Right now is a really good time to be in the multifamily industry.
The demand for apartments continues to increase year after year which, in turn, has led to a consistent rise in the construction of new units. We're also witnessing record high rental rates across all marketplaces, as even bad operators have good occupancy.
But at some point, despite what all the current indicators or forecasts suggest, the market will turn. It's just a matter of when. Are you going to be prepared?
That's why in this 'right now', it's important to avoid becoming complacent—one of Warren Buffett's infamous 'ABCs' of business decay, "which are arrogance, bureaucracy, and complacency."
Here's the things to check to see if you're exhibiting signs of complacency with your apartment community. Your occupancy is strong and…
1. You haven't raised rents in several months.
Raising rent seems to be something that many apartment communities find hard to do because of the fear that it'll hurt their great occupancy, so they continually offer lower than market level rent rates to new tenants in order to maintain it.
The truth is, raising rent will temporarily hurt your occupancy. Price causes people to move-in and move-out, so it's likely your turnover rate is going to increase above normal levels after raising rents. However, raising rent is one of the best practices of revenue management you can take, especially when the market is this strong and your occupancy has been consistently above your target.
While there may be a temporary hit, apartment communities who raise rents at the right time set themselves up for long-term success. That excess revenue can be used to create a residential experience that keeps their community attractive so when the market inevitably turns in the future, it will still be able to achieve a strong occupancy with tenants paying above market level rent.
2. You're still spending a large portion of your marketing budget on an Internet Listing Service.
There are many hidden costs behind utilizing an ILS. One big hidden cost is that the ILS bids on digital advertisements in your name, stealing more needed traffic (and visibility) from your community website to theirs, where your apartments are featured directly next to your 100 nearest competitors. You're both competing with yourself and nearly every other apartment community in your location.
In order to have any chance of being prominently featured above the others, you may have to pay for a premium package that, consequently, locks you into months-long terms where you're left paying most of your marketing budget on an ILS even when your occupancy is stable. You may want to check what your cost per lease is with your ILS to gauge whether or not it's performing as you need it to. If it's pretty high, you may want to think about cutting it altogether and reallocate your marketing budget towards your best lease sources.
Investing in your own digital ads is a better and more sustainable approach for when the market turns, because they give you needed flexibility with your budget. We wrote a digital ad ebook that explains the same strategy we use when managing millions of dollars worth of our clients' apartment ads each year.
3. You hold vacant units for new residents longer than three weeks.
This approach isn't dynamic and, ultimately, is keeping you from maintaining a strong occupancy regardless of market conditions.
If you're focused on maintaining a strong occupancy, you need to avoid excess days of vacancy. One way to do this is to develop a hold policy that changes according to your community's current occupancy. For example, if your community is at 98% occupancy, your hold policy could be 14 days. But when your occupancy is below target, you can extend your policy to 21 days or longer.
Whatever you decide, try to avoid setting a static policy. Doing so minimizes vacancy, which is a good habit to have in a bad market.
4. You haven't invested in floorplan-specific content for your website.
When the market eventually does turn, what's going to differentiate your community from others? How will your apartments be able to attract enough residents for you to maintain your current occupancy?
The safest bet is investing in floorplan-specific content, such as walkthrough video tours, for your community website because most prospective residents want to be able to see the inside of your units before meeting with you. Walkthrough video tours will give you an important leg up on competing properties because others may not be able to provide them. Prospects who view the videos will feel more comfortable with your apartments because they have a better understanding of what you have to offer compared to others.
5. You haven't evaluated how your leasing agents are handling phone calls in a long time.
When the market is strong, leasing agents are more susceptible to complacency because it's not as difficult to rent apartments right now.
One of your best defenses in a tough market is having a competent leasing staff that's able to effectively usher prospects into leads, and leads into leases. To ensure they're ready for when that time comes, it's important to evaluate your leasing staff frequently and give them the feedback they need to do their job well.
How to handle a leasing call.
Are leasing agents gathering contact information and creating urgency in phone calls? The video above focuses on how to handle a leasing call. What about in-person showings? Are they being thorough and helpful? Mystery shopping your own apartments, or listening to recorded phone conversations, will give the answer. Knowing how your agents are performing is key because you're then able to prepare them for when times get tough.
6. You don't have a strategic renewal process and you've allowed too many residents to switch to month-to-month leases.
You may have a strong occupancy, but you have no control over it. That's one of the side effects of not having an aggressive, strategic renewal process. If many of your current residents are on a month-to-month lease, then on any given day, a unit can become vacant. Without having control over when those leases expire, a few unexpected vacancies can quickly become a full-blown crisis.
Every apartment community experiences its own unique seasonality. No matter how the market is performing, there's going to be a busy leasing season and slow leasing season. Your approach to the rent and lease terms you offer in renewals must reflect your seasonality. Just letting residents sign month-to-month terms is lackadaisical. Instead, your strategy should be to create a fair renewal process where residents are incentivized for wanting to stay and more of your leases expire during your busy season.
7. You don't have a plan for unit upgrades or capital improvements at your property.
This ties loosely back to our first couple of points. If you're not practicing habits that maximize revenue—raising rents when the market is strong, being flexible with your marketing budget—it may be difficult to fund necessary building projects at your apartment community.
This is important because when the market slows down, you're going to have to have some differentiator that creates a great resident experience for your apartment community's target audience, or else blend into the crowd. Maybe it's modern tech amenities or newly renovated kitchens. Whatever it may be, now—when things are going well—is when you should start defining your apartment community's 5-year or 10-year goals. Are upgrades needed to accomplish them? Will you be able to sustain success when the market turns?