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Improved Occupancy Rate in the Property Market

improved occupancy rate in property market

Many property managers and owners feel that new constructions and increased supply of rental units is going to create improved supply and bring the rent down. There are also concerns about increased vacancy rates, as people might want to move to newer units. However, there is no need for panic, as statistics prove otherwise. Even though close to 200,000 new units have come into the rental market, the occupancy in existing units have not decreased, and the rental rate has continued to grow and seen the best levels.

In fact, the occupancy rate has been 95% for the second quarter of this year, and growth rate for rent is 2.4%, which are very promising signs. Hence, this time, even with new supply of units the property market is flourishing. Here are some of the reasons why it is different this time.

Diminishing Popularity of Single Homes

Even though rate of construction of new apartments for last couple of years has remained almost the same, the demand for apartments has increased. This is mainly because many families now are not eager to move to single homes, and prefer apartment units. Secondly, the rate of homeownership has also fallen considerably since 1995. This indicates there is lesser supply of residences, since homeownership is providing costly for many people. Even though rent may be high, people prefer to stay in apartments for a longer time, because the cost of owning a home works out to being even more of a financial burden.  

In addition, it is easier to move out of an apartment than a home. On top of this, the recession still continues.

Ownership is Scary

People have not forgotten the foreclosure crisis, where homes and equity were lost within minutes. Many people are now much more cautious and do not much care about homeownership. Secondly, families now prefer living in apartments compared to suburban homes, since they do not want long commutes and prefer to be near workplaces and play areas available at the core of urban areas. Additionally, most of the people seeking accommodation are young professionals, who are repaying their student loans. This means, they do not have the credit rating required for down payments on new homes.

Median salary ranges of America have continued to decline. The American economy is nothing to smile about and this is reflected in all those renters across the landscape.

Supply has Still not Caught Up with the Demand

During the recovery period after the recession, financing home construction was difficult, which means deliveries were late and inventory rate increased. Secondly, even though there is growth in new construction now, it has not caught up with the increased demolitions of obsolete structures. Additionally, many structures were converted to senior housing and condominiums, which increased the divide. Therefore, the market has not really caught up with the increasing demand, as can be clearly seen from the higher occupancy rates of some of the metropolitan areas.

New Apartment Units are Class a Category

Most of the new apartment units are in the top pricing bracket, since they come under Class A urban core category. This means only a few renters will be able to afford an upgrade to these expensive apartments, and only the new upwardly mobile crowd can think of renting these new apartments. Therefore, there is still a heavy demand for existing Class B and B+ units, which are generally more affordable by a vast section of society.

Property Management―Frills vs. Size

property management frills vs. size

Requirements of various types of tenants keep changing, and it is important for property management to keep on top of the current trends. An emerging category of young professionals is taking prominent position in the property market. There are many professionals looking for proper accommodation, especially near commercial areas and in metro cities. The interesting fact is that most of these professionals are willing to trade size of the apartment for frills and better amenities.

The Trend

According to statistics, the average size of the typical apartment in major cities has been steadily reducing for the past five years, and most professionals are more concerned about amenities and other facilities provided in the units, compared to living space. In many modern apartment complexes, there is the trend of allocating quite a bit of area to micro units, which shows that living space is becoming smaller.

Even though living space area has been reduced, rents have steadily increased, especially in properties that provide better amenities. Young professionals and even families are willing to pay higher rents, provided there is parking space, Wi-Fi connectivity, fiber optic broadband, and better satellite television or cable connection. 

This is because the poor banking situation has forced many people to rent. It is more difficult to obtain a loan nowadays and certainly a few years after the Alan Greenspan financial crisis.  

Small units, particularly in urban areas are very much in demand, as many professionals are relocating to cities with better prospects. It is not only the amenities provided in the units making a difference, but also the jobs, facilities, entertainment, and shops available in the immediate vicinity. Secondly, stringent standards implemented for mortgage (briefly mentioned above) and rising prices of new homes has reduced the number of homebuyers and increased the number of renters. This has put added pressure on cities, since the demand for accommodation keeps increasing. 

