It’s that time of year!! Budget preparation…and therein lies the key. Preparation, how should you prepare?
What is the goal for the property next year?
-Increase resident retention, decrease turnover, and the related expenses?
-lease management, to balance the number of leases expiring each month?
-Reduce Bad Debt Loss?
-Control operating expenses to a per unit objective?
Any single achievement or combination of the objectives listed will result in Increasing the Net Operating Income. Being aware of the goals for a property can give you direction in your budget preparation.
This is the first article in a series on Budget Preparation.
Increasing rental revenue isn’t limited to increasing rental rates, although its certainly effective.
CONCESSIONS. What is the impact of the dollars used as move in incentives? What is the total amount of this lost revenue for the current year? Previous year? If you have applied an amount over the term of the lease, potential concession loss for next year already exists and the year hasn’t even started.
Analyzing the current use of concessions may give some accountability for current and future use of dollars off for a closing tool.
If every move in received $250 off the first months rent, with 50 move ins, the loss is $12,500 per year.
With an average rent of $700, the same number of move ins would result in $35,000 of lost revenue if the move ins received a free months rent.
How does this impact revenue on a monthly, or annual basis? What percent of your Gross Rental Revenue is being lost to concessions?
Creating awareness and accountability for concession control has the opportunity to increase ownership among staff for revenue growth.
Some management companies use the amount of the first months rent to determine a leasing commission. The higher the rent, the higher the commission, if a concession is used to reduce the rent, it will also reduce the commission paid on the apartment.
LEASE RENEWALS. Budgeting for increasing rents on lease renewals, adds to the revenue growth for the property. Signing a lease renewal for a rate less than the market rent or street rent, is a Lost Revenue Opportunity. Leasing staff must be aware the $20 discounted rental rate is a $240 rent loss. With a half dozen lease renewals in a month, over $1000 of rent income is lost in a single month, and the total impact of this lost revenue will continue over 12 months, more than $10,000 in lost revenue.
Negotiating for lease renewals requires the leasing team to be aware of rental rates at competitive properties. As well, as possible costs for moving. Are there services that have been added to the property?
Adding value to an apartment home at the time of lease renewal creates a Win-Win situation, the management company gets something, the rent increase, and the resident gets something to improve their apartment, closet organizers, replacement blinds, carpet cleaning, new light fixtures are often used for renewal incentives.
Any time concessions are used whether on a move in or lease renewal, utilize every opportunity to remind the resident of the “saved dollars” they are experiencing monthly. This reinforces the actual rate for the apartment, reminding the resident of the value they’re receiving.