When someone signs a new lease for your apartment community, how long do you typically hold the unit for them before their move-in day? Two weeks? A month, or longer?
For most apartment communities, it's likely a time period that was chosen years ago and has never changed. Static hold policies like these have been a traditional practice within the multifamily industry. But one problem of holding units the same length of time for every new resident is that you're also willfully accepting a longer vacancy duration than might be necessary between residents—which adversely affects every area of your community's operation.
A better alternative is to implement a dynamic hold policy that changes how long a unit is held depending on performance. There are two primary ways dynamic hold policies work to minimize vacancy and generate more revenue.
1. Dynamic hold policies reduce the number of vacant days between residents.
Every apartment community experiences a certain number of vacant days between one resident moving out of a unit and a new one moving in.
We recommend separating that time period into two parts to better understand how changing the hold policy affects average vacancy duration.
The first is the initial number of vacant days that occur between when the resident moves out and when a rental application is received for that same unit. Your marketing and rent prices impact how long this takes.
On the other hand, the second time frame, consisting of the number of vacant days that occur between rental application and move-in, is only impacted by how long a community chooses to hold a unit for an applicant before their scheduled move-in day.
That means that if your community's average vacancy duration is higher than you'd like, there could be multiple different culprits, and that one of the simplest solutions towards reducing the total amount of vacant days is changing your hold policy.
Let's run through a scenario to show why this is the case.
|Average Vacant Days||45|
|Hold Policy||30 Days|
Community A's current hold policy of 30 days is significantly impacting the average number of vacant days occurring between residents. The community appears to be more focused on getting a unit leased rather than reducing the average number of days between residents.
By holding units longer than necessary, it's not able to truly capitalize on its strong occupancy as every single day of vacancy accrues more lost revenue.
It's clear that Community A needs to reduce how long it's willing to hold a unit for a new resident. There's no right or wrong hold duration, but here's an example of how a dynamic hold policy that changes along with occupancy may look like:
|Example Dynamic Hold Policy|
|Occupancy||Maximum Hold Period|
One objection we’ve heard to reducing the hold policy is that it might turn away prospective residents. If a community is unwilling to keep the unit available for prospects until their desired move-in date, they may look elsewhere for a community that will.
The truth is, that may happen at times. But it shouldn't be considered a negative, especially as the hold policy is only shortened when occupancy is stable. You can afford to have a few prospective residents slip through the cracks when that is the case. Your main objective should be to further improve occupancy by having more new residents move-in more quickly so that you're not penalizing yourself with longer vacancy durations.
2. Dynamic hold policies work to stabilize occupancy over time.
Contrastingly, when your community is struggling, extending rather than reducing your hold policy is a smart, problem-solving solution.
Though this may seem counterintuitive to the argument that adding days to your hold policy creates unnecessary longer vacancy durations, in instances where you're facing a potential vacancy crisis, you can't afford to lose a single prospective resident who wants to sign a lease.
That is why it's important to think of a dynamic hold policy as a tool that works to stabilize occupancy over time.
Occasionally, you may have to increase your hold policy so that you can occupy more units. You can begin to incrementally decrease how long you hold units as occupancy stabilizes.
Over a long period of time, you will see that dynamically changing your hold policy, when appropriate, minimizes the overall average number of vacant days that occur between residents at your community and helps stabilize your occupancy rates across the board.
That is the beauty of applying a dynamic hold policy at each community! It can positively change your circumstances, strong occupancy or not.