The Proper Focus

All these statistics and trends provide important clues for property owners and property managers. The focus should be on increasing amenities and developing better facilities that young professionals are looking for in apartments. Investing in better storage space within the units, and providing better Internet connectivity would be a good idea. Property management can also think of renting the ground floor areas to shops and small businesses that will make it convenient for tenants to shop and access important facilities and services.

If the property is relatively old and the living space of most units is quite large compared to modern standards, then strategies should be in place to facilitate sharing of the apartment unit by multiple renters. This would involve careful drafting of the lease agreement, where the responsibility of the rent is shared equally by all members renting the single unit. Many young professionals are not averse to sharing their living space, provided there are separate bedrooms.

A Long Commute is not Appealing

Property managers facing increasing vacancy rates can think of revamping their marketing strategy to attract young professionals. Investing resources for this category of tenants promises solid returns, provided the property has a sparkling location, and is near offices and commercial establishments. Most modern professionals are now looking for accommodations near their place of work, and do not want a long commute. Property management can carefully consider all these factors and implement strategies to tap into this emerging category of tenants.

Increasing Returns with Effective Property Management in the Present Economy

increasing returns in present economy with property management

Property management is a challenging task, especially when cost of living and inflation is on the rise. For a property manager it becomes difficult to liaison between the property owner who wants better returns and the tenants who are looking for lower rents. It is tight balancing act, where rental rates are to be kept conducive for keeping the vacancy rate down and yet manage a good return for the property owner.

Suitable Information Accumulation

The only way for managing a property optimally is to increase revenues and decrease costs. There is salient scope for keeping check on costs with clever maintenance and repair management, but usually property managers find limited scope for increasing revenues due to prevailing economic conditions. However, there are ways for doing this as well, by collecting proper data and evaluating the exact impact the economy is having on rentals.

The usual route for increasing revenue is to finding new prospects; improve marketing of the property, and decreasing the vacancy rate. While occupancy rate plays a major role in improving revenue, it is necessary to understand what an optimal percentage should be for occupancy. Having full occupancy is indeed ideal, but 95% occupancy rate would be more realistic target to aspire. Experts believe that if vacancy rate is more than 5%, then there is something wrong with the marketing or promoting of the property. However, experts also believe that if the occupancy rate is over 95% then the rental rates for the property could be too low for that specific area.

Most successful property managers follow the guideline of having the rental high enough so that the property is comparable in the top 10% available units in the area. This would be an appropriate guideline to follow for several reasons. One obvious reason is that if the property is not classified in the best 10% of the available rental units in the area, then there is something seriously wrong with the condition of the property, and only better maintenance procedures can fix such an issue.

However, most property managers make the mistake of lowering costs by forgoing required maintenance and not implementing inexpensive improvements. Such tactics might decrease costs for some time, but it proves much expensive in the end, as it will take much longer to fill vacancies.

Filling Spaces

When the property is kept in top-notch condition, it makes it conducive to retain existing tenants and to attract new ones, as well. Secondly, however, and more importantly, it becomes much easier to raise the rent when the lease expires, and tenants will be much less likely to seek other accommodation if the rise in rent is reasonable. Property management need not always look at raising the rent with trepidation, as it improves the property value, and property owners will appreciate such a strategy.

Lower Class of Tenants

However, the percentage rise in rent has to be calculated carefully, taking into account rentals of other top properties in the area and the prevailing market conditions. Too much, and the occupancy rate might dip below 95%. On the other hand if the rent is not increased, the occupancy might be noteworthy, but the value and reputation of the property might take a hit, which is not desirable. 

Avoiding Major Mistakes in Property Management

avoiding mistakes in property management

Property management is a challenging job and can be hectic at times. There is ongoing administrative work to be managed emails and phone calls have to be answered, and various marketing strategies have to be implemented to make sure the vacancy rate stays to its minimum. In such a frenetic schedule, chances of committing certain sizeable mistakes are high and they can prove costly. Here are some of the major mistakes that are quite common in this industry, and they must be avoided.

