If the returns are not appealing or the retention rates are falling, then it is time for property management to review their pricing policies and make the required changes to get back on the road to success. Here are certain important points that can help a property manager make the right decision about the rent they should be charging.
Economic conditions in the area or country affect rental rates largely. However, apart from these conditions, trends, commercial development, and changes in inventory also drive price fluctuations. Therefore, having a flexible approach to rent structure is a better approach for property management, where the rent is adjusted responding to local developments and market or economic conditions.
Such an approach may not be possible when you are targeting specific tenant categories such as the highest earners or the Section 8 crowd. However, separate tiers can be laid down for the three main income groups of low, middle, and upper.
Aligning Profit Expectation and Tenant Expectation
According to a recent survey, about two out of ten tenants feel that they are being overcharged for the amenities and services they are receiving on the property. This can be easily remedied by upgrading amenities, engaging in renovations, and improving maintenance and repair services. A fresh coat of paint or change of carpets could make all the difference to tenants.
If that does not work then property management can consider upgrading amenities and/or making serious renovations. Or lower their revenue expectations and the price they charge for rent.
However, before making a noteworthy investment it would be a prudent idea to check out the competition in the area. Visit other properties and see what they have to offer from the point of view of what a regular tenant would expect. This could provide fabulous insights into the changes that may be required on your property. Hence, it is important to align profit expectation with tenant expectations, especially when property management is considering a sizeable increase in rent.
Estimating Tenant Tolerance Levels to Rent Increase
High vacancy rates can quickly diminish return on investment (ROI). However, reducing the rent is also going to have the same effect, especially when the vacancy rate is 10% or more. At the same time, vacancies over a long term can reduce profit margins and reputation of the property drastically. This is one of the worst scenarios, and property management will have to be highly creative.
First, property manager will need to keep a close watch on the pulse of the market, the rental rates in the area on similar properties, and the outcome or progress of any promotional campaigns that have been initiated. Therefore, reporting can be a powerful tool in the hands of a capable property manager. The manager will have to keep track of online reviews and comments on social media about the property and competition, and evaluate the possibilities of a rent increase or a decrease. Or continuing with the status quo (the same rent price).