This blog was originally published on Jan. 13, 2020 and has been revised
Recently, we had a reader ask us how they should think about Google Ads, and other online apartment marketing tactics, when you are mostly leased up and in a pretty solid position as a community. Given the strength of the industry at this time, this is a relevant question for many communities.
There are five main questions to be thinking about with marketing when you have high occupancy numbers.
- Are our rent rates too low?
- Are our leases stacked?
- How are individual floorplans performing?
- How can we use scarcity as a marketing tactic?
- Are we using this time to consolidate our marketing and prepare for more difficult periods in the future?
We'll talk about each of these questions in more detail below.
Are our rent rates too low?
Before you even think about marketing tactics during a period of high occupancy and stability, you should first ask yourself why you have high occupancy rates. If you have market-rate rents and just have a really spectacular, in-demand community with occupancy rates in the high 90s, that's great. But if you are charging below market-rate, then high occupancy numbers can actually mask major losses in potential revenue.
For simplicity's sake, we'll work with some numbers below to illustrate this point.
- 100 units
- $750 per month rent (market-rate)
- 94 units occupied
- Monthly rent revenue: $750 x 94 = $70,500
- 100 units
- $715 per month rent (below market-rate)
- 98 units occupied
- Monthly rent revenue: $715 x 98 = $70,070
Though Community B has an occupancy rate 4% higher than Community A, it is actually making less money in monthly revenue because it's rent is below market-rate. Granted that in this case it is marginally less money, but when shifting this same scenario into larger 200 or 300-plus unit communities, these small shades of difference can add up quickly.
If you want a tool for thinking about this issue a bit more carefully, try thinking a bit differently about occupancy. We tend to focus on physical occupancy because it is easy to calculate—take the number of occupied units and divide by the total number of units.
That said, as we just showed, it can obscure more than it reveals. A better approach is to take your actual monthly rent revenue and divide it by your total number of units times market-rate rent for those units. Basically, you are dividing your actual revenue by what your revenue would be if you rented every unit at market-rate rent.
So the formula would look like this:
Actual Rent Revenue / (Number of Units x Market-Rate Rent)
If that seems a little hard to follow, let's look at our two hypothetical examples from above.
Community A's actual rent revenue is $70,500. Their maximum possible rent revenue (assuming market-rate rents) is 100 x $750, which equals $75,000. So their economic occupancy can be found by dividing $70,500 by $75,000.
70,500 / 75,000 = 94%
The physical occupancy number and economic occupancy number for Community A are both 94%.
Now let's compute the same numbers for Community B. It's actual rent revenue is $70,070, while their maximum possible rent revenue (assuming market-rate rents) is also $75,000.
70,070 / 75,000 = 93.4%
So in this case, the physical occupancy of Community B might be 98%, but the economic occupancy is only 93.4%. In other words, they may be renting more units, but they are leaving a lot of potential revenue on the table.
To repeat, here's how you'd figure out economic occupancy:
- First, find your actual monthly rent revenue.
- Second, determine how much revenue you would make if you rented every unit at market-rate prices.
- Then divide the first number by the second.
To be sure, there can be some ambiguity on this as you might have a range of prices that would be considered "market-rate." That said, you can still learn something valuable from this exercise: High physical occupancy at the cost of discounted rent rates is usually a losing proposition for your community.
If you have high occupancy but you've gotten it by charging cheap rent, then you don't need to be thinking about optimizing your marketing during a boom time by making small changes because you actually aren't in a boom. You're just using cheap rent rates to prop up your occupancy numbers and conceal more basic issues with your community's marketing and leasing strategies. So you need to be thinking about improving your marketing in more basic ways, so that you do not need to charge such low rent rates.
Don't forget about move-out dates.
Before we leave this topic, we need to raise one more issue. As we have already said, many communities simply calculate occupancy by taking the number of occupied units and dividing that by the actual number of units offered. This means if you have 100 units in your community and 94 are occupied today, you have an occupancy rate of 94%.
We have already noted that you should think about rent rates and occupancy rates when evaluating a community since high occupancy numbers arrived at via below-market rent rates may actually hurt your community rather than help it.
However, we also need to think more carefully about how we define physical occupancy. Let's go back to our two hypothetical communities again:
- Community A has 94 occupied units out of 100, but they have not leased any of the six vacant units, and they also have received notice on nine units. This means that in the next 30 days their occupancy could drop to 85% if nothing changes.
- Community B has 94 occupied units, but has signed leases on four of the six vacant units. They also only have three units coming vacant in the next 30 days. Depending on move-in dates, their occupancy may be trending up in the near future.
While both communities have similar occupancy rates in one moment of time, their immediate futures look dramatically different. This is another factor to consider when you are making marketing decisions. Community A is about to be in a lot of trouble. Community B, in contrast, is looking pretty good. These two communities are going to be making major decisions about advertising spend, what floorplans to push prospects toward, and even what rental rates to set. If they understand not only where occupancy is, but where occupancy will be, then they can make good decisions. If they neglect the trends and do not think about the future, however, they could potentially make some major mistakes. This is why it's important to consider upcoming move-outs when assessing current performance, too.
Are our leases stacked?
