How to retain residents in a falling market

How to retain residents in a falling market

Instead of inviting residents to move, entice them to stay.

By Daniel Berlind, CEO of Snappt.

Sometimes we believe what we want to believe.

Take the positive spin that came out of the National Association of Home Builders recently, which highlighted that apartment occupancy made a surprising comeback at the end of the fourth quarter, even though it was still in negative territory overall.

“Many developers continue to see strong demand for multifamily housing,” said Lance Swank, chairman of NAHB’s Multifamily Council, in a release, even as he acknowledged that “in some markets, supply is catching up to demand.”

The late-year bounce, of course, is a positive data point for multifamily operators to hang their hats on. But the news downplayed the industry's countervailing forces that could make occupancy an ongoing challenge for months, if not years, to come.

A changed market

Just consider the fact that developers will add 3,300 communities to the U.S. apartment market in 2023, or approximately 590,000 units, according to RealPage. That’s the most apartments to come online since the firm began tracking apartment production in the 1990s.

At the same time, asking rents have been trending down for nearly a year, since peaking in March of 2022. By December, RealPage recorded the fourth consecutive month of an actual rent drops, at 1.6%, and noted the pace of decline was steeper than would be expected due to seasonality alone.

Now, according to Apartment List, the trend has continued into 2023.

The ILS’s national rent index fell another 0.3% in January, while its vacancy index increased to 6.1%, a full percentage point above where it was five months previously. While the corollary of 93.9% occupancy, on average, isn’t cause for alarm, it’s also below the 95% occupancy sweet spot most apartment operators aim for and spotlights how quickly the market has changed.

 “2023 could be the first time in years that we see property owners competing for renters, rather than the other way around,” the report concluded.

No more captive rent rolls

How your staff react and operate during this time will be critical to determining your overall rate of resident retention. It will mean the difference between holding onto the residents you have who are paying current rates, or seeing an exodus as they look for – and find -- a better deal somewhere else.

The reason this is so important at the staff level is because, with the exception of the early pandemic, the current generation of leasing staff have largely worked only in an environment of rising rents.

Indeed, “inviting your residents to move,” with a 5% to 7% annual rent increase became a mantra in the industry. Now, you need to incentivize them to stay.

That means refocusing your staff on the fundamentals of good property management, while giving them the tools they need to do their jobs. This industry is about meeting a basic human need – shelter. Doing so with an emphasis on quality and value, while balancing the need for the business to remain profitable, is the path sustainability in 2023.

Start with screening

Resident retention in this environment starts before your renters even move in.

A robust tenant screening process that ensures you get the best financially qualified tenants from the get go reduces the amount of preventable turnover in your building.

Of course, that means making sure residents have the income needed to pay the rent, using the traditional, conservative metric of 30% of their gross pay, and not the more inflated 35% that has come into vogue in recent years.

Automated screening application systems can do this for staff automatically, while simultaneously running background and credit checks on potential renters. ID verification – making sure prospects are who they say – is also critical.

But one aspect of the process has traditionally been overlooked in the multifamily industry: vetting income and financial documents to ensure they are real. Without this step, even the best resident screening systems and processes still have a gaping hole.

Rental application fraud exploded during the pandemic, with easily obtainable counterfeit paystubs and bank statements proliferating online. Today, about 12% of rental applications contain some sort of fake documentation, which are hard to spot with the naked eye.

Rental application fraud software, which verifies the digital DNA of documents, can help staff weed them out. Doing so can cut down on preventable evictions when someone who doesn’t actually make the money they say can’t pay the rent. That not only decreases turnover while upping resident retention, it also avoids the $7,500 in costs tied to the average eviction.

The keys to resident retention

Once residents are properly verified and inside your doors, they are yours to lose. Hold onto them by developing a relationship and focusing on the fundamentals of good property management:

Sweat the small stuff. Move-in welcome kits, bottled water or free coffee in the lobby for residents, complimentary towels at the pool or in the gym and rewards such as a gift card at tenancy anniversaries all go a long way in letting existing tenants know you’re thinking about them. Hand-written notes are particularly effective.

Keep in touch. Moving is stressful, and expensive. Once a resident moves in, check in with them – I’d argue via an actual phone call -- to see how everything went. Ask them how they like the apartment, and whether any issues need attention.

Stay on top of maintenance. Surveys