Rent is an occupancy driver. In a lease-up, considering that you're starting out at 0% occupancy, setting the right rent prices is critical if you're hoping to reach your desired occupancy target in a healthy time frame.
The three components of rent—base rent, unit amenities, and specials—are still applicable when setting the pricing for a new apartment community and will be our primary focus in this blog.
However, there are some tactics to use for lease-ups that differ from methods used for manually setting or adjusting pricing at older communities. These tactics will not only help you maximize revenue, but also ensure that your rent prices won't lead to a major turnover crisis after your new apartments' first year of operation.
Video: How To Set Rent Levels For An Apartment Lease-Up
Base Rent In A Lease-Up
Base rent is not the final rent but rather the uniform price you set for each of the floorplans in your community. There are two primary methods of applying base rent in a lease-up:
- Compare similar properties in your portfolio to your new property and set prices accordingly.
- Evaluate pricing from other nearby properties that have similar floorplan styles and amenities to get a sense of what the market rate is.
It's important that you establish the market rent rate as your minimum number when setting prices at your new community. We wouldn't label a lease-up successful if the occupancy target was met by under-renting units.
In fact, you're safer setting rates well above market in a lease-up for the simple reason that your apartments are new, which helps generate a higher amount of leads. When setting higher rents, though, you must be willing to make adjustments if that pricing is slowing down your leasing velocity.
Pricing Unit Amenities In A Lease-Up
After you've set your base rent, the next crucial step is breaking down each of your unit's amenities and placing a value on both the positive and negative differentiators.
Unit amenities factor into maximizing revenue because when setting rent, there could be units in the same floorplan type that are more valuable than others. For example, one unit may have a beautiful balcony view of the community pool, while the other unit has a view of the parking lot. The unit with the attractive view has a different amenity that affects what it's final rent should be. For a more thorough approach to establishing unit amenities, download and read our ebook Best Practices For Multifamily Revenue Management.
In regards to unit amenities in a lease-up, one positive differentiator we'd recommend applying to every one of the units is that new residents would be the first to occupy them. This will help you raise the overall value of your units and generate better revenue during your lease-up.
Using Specials During A Lease-Up
Remember, in a lease-up your vacancy is 100%. That's why utilizing specials like "first month rent free" or "half-off rent for the first month" when you're opening a new apartment community is helpful because they work to minimize vacancy in an efficient manner.
Misexecuting your rent specials, though, can be detrimental during a lease-up because of the effects they could incur on your apartments a year after opening. When you're signing a high volume of leases in a shorter time period, unless you have a method of spacing out lease expirations, you're going to see more of them expire around the same time. If you offer overly aggressive specials that prevent those first leases from being net positive through their duration, then you'll be forced to send high rent increases in renewals.
Not only would that result in heavy turnover in year two, but also significantly hurt your new apartments' reputation as previous residents will let potential ones know that your pricing is unfair by leaving negative reviews on Google.
For more helpful insights, download and read our ebook How To Execute A Successful Apartment Lease-Up by filling out the form below.