When times get rough at a property, the savvy property manager fixes the problem with... a rent special.
Or, at least, that's how it often works out in our industry, isn't it?
But this solution isn't altogether satisfying.
It takes money out of your community, makes you look desperate, and, worst of all, may not even produce the effect you're looking for.
In this post we want to first share a framework for thinking about revenue and rental rates. Then we want to talk about how to set effective rent specials that do what you need them to do. Finally, we will talk about when you can safely end a rent special.
How should you think about rent specials?
The multifamily industry frequently runs in a compartmentalized, siloed style that leads to revenue management questions being isolated from marketing and leasing.
As a result, when occupancy dips to a certain point, communities often find themselves looking to pull a single lever to fix the problem when really they should be reevaluating their entire system of managing the property. More often, however, communities simply try to pull a marketing lever (more money to the ILS's!) or a leasing lever (hire more leasing agents!) or a revenue lever (offer rent specials!) in hopes that doing so will fix the problem.
In the short run, of course, you might fix the problem with this sort of reactive move. But at best you're simply going to be solving it for a short window of time, only to have the issue recur in the not-that-distant future.
There is a better way of managing this.
The alternative begins with recognizing that marketing, leasing, and revenue should all be working together rather than separately. With that baseline idea, we can begin to imagine a different model that will quite often free you from the need to use rent specials at all.
The full process has been explained in our live case study series. You can begin the series with this post: Live Case Study Introduction
Briefly, the system works by recognizing the relationship between your rental rates (revenue management), your supply of apartments, and the demand for your units (marketing). You can anticipate supply by simply tracking units on notice as part of your vacancy rate. When you see your vacancy rate trending in a troubling direction—meaning you expect your supply to exceed demand by enough that you'll need to do something drastic to make up for the difference—you begin making decisive adjustments to head off trouble before it begins.
This means doing two things:
- First, you need to begin advertising heavily on Google, Facebook, or both. This will only cost you hundreds per month in most cases and if you only need to run the campaigns for a few weeks even less than that.
- Second, you may consider some more pronounced reductions in rent on a select number of units in order to incentivize prospects to sign a lease more quickly.
Using these two tactics will cost you some money, of course. But typically the advertising spend will not be that significant, especially when compared to the cost of having units sitting vacant. And even if you radically slashed rent by 8 or 10% on certain floorplans in order to turn them quickly, you probably will only rent a small number of units at the discounted rate, perhaps even just three or four depending on the size of community and size of the problem.
Meanwhile, by making these decisive steps you will have addressed your vacancy problem before it really gets out of hand. That puts you in a stronger position going forward to demand higher rent from new residents and to raise rents across the board on a year-over-year basis.
Generally speaking, if you manage occupancy well by monitoring units on notice and making decisive steps with advertising to manufacture demand as required, we have found that rent specials may not even be necessary.
If I do need to use rent specials, how should I do that? What makes a good rent special?
A good rent special is going to do two things:
- It will offer the prospect something valuable enough to motivate them to rent.
- It will minimize the damage done to your bottom line both by long-term vacancy and by the special itself.
Because of the different needs of different properties, it is hard to be more specific than that in terms of defining a good rent special. However, there are three questions we generally recommend client communities ask themselves when they are trying to move from a general idea of a good rent special to a specific special they wish to offer.
What are you offering as incentive?
You can dangle any number of different carrots as rent specials in order to attract prospects. What specific thing does your community have to offer?
There are many possible answers to this question:
- Temporary rent reduction
- Waived deposit
- Waived application fee
- Waived pet deposit
- Free month of rent
- Free offers:
- Special offer:
- Gift card to area business
- Discounted membership at a local gym
These are just some ideas as to what you could offer. But it is good to identify all the options and then work backwards by asking yourself what is the easiest for your community to offer and what would be most valued by your residents. When you identify the offer that checks both of those boxes, you probably have identified the benefit you should offer as part of the special.
Does this incentive apply to specific floorplans or units?
Rent specials can become very expensive if you offer them on all vacant units in your community. On the other hand, they can become very complex and lose their appeal if you offer them more narrowly. So figuring out what units to offer the special on is an important question for every community to figure out.
Again, in an ideal scenario you may not even need to ask this question. If you are using online advertising effectively, your vacancy should never get so high that you need to offer community-wide specials. Also, if your advertising is being used well you can use that to drive traffic to problem floorplans instead of relying on floorplan-specific rent specials.
That being said, if you are at a point where you need a rent special, you will need to decide how to answer this question: Does the special apply for all new residents or only for new residents who lease specific units?
When does the rent special end?
This question often ends up being more complex than it needs to be. In a community with clearly defined revenue and occupancy targets, the question answers itself: Once we hit our goal for the special, the special ends. But if you are not clear on your goals or, worse still, on why you are experiencing vacancy problems, then the question becomes much harder.
You might think of a rent special as being something like a personal savings account you have as part of your personal financial life. If you are having to dip into the savings account every month to make ends meet, that tells you something needs to change in your monthly budget. Likewise, if you are having to regularly use rent specials or run rent specials for long periods of time, then you have larger problems at your property that you need to diagnose.
That being said, if you have a system for tracking occupancy that accounts for both currently occupied units on notice and vacant units that are leased but not yet occupied, then you will have an accurate picture of your occupancy situation at the community. With that information in hand, you can make informed, sound decisions about when you need a rent special and when you do not, which also means you will know when you can stop using a given rent special.
Rent specials can be a powerful tool to help make fast changes at a struggling property. But it's an emergency option rather than something you should be leaning on regularly. So make sure you are doing the work to manage occupancy, to set reasonable rent rates, and to serve your residents well. If you are doing these things, then hopefully you will not need to use rent specials because you will never find yourself in a position where they will appear necessary.
That being said, things happen. Perhaps you've gone through some unexpected transition at the property or you are taking over a property that was badly managed by the former owner. Whatever the case may be, it is likely that you will at some point find yourself needing a quick fix of the sort that a good rent special can offer. When that time comes, you'll want to make sure you're setting the right specials in the right way. If you are following the tips in this post, they should set you on the right path both toward fixing your short-term problem and toward getting your community on firmer footing long term.