Recently we had a reader ask us about how to think about Craigslist posting, AdWords, 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 live question for many communities.
There are five main questions to be thinking about with marketing when you have high occupancy numbers.
- Are my 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 a bit and prepare for more difficult periods in the future?
We'll talk about each of these questions in more detail below the jump:
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 simple numbers below to illustrate this point.
Community A: 100 units, $750 per month rent (which is market-rate in this area), 94 units occupied. Monthly rent revenue = $750 * 94 = $70,500. So this community is at 94% occupancy and is making $70,500 in monthly rent revenue.
Community B: 100 units, $715 per month rent (below market-rate), 98 units occupied. Monthly rent revenue = $715 * 98 = $70,070. So this community has an occupancy rate 4% higher than Community A but is actually making less money. Granted, in this case it is marginally less money, but when you shift into larger 200 or 300+ 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 * 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 * $750, which equals $75,000. So their economic occupancy can be found by dividing $70,500 by $75,000. 70,500 / 75,000 = 94%. So in this case the physical occupancy number and economic occupancy number are both 94%.
- Community B's actual rent revenue is $70,070. Their maximum possible rent revenue (assuming market-rate rents) is also $75,000. So if we do 70,070 / 75,000 we can arrive at the economic occupancy. 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. So if you have 100 units in your community and 94 are occupied today, well, 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.
So both communities have similar occupancy rates, but 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, they can make good decisions. If they neglect the trendlines and do not think about the future, however, they could make some major mistakes.
Are our leases stacked?
The above section leads us naturally into a second key question to consider. If you have too many leases expiring on the same day then you can see major swings in your 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 leasing season hits, a ton of units vacate, and suddenly their occupancy numbers are in the high 80s and everyone panics.
At this point, it is very difficult to find a quick fix to the problem. 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 pro-active about this and check ahead to see if you have too many leases ending on the same day 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 be sure to post that single floorplan once every 48 hours to Craigslist. You can also start building AdWords 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 you don't get into this mess in the first place. 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 later. So if someone signs a lease to move in on May 10, 2018 the lease will probably expire on April 30, 2019 or May 30, 2019. 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.
This is 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 slammed 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 the following Sunday. So if 365 days away is May 20 and the next Sunday would be May 24, make the move-out date May 24.
What this does is it keeps your vacated units bundled together a little bit, but not as much as if they all came at the end of the month. Moreover, by scheduling the move-out day for Sunday it gives the former tenant plenty of time to move out and sets your property manager up to walk the unit and prepare it for showings or move-in first thing Monday morning.
Smarter leasing terms will help make life much easier for your leasing team and should help increase profitability at the community by cutting down on 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 rate than others? Or lower? 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 on AdWords. Maybe 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.
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:
- AdWords ad copy can emphasize how quickly you rent units, encouraging searchers to act quickly. (You have to be careful with this, obviously, to avoid looking gimmicky or untrustworthy.)
- Marketing copy on Craigslist or your website can also emphasize how in-demand your community is.
- Leasing agents can also use this during tours. If, for example, you're 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 skeezy and you obviously want to avoid that. (This is especially true if you already have bad 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 AdWords.
- You need to set up your local business listing in Google.
You need those things to just have a basic online apartment marketing platform these days.
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 a time when your community is on firm footing is an ideal moment to begin working on these more advanced strategies. The long-term payoff could be great for your community.