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The Good and Bad of Owning A College Town Property

College towns create a unique opportunity for property owners and investors. Similar to any other market, owning property in a college town has its pros and cons. But if an owner can take advantage of the pros and mitigate the cons, a college town property has potential to be one of his/her best-performing assets. Listed below are a few of the positives and negatives of a college town real estate market.

Pros

Large Pool of Tenants:
In our previous blog post, we highlighted a study that examined 21 cities where renters outnumber homeowners. Many of the cities mentioned in the study are homes of major universities with a large population of students in need of housing, consequently creating a consistent flow of current and prospective tenants.

Low Vacancy:
While they are not a guaranteed cause and effect, there is a definite correlation between large pools of potential tenants and low vacancy rates. Each semester, a college town experiences an influx of new students and employees who replace the seniors, graduates, and transfer students on their way out. That said, in most cases, the only reason a property would have high vacancy rates is poor management, or a bad reputation throughout campus and the community.

Stable Rent:
With the demand for rentals being so high in college towns, rent rates remain relatively stable. In addition, many students get their rent paid for by their guardians, so there may be many opportunities for higher rent prices.

Market:
When you own property in a college town the area sells itself. The university and the activities it offers attracts people from all over the country. Whether it’s athletic events such as football or basketball, culture or entertainment like art exhibits or concerts, or renowned food and shopping destinations, each college town offers a unique environment that cannot be experienced anywhere else.  Cons The pros of owning property in a college town are certainly enticing, but it’s important to consider the cons as well, as they can make even the best owners regret their investments.

Tenant Turnover:
We’ve established the excellent potential a college town’s large renter’s market offers. The problemis not finding potential customers, it’s retaining tenants for an extended period of time. Best case scenario, a property retains a student tenant for their entire college career, which averages four to five years. This is a rare situation, and with many students moving multiple times during college, it’s hard to get them to extend their lease, especially when it’s for a two-year period.

Wear and Tear:
Maintenance expenses are notoriously high for college town properties. There multiple factors that contribute to high amounts of damage college student inflict upon their living space. The combination of immaturity and high alcohol consumption by student tenants often leads to a lack of respect for their living space. Furthermore, when a student’s rent is paid for by their parents, it can sometimes remove the tenant’s sense of accountability. A thorough screening process can help minimize repair costs and the number of destructive renters a property endures, but every once and awhile a bad tenant manages to slip by.

Off-Season:
During the summer, universities experience a significant drop in student population. Some students head home for a few months while others go on vacation before the upcoming semester. Either way, without the right countermeasures, property occupancy rates are very vulnerable during the summer-time. The best way to counteract a big drop in student population is to have tenants sign a minimum of a twelve-month lease. With tenants signing on for an entire year, they are on the hook to pay for the summer months, even if they don’t intend on occupying the living space during that time frame.  There’s a lot of upside in owning property in a college town, but it’s very dependent on the market, and the owner or investor. Managing some of these pros and cons can be a dangerous game to play, but if you succeed, the risk will be well worth the expended time, money, and effort.

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21 Cities Where Renters are Outnumbering Homeowners

In their recent study of the country’s apartment renting market, ABODO, a user-friendly apartment searching service, examined the top 21 cities in which renters outnumber homeowners and what makes each market so friendly to renters.

ABODO’s research provides an abundance of detailed information including a breakdown of age groups in the renter-majority markets, renter household type, and renter growth compared to housing costs. Each breakdown also includes visual aids to help understand how some markets compared to others.

Click here to see ABODO’s research in its entirety.

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The Power of Branding

When it comes to branding, most people instantly think of a logo, which is a testament to how powerful a unique brand can be. Maybe it’s the Nike swoosh, Facebook’s “f”, or the golden arches of McDonald’s, when people see these logos they automatically know what the brand is and what it stands for. Having said that, a brand is much more than just a logo.

A complete brand has three important elements: what, how, and feeling.  What does service does your property provide, how is it provided, and what feelings or emotions does your property evoke? For property owners, these three elements act as a blueprint to creating the customer’s perception.

For multifamily properties, the what is straightforward: a place to live. In the eyes of a customer, a property’s how is the special and unique way it delivers its what. The how is where a property can create a competitive edge by providing unmatched service, which leads to the final, and arguably most important element of branding, feeling.