Avoiding Routine Maintenance

When property management is trying to keep costs to the minimum, it becomes quite tempting to ignore minor maintenance issues, such as leaking faucet or servicing of a water heater and so on. However, this is a major mistake, since a small maintenance issue can quickly turn into a major repair where you will have to spend more money on something because of your dereliction. For instance, a leaking faucet that is not attended to, can soon give way, and cause flooding in the unit, which is so much more expensive to set right. Hence, it is better to be proactive and address maintenance issues right away, even if they seem minor.

 

Unwilling to Increase the Rent

Inflation is the bitter reality, and rising costs affects everybody. However, property management cannot ignore raising the rent, just because of fear of increase in the vacancy rate. It is imperative to maintain a decent return on investment, and raising the rent is inevitable at some stage. However, the new rate should be comparable to the rent charged by other similar properties in the area. Secondly, when you plan to increase the rent, provide sufficient notice to tenants.

Not Implementing Terms and Conditions of the Lease

It is quite difficult for property management to maintain excellent relationships with tenants and at the same time enforce all the terms of the lease agreement. Most property managers tend to take the easier route of being the "nice guy", and overlook things that are in violation of the lease. Such an attitude can land property management in major trouble and legal issues that can work out quite expensive.

For instance, not charging penalty fees for late rent or allowing pets when it is violating the lease agreement. The best approach is to maintain cordial and friendly relationship with tenants, but being firm when the situations demands it, and keeping to the terms of the lease at all times.

Ignoring Important Property Expenses

Property management usually has to walk a tight rope by managing expenses, and keeping costs to a certain percentage of the rent charged. This often leads to cutting corners when the budget becomes tight or certain expenses have gone beyond the expected amount. However, certain expenses such as insurance and taxes are paramount, and a property manager cannot afford to ignore them. If the taxes are not paid in time, it will result in not only penalties, but also various legal issues.

The same goes for homeowner's insurance as well. It will be frustrating to know (and possibly a game changer) that insurance was not in force or in effect after the fire department just finished putting a fire out in the complex.    

Satisfying a Wider Range of Tenants in Property Management

Satisfying tenants

One of the best strategies in improving occupancy rate and retaining tenants is catering to specific needs of certain group of tenants. Since Millennials and Baby Boomers are the two major groups that make up most tenant pools, it makes more sense to focus on satisfying the requirements of these categories. However, keeping both these groups happy at the same time is a challenging task for property management, since their requirements are usually seen as diverse.

While marketing a property it therefore becomes important to cast a wider net and not compartmentalize the brand image. Rather than finding dissimilarities between the two groups, it is better to focus on similarities and build a brand image that does not stereotype the property that caters to only one of the groups. However, it is quite a challenging task to satisfy both categories equally. It may not be practical to provide different options to the two groups individually, but property management can present options for customization that can satisfy certain important individual requirements.

Split Differences

For instance, if one takes amenity requirements of the two groups, they are mostly the same, but there are differences in how they will be used. Both groups will be happy having multipurpose spaces and clubrooms for social activity. However, the Millennials will be more interested in attending social events, while the Boomers will mostly be hosting them.

Another challenge for property management in satisfying the two groups is having the optimum mix of units. Baby Boomers look for more space, and hence units with larger bedroom and living space will be more appealing for them. Millennials on the other hand are satisfied with smaller units, but will be particular about available storage options.

However, satisfying the Baby Boomer group is itself a challenge, as many of them have diverse preferences. This is due to many reasons, since the group could include people who have taken early retirement or people who have become parents in the age group of 55 to 58 years. On the other hand, preferences of Millennias will be more or less the same, and is much easier to satisfy as a separate category.  

The Internet is Key

Technology seems to be playing a key role, as an element that can satisfy both groups to quite an extent. Millennials are looking for environments that match their lifestyles, which are now mainly driven by technology and online social networks. On the other hand, Baby Boomers too are also becoming increasingly tech savvy, which means property management has to focus on online marketing for attracting prospects and also provide better broadband and faster Internet speeds in the units.

Even though both groups will want to inspect the unit personally, the property website has a huge impact on marketing. Studies have shown that more than 40% prospects of both groups will not visit the property if they find the website to be of poor quality or unwelcoming. Therefore, it is extremely important to make a fantastic online impression and have excellent imagery and content on the website for attracting new clients from both groups. 

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