The above section leads us naturally into a second key question to consider. If you have too many leases expiring around the same time, then you can see major swings in your overall rent revenue. We have seen this happen a number of times. A community is going along at 97% occupancy and feels really good about themselves. Then a ton of units vacate when peak leasing season hits, and suddenly their occupancy numbers are in the high 80s and everyone panics.
Once that occurs, finding a quick fix to the problem becomes very difficult. All you can do is try to lease those units again and do a better job of staggering your leases so that you don't end up in the same spot 12 months later.
However, if you are proactive about this and check ahead to see if you have too many leases ending simultaneously, then you can plan ahead a bit and hopefully reduce the damage this might do to your community. For example, if you look ahead and see that a large number of leases for the same floorplan end on the same day, you can start emphasizing that specific floorplan in your advertising. You can also start building digital ad campaigns to promote that floorplan.
Ideally, you'll generate a larger number of leads than you would ordinarily need which will allow you to then flip a lot of the vacated units quickly and reduce the damage done by a huge number of units coming vacant at the same time.
Of course, the best way to solve this problem is to stagger your lease end dates so that more of your leases expire at the best time for you. We have found that many communities stumble into this problem because they haven't thought of alternative ways of setting leasing terms when they are first signing a new resident. Many communities simply say that the lease will end on the last day of the month 12 months after the lease begins.
The problem here is obvious: Since all your leases signed in a given month have the same expiration date, you're batching all your vacant units. This is especially a problem during high-leasing months. It's also how you get the familiar multifamily pattern of frantic days in the office at the beginning and end of months and relatively slower times during the middle of the month.
There is a better way to manage this: Schedule leases to expire 365 days after they are signed, regardless of what time of month it is. Your move-in dates will vary a bit and this system will allow your move-out dates to vary more as well, which means you don't get hit with a ton of vacated units at the same time.
If you are concerned about overworking your team and you want to bundle your lease expiration dates a little bit more, you can do that too: Just go 365 days forward and then make the vacancy date either the two Sundays before or after. This not only gives the former tenant a weekend to conduct their move-out, it also sets your property manager up to be able to walk the unit and begin preparing it for showings, or move-ins, first thing Monday morning.
Smarter leasing terms will help make life much easier for your leasing team and will likely help increase profitability at the community by cutting down on unnecessary vacancy time.
How are individual floorplans performing?
Having high overall physical occupancy is great, but that number is probably too general to help you draw any firm conclusions about how your community is actually doing. To figure that out, you need to break things down a bit more and ask questions about how individual floorplans are doing. Are some floorplans more full than others? Are some charging higher or lower rates than others? Does one floorplan in particular have a lot of leases ending in the near future?
By breaking things down a bit and looking at things on a floorplan-by-floorplan basis, you can learn much more about how your community is performing and make any necessary plans to help you be prepared when things start to get choppy again. Maybe you need to start pushing one particular floorplan more aggressively in your digital ad campaigns. Or you need to change rent rates on a floorplan. The point is that you'll have a better idea what adjustments to make if you know where specific issues are, or are likely to arise if left unaddressed, at the floorplan level before they reach impacting the community level.
How can we use scarcity as a marketing tactic?
If you have high occupancy numbers that can allow you to play up the scarcity tactic more in your marketing. This is something you can do in many different places:
- Marketing copy in digital ad campaigns or on your website can emphasize how quickly you rent units, encouraging searchers to act quickly. (However, you have to be careful with this, to avoid looking gimmicky or untrustworthy.)
- You can make availability a visible feature on your website.
- Leasing agents can also use this during tours. If, for example, you are leasing units after only a couple showings, you can use that information to encourage a prospect to act quickly to sign a lease.
To be sure, you need to be careful about how you use scarcity because you can easily slip into something that feels very manipulative and you obviously want to avoid that. This is especially true if you have already received poor online reviews. If people see what looks to them like manipulative marketing tactics and they see a lot of bad user reviews, that could easily scare them off from renting with you.
That said, it's totally reasonable to tell a prospect, "Hey, if you want this unit you need to act now because it'll be leased within 24 hours," if that is actually true.
Are we using this time to consolidate our marketing and prepare for more difficult periods in the future?
The basics of online apartment marketing aren't that difficult:
- You need a community website.
- You need floorplan-specific videos and photos.
- You need floorplan-specific landing pages.
- You need defensive campaigns in Google Ads.
- You need to set up your Google My Business profile.
You need those things to just have a basic online apartment marketing platform these days. Walkthrough videos are especially valuable when you're near 100% occupancy as they show units that may not currently be available for showings. Having marketing tools like this can enable you to pre-lease units and cut down on overall vacancy duration.
That said, there are plenty of things you can do to optimize your marketing strategy:
- You can use structured data to make your site more searchable.
- You can get HTTPS set up for your community and corporate sites.
- You can write marketing copy to highlight specific values your community offers.
- You can build complex tracking systems for monitoring leads and web traffic and to give your marketing and leasing team more data to guide their work.
These more advanced tactics, however, take a bit more work to develop. So at some point when your community is on firm footing, it is ideal to begin working on these more advanced marketing strategies. The long-term payoff could be great for your community.