bayside, and Gulf Beach Apartments). 

To start, chart out the square footage of units in that floorplan from each apartment community, as well as the current rent for each. These two numbers will eventually help you calculate both fixed rent and price per square foot. The breakdown looks like this:

Ocean View has units in this floorplan that are 725 square feet, and they’ve set their rent at $805/month. Compared to the other properties, is this the right pricing? 

The answer is no, and we’ll explain why in the next section.

3. Calculate the incremental price per square foot

First, the units for the other properties compared above incrementally grow in size, which changes the incremental pricing per square foot. You need to be able to graph out what that incremental pricing per square foot increase is between each community. 

Here’s an equation you can use to do that: 

Incremental Rent / Incremental Square Foot Growth =
Incremental Price Per Square Foot 

For example, the incremental square foot growth between the 2 bed/2 bath units at Ocean View Apartments and Palm Tree Flats is approximately 75 square feet. Meanwhile, the incremental rent increase between those two amounts to $25. This means that the incremental price per square foot between those two communities is $0.33. 

$25 / 75 Feet =
$0.33

Continue calculating the incremental price per square foot accordingly until you have these numbers:

The incremental price per square foot increase between these communities varies. There are three separate values—$0.33, $0.20, and $0.78. Now, combine those prices and calculate what the average incremental price per square foot is for the 2 bed/2 bath units between those four communities. In this case, that equals $0.44, which is the number we’ll use going forward.

4. Determine what the average fixed rent rate should be (and compare to community's current rent price)

Next, you need to determine what the average fixed rent rate is for a 2 bed/2 bath unit at the competing properties of the one you’re looking at acquiring. The way to do this is as follows: 

Current Rent - (Square Footage x Average Incremental Price Per Square Foot)
= Fixed Rent 

Here’s how that breaks down: 

The fixed rent prices for those three example communities vary slightly. This is how it will look in most cases for you as you determine the fixed rent at other properties. Here, again, we can take the average, which amounts to $517.13. 

Finally, we can apply this equation to the example property we’re looking at, Ocean View Apartments, to evaluate what its rent rate should be: 

Average Fixed Rent + (Square Footage x Average Incremental Price Per Square Foot)
= Total Rent

$517.13 + (725 x $0.44) =
$836.13 

As it turns out, Ocean View Apartments is actually undervaluing itself because its current rent is $805, but it should be somewhere between $835 and $840. This indicates that you, the potential buyer, could feel safe about raising rent if you acquire the property and, thus, improve the financial situation overall. 

Think about how much of a difference $30/unit each month could make. If Ocean View has 50 2 bed/2 bath units on its property, that amounts to an additional $1,500 of rent revenue per month, or $18,000/year. Since this would all be profit, a 5% cap rate would add $360,000 to your property value! 

In a different scenario where the 2 bed/2 bath at Ocean View was priced much higher, you could do the exact same math above and learn that Ocean View Apartments was overvaluing itself. Perhaps Ocean View is struggling because competitor rent levels are more appropriate and, thus, are a more affordable and attractive option for most of Ocean View’s prospective residents. 

The point here is that when you’re evaluating rent, take the time to do some of this detailed math to know whether or not the property you’re interested in acquiring is priced accurately. Don’t assume that all square footage is created equal, when it’s not. Doing the math outlined above will help you evaluate the rent price situation you’d be acquiring and the revenue opportunities it may or may not offer. 

Conclusion

When acquiring an apartment community, a property management company should consider whether it has the capacity to improve its overall performance. 

After all, if the goal of any acquisition is to make a profit ultimately, shouldn't it be clear that there's an opportunity to do so?

Throughout this guide we highlighted areas within the other property's operation that you must evaluate in advance of the acquisition to ensure you're bringing issues to light where that community could be underperforming.

These pre-purchase evaluations can better equip your property management company to seamlessly transfer your marketing, leasing, management, and revenue operations to the newly acquired community and scalable grow your portfolio prosperously.