by John Wilhoit
This article presents five areas to assist in rental revenue growth. But it goes beyond just rents and ancillary income. We know that most revenue from a rental property comes from rents but that’s not the whole story.
How many rental revenue growth strategies are you deploying presently on your property? How many are in process: working, operational, functional and bringing in dollars? For some folks that’s an easy question. They can rattle off those that are implemented and bringing in money and for other people you’ve got to stop and think about it.
We know that having income that’s too high in certain areas is not necessarily a positive such as late fee income. We want to have revenue sources that are appropriate for the assets and revenue sources that are sustainable. Those are the areas that we’re covering in today’s program.
Michael Lanning is the president of Institute of Real Estate Management. Mike wrote an article asking investors to recognize that there is a substantial difference between focusing exclusively on rent growth versus focusing on maximizing property value. I just want to bring that to your attention: that as much as we always want to focus on rental revenue growth, our real objective should be higher than that. That higher objective is to maximize the value of the asset.
What do we mean by that? One example I can give you is, in some instances, the value of the dirt under the property has a higher value than the property itself. And if that’s the case we don’t necessarily want to put more lipstick on the pig. That is the property itself, if the dirt value, or the land values, has a greater potential for us as an investor than does the asset sitting on top of the dirt.
Here are the five areas to focus your efforts for revenue growth:
Renewals. Number one is renewals. It’s always at the top of the list. Nothing keeps income ticking like retaining existing in-place residents, or customers or clients. We always want to start the renewal process early. Sometimes as much as six months before the end of the lease term. Recognize that retaining an existing client, or resident, is almost always more cost effective than replacing them. Whenever we can reduce our turnover rate we are automatically saving money because of the cost we don’t have to spend for repairing the unit and making it ready for the next resident. Renewals are always going to be at the top of the list when talking about attaining maximum rent growth.
Resident Screening. Second on the list is residents screening. Our customers make or break our business of course. Yes, we want to have quality standards and you need to stick to those standards. Residents screening is a cornerstone for making sure that we’re bringing quality people into our buildings and those that can stay for a long time.
Expanding Other Income Categories. Third on the list is expanding the other income categories. If you have other income, or other revenue categories, such as application fees, late fees, pet fees, storage, cable revenue. These are all well and good but you can’t do all of them. So, pick the one or two that you can implement, that are reasonable to implement, and get that done. And then move on to the next and onto the next. Having a huge list of other income categories that you might/maybe do one day doesn’t produce a single dollar of revenue. But selecting one or two that’s appropriate for the property that you have and implementing those- that will have an impact and that will bring in more than a dollar once you get those in place.
Resident Referrals. Next is resident referrals. I know that sounds like a small thing but if you have existing customers that are happy with the service that you’re providing very often a small incentive will allow them that incentive to talk to their co-workers, talk to their friends and say hey this is a good spot and I think that you should join us over here. Because as much as people complain about where they live, that’s not everyone. For those clients, customers, residents, our clients, that are happy with where they reside try to give them a resident referral fee of X that makes it worth their while to bring people to your doorstep.
E-mail. Next is email. E-mail is the best way to communicate with clients. We’ve seen over the last 10 years how online sales have overtaken in-store sales. A lot of that marketing is accomplished through e-mail or e-mail marketing where a business stays in touch with their client base almost exclusively by e-mail. Meaning there’s no phone calls. There’s no knocking on anyone’s door. There’s just this little electronic box we call our e-mail account where people communicate. And for those of us in the rental business this will become an even larger part of our marketing going forward.
Think about the most effective rental revenue growth strategies that you have at your disposal and don’t try to implement all of them at one time. Select the one or two you know you can implement and start with those. And identify those that are suited best for creating rental revenue growth.
We can’t tell you which one of these will work best for you. There’s a substantial difference between a scale of 2 units and a scale of 200 units. There’s a difference between urban and rural environments. But there’s always going to be one additional service or potential revenue stream, that you can bring on-line if you think through the process based on your property and what you know will work for that asset in this market.
You can’t be in the shower and in the kitchen at the same time. Nor can you implement revenue growth strategies if your full effort is not behind those that you’ve selected for success. Success will require of you to have focused attention and will require you to implement the programs that you’ve selected in a professional manner if you want them to take hold, maximize revenue and be part of a going-forward revenue stream.
John Wilhoit, Jr. is President of Wilhoit Investment Network, LLC, (WIN LLC) an owner and asset manager of apartments, condominiums and town homes. Mr. Wilhoit’s career has focused on high volume, large-scale multifamily communities including market rate and mixed-finance developments. He has previously held positions with HUD, AIMCO and the Maryland Housing fund. Mr. Wilhoit holds an undergraduate degree in Business from Pepperdine University and a Masters in Urban & Regional Planning from Alabama A&M University. WIN LLC provides consulting, asset management and market analysis services for multifamily property owners.