Pricing is certainly an influential factor for potential residents who are deciding whether or not they want to sign a lease at a particular apartment community, which is why it's common for many in the multifamily industry to lower pricing when they're experiencing an uptick in vacancies.
However, this key driver of your occupancy shouldn't also be an inhibitor preventing you from maximizing revenue.
To set prices that positively impact your community's bottom line, managers need a foundational understanding of the three components behind rent—base rent, unit amenities, and specials—which we'll explore in this blog.
Base rent is the uniform price applied to specific floorplans at your apartment community.
For example, if you apply a base rent of $750 for Floorplan 'A' at your community, then every single unit within that floorplan will start at that price. Any time you make a change to your base rent price, you must also change it for every single unit.
Base rent is not the final rent price for those units, however. The final rent price could be higher or lower depending on each unit's specific amenities.
Unit amenities can be either positive or negative differentiators for individual units within a specific floorplan type at your community.
Let's look at two imaginary units of Floorplan 'A'—one that's on the first floor of a building (Unit 102), and another that's on the third floor (Unit 303).
Both units have the same base rent of $750. However, Unit 303 has a vaulted ceiling because it's on the top floor, which new residents might be willing to pay more to have as they wouldn't have to deal with the sounds of people walking in the unit above theirs unlike the residents in Unit 102.
As a downside, Unit 303’s balcony overlooks the parking lot. Unit 102, on the other hand, has both an attractive view and easy access to the community's swimming pool.
Managers are responsible for assessing all of the amenities within each of their units, and then applying what they perceive to be an appropriate price for each based on the positive and negative differentiators.
Here's how that could look:
|Floorplan 'A' (Base Rent: $750)|
|Unit 102||Unit 303|
|Pool View/Access||+ $50||Parking Lot View||- $15|
|AC Unit Noise||- $15||Vaulted Ceiling||+ $15|
|Next To Garages||+ $10||New Laundry Appliances||+ $20|
|Final Rent: $795||Final Rent: $770|
Even though each of these units have a negative differentiator in this example, notice that the final rent price is still above the base rent price. This is why factoring unit amenities is an important part of setting rent pricing that maximizes your revenue.
There are two types of specials apartment managers can use—floorplan-specific discounts and unit discounts.
Floorplan-specific discounts, similar to base rent, apply to all units within that floorplan. When utilizing a floorplan-specific discount, it's key that you subtract your concession amount from the base rent of that floorplan and not the final rent price for each specific unit.
Unit discounts apply to individual units only.
The question is: how can a community maximize revenue while running specials? That's in a future blog post. For now, download and read our ebook Best Practices For Multifamily Revenue Management for more insights like this by completing the form below.