Only the most successful brands convey the feeling element of their product or service. In most cases, people will not give you their business if they feel like they will be treated just as a means to another rent check.  If your property creates a laid back and inviting feeling with a friendly staff and fun community, that should be echoed through the branding. This will attract tenants with similar values and motives, ultimately improving the property’s environment.

Attached is a segment of a TED Talks seminar by optimist and best-selling author, Simon Sinek, who does an excellent job explaining how the most successfully branded companies use the aforementioned blueprint to their advantage. 

Simon Sinek’s Ted Talks Segment

Implementing this blueprint will create an effective brand that will prove to be one of the most powerful assets in differentiating a property from its competitors while setting the standard of excellence in the market.

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Unique Marketing Techniques

The success of an owner’s property is largely dictated by marketing efforts. A property can offer the best units and newest amenities in the industry, but without effective marketing, potential customers will never learn of what they are missing out on.

In an article from AM Digital, author Alex Middel compiled a list of 40 creative marketing strategies multifamily owners and managers can take advantage of to educate potential customers on the benefits of their property and its community.

The first 20 ideas are offline strategies that are effective in reaching the surrounding community that may not spend as much time online as others. The latter half of the list is comprised of techniques tailored to reach prospective customers through the internet whether its via social media, search engine optimization (SEO), or visual content such as pictures or videos.

Click here to see all 40 strategies and learn some innovative ways to attract new, potential tenants.

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Tenant Incentives

Like any other business, multifamily properties have to provide desirable incentives to obtain and retain customers. And with competition being so high as of late, every property is looking to stay one step ahead of the others in the area. Having updated units and new amenities isn’t enough anymore, so properties have started offering various types of incentives to new and current residents to combat lower vacancy rates. Here are a few effective incentive programs to gain and keep quality tenants:

Early Payment Discount

Make paying rent attractive by rewarding tenants with a discounted rent for early payment. Even if it’s a small amount like $10-15 off their monthly rent, proactive tenants understand the discount can add up to a nice sum of cash at the end of the year. In addition, the early payment incentive helps lower delinquencies and attracts residents that are more likely to pay rent on time. It’s nice collecting extra cash from late fees, but that’s not the type of revenue, nor the target audience owners should rely on. Allowing tenants to pay rent online provides extra encouragement to pay early as they can send in their money electronically from the comfort of their home, or on the go.

Another fun way to reward early-bird payers is a monthly raffle. Anyone who pays their rent early gets their name added to the raffle, and at the end of the month the name drawn wins. Prizes can range from dinner and a movie for two, to gifts cards, or a free car wash. Furthermore, if it’s the holiday season, some popular prizes are a free turkey for Thanksgiving dinner, or a HoneyBaked ham for Christmas eve. The raffle program can be fun for everyone involved, engages the community, and is a great incentive for residents to pay rent early.  

Referrals

Tenant referral fees are an excellent way of bringing in qualified residents while saving money on advertising. A tenant referral program offers numerous benefits. Renters are motivated to act as ambassadors for their property by spreading the word of the advantage of their living community. Also, good tenants tend to know reliable people. This may not always the case, but there’s a high chance a tenant who regularly pays rent early or on time will not refer someone they deem unqualified or untrustworthy. When a tenant refers someone who signs a lease, their reward can come in the form of rent credit, unit appliances like a television or microwave, gift cards, or even cash.

Lease Extension  Once a tenant has proven to pay rent on time and take good care of their unit, the next step for management is to retain that tenant for as long as possible. Offering a reward for lease renewal is one of the most effective ways to achieve high rates of tenant retention. In general, tenants prefer monetary incentives, so lowering their rent will give them most motivation to stay. If there is no wiggle room on rent rates, giving tenants unit upgrades is a good substitute. Returning tenants often like to move into a newly renovated unit, but if there aren’t any available, upgrading their unit with brand new appliances has proven to suffice. Also, if the unit has the necessary connections, provided washer and dryers are in very high demand. Ultimately, management should do everything they can without breaking the bank to keep their best tenants.

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Mastering the Make-Ready Process

There are so many moving parts when a unit undergoes the make-ready process, execution can be stressful and overwhelming for an unprepared management and maintenance staff. If that’s the case, the make-ready process will cost a property excessive capital in maintenance and upgrades while losing important revenue due to extended vacancies. But with the right tools and tactics, a make-ready can be a smooth and efficient transition that will ultimately be well worth the dedicated time, money, and effort. Listed below are some excellent  tools and procedures to optimize the make-ready process. 

Technology

Lease expiration management plays a crucial role in the make-ready process. Being able to efficiently monitor and manage current and upcoming vacancies will largely dictate how efficient performing a make-ready will be. There are an abundance of revenue management/lease expiration software programs on the market property managers can use to simplify lease, revenue, and market monitoring. That being said, it is always important to maintain a human element when using technology, as the software should be viewed as a tool, not an employee replacement.

Click here to see a list of accredited lease management software programs. 

Walk-Throughs and Preventative Maintenance

Management should be regularly performing walk-throughs to monitor the state of each unit.  The walk-throughs offer a number of advantages. First, management can bill tenants for any damage done to the unit and maintenance can make the necessary repairs that may have prolonged the make-ready period. Second, walk-throughs allow maintenance teams to make any repairs  that would otherwise become a larger problem as time passed such as leaks, mold, or structural  irregularities. In the end, proactive management and maintenance shortens the make-ready to-do-list and reduces a unit’s vacancy duration.

The make-ready process begins the instant management sends out a notice to vacate the unit. In addition to consistent walk-throughs, performing inspections prior to a unit becoming vacant will help understand what is needed to complete the make-ready. Furthermore, pre-inspections will minimize unexpected maintenance problems, prepare the renovation team to execute the make-ready processin a single, efficient effort, and ultimately reduce the total time the unit is vacant.

Staff Incentives

Having a proactive maintenance staff is one thing, but being able to combine that with a knowledgeable, well-trained management team is what turns a good property into a great one. If the property staff is running like a well-oiled machine, cooperatively working towards a common goal the make ready process should be a breeze. A good way to ensure everyone is on the same page is offering the staff incentives based on how fast a make-ready is completed along with the quality of their execution. With everyone’s bonus being tied to each other’s performance, the staff is encouraged to excel as a team. Additionally, the cost of incentives is minimal compared to the loss in revenue from having a vacant unit on the books for too long.

Bonus Tip

Sometimes a staff has to start multiple make-readies at the same time, which can be overwhelming, even for the most prepared of staffs. One way management can get a head start on the make-ready process is having leases expire on Mondays. When leases expire at the beginning of a week, often times tenants will move out over the weekend. This reduces the number of days a unit is vacant, as it allows management to begin the make-ready process a few days early while the tenant is still paying rent on the unit.

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Tenant Turnover

Yesterday we talked about tenant retention and some characteristics that motivate them to renew their lease. Using the aforementioned strategies will certainly help minimize resident turnover, but even a property with desirable amenities and excellent service, there will always be a situation where a good tenant has to move out. As soon as a unit becomes vacant,  the following actions taken by management and ownership are crucial in terms of cost and revenue.  

Check out this article from Multifamilyexecutive.com that offers some beneficial tactics owners can use to offset the disadvantages of resident turnover and potentially turn a negative situation into a positive one.

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Tenant Retention

Property owners are always looking for a competitive edge when it comes to the never-ending battle of attracting and retaining good tenants. Naturally, having a clean property, attractive curb appeal, desirable amenities, and a convenient location are all major factors in bringing in new tenants and filling vacant units. But what does it take to get the best tenants to sign on the dotted line when lease renewal season rolls around? 

It’s a combination of a property’s physical amenities and the quality of service provided by a management team that motivates a resident to move out or renew their lease. We think it’s more about the intangibles, rather than the physical attributes the property offers that keep tenants coming back. If a property has a friendly, inviting community with a management team that prioritizes honest relationships and high-quality service tenants that value these characteristics in a property will be encouraged to remain a resident for, ideally, many years to come.

In an article from Multifamilyexecutive.com, author Melanie G. French, the Executive Vice President of Operations of Cortland Partners, offers a well said explanation on what it takes to retain tenants, build trust and cooperation among the community, and the importance of a property’s staff to demonstrate genuine care for the needs and wants of their tenants.

Click here to read French’s article in its entirety.

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The Benefits of Ratio Utility Billing Systems (RUBS)

Lately, we’ve been discussing property value and how it’s directly affected by increased revenue and/or lowering operation expenses. So today we’ll explain how implementing ratio utility billing systems (RUBS) can be beneficial for property owners in regards to higher revenue and property value. 

A ratio utility billing system  is a method of calculating the utility consumption of a tenant based on factors such as unit square footage, occupancy, or number of bedrooms. Residents are then billed on a monthly basis based on their calculated utility consumption. Using RUBS throughout a property has a multiple advantages such as fast implementation, returns on utility expenses, and an immediate increase of cash-flow. Additionally, tenants can be resistant to raised rent rates, so implementing RUBS is a good alternative to achieve a similar increase in revenue.

Perhaps the biggest advantage of RUBS is the encouragement a property’s community feels to conserve utilities as a whole. Conserving utilities benefits tenants as it lowers their monthly bill while owners see a decrease is overall operation expenses. Furthermore, implementing RUBS give tenants more incentive to report maintenance problems like leaking faucets or toilets. According to Multifamily Utility Company Inc., on average, tenants use anywhere between 5% to 40% less utilities when RUBS are announced and implemented. Also, The Environmental Protection Agency (EPA) and National Apartment Association (NAA) have both concluded RUBS encourage utility conservation.

By pushing utility costs to tenants, owners can decrease utility expenses, benefit tenants by making them aware of wasteful utility usage, and protect themselves from fluctuating utility priceswhile creating a consistent stream of revenue. Ultimately, implementing RUBS can be beneficial for a property owner in almost every situation.

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Increased Value Through Increased Income

In our previous blog post, we discussed a few general strategies property owners can use to increase the value of their multifamily property. We briefly mentioned how increasing income is one of the primary ways of raising property value, and with so many ways of doing so, we thought it would be a disservice to readers to not further elaborate on the subject.

First and foremost, a property will never reach its full potential with a high vacancy rate. Nothing hurts a property’s income more than a high number of empty units, so finding and retaining quality tenants is a top priority. Factors such as advertising, marketability, and curb appeal go hand-in-hand with acquiring and maintaining tenants, but that’s a another discussion in itself. 

Once an adequate vacancy rate has been achieved, only then can a property manager begin to truly maximizing property income. So what are the best “bang for your buck” strategies owners can implement? Hands down, the number one income booster for an owner is raising the base rent for each floor plan of the property. Even small increases like a 2-3% bump in rent can result in thousands of extra revenue dollars a year.

Additionally, building scheduled rent increases into leases can ensure a property is staying on par with its comparable market and remaining competitive. Raising rent increases income on an exponential level, so owners should always be looking to get the most revenue out of their units and amenities. Although, if a property owner is going to increase rents, they’ll have to spend money to make money. Raising rents have to be executed in conjunction with property improvements, otherwise, tenants won’t renew leases and move on to a property where they getthe best value for their money. 

One of the best justifications of raised rent rates is updating units. Even though unit renovation requires an abundance of time and money, a property will not survive if it’s out-dated. So renovation kills two birds with one stone by keeping a property up-to-date and competitive while increasing the revenue and value of a property through rent increases.

Renovations don’t have to break the bank. There are numerous inexpensive materials that achieve the same aesthetic affect as more expensive products. Alternative materials like vinyl flooring or lightweight granite can save money while achieving the same look and feel as hardwood floors or quartz countertops. Ultimately, the key is renovating for your target audience. Spending extra capital on upgrades B or C class tenants don’t desire can be a waste of money and lead to higher vacancy rates. 

Sometimes a property has updated units, popular amenities, and low vacancy, but still has room for increased revenue. In this case, there are a number of inexpensive, and sometimes free, strategies owners can use to create extra revenue streams. One source of free revenue is charging an application fee. Every potential tenant must go through a background check, and can create a potential problem for your asset, so application fees offset that risk. Implementing a pet fee has the same affect.

Parking is another source of untapped revenue properties can capitalize on. Even though not every demographic is willing to pay for covered parking, owners can implement an opt-in reserved parking program many tenants will find convenient. Reserved parking can generate hundreds of dollars in monthly revenue, efficiently organize the parking lot, and give tenants piece of mind regarding the safety and security of their vehicle. 

Most multifamily properties require tenants to pay an upfront security deposit. The deposit protects owners and their assets and while acting as incentive for tenants to take care of the unit. having said that, security deposits can be a point of distrust in the tenant/owner relationship. Owners wonder if their units will be taken care of and tenants wonder if they’ll ever get their deposit back. One solution to this problem is a mandatory, non-refundable move in fee. Owners get to retain the move in fee and tenants see a lower barrier to entry. Furthermore, once a tenant moves out, owners can use the move in fee to turn the unit for future tenants.

All of the examples provided above are strategies owners can use to justify raising rents, which will lead to an increase of income, and hopefully achieve the ultimate goal of maximized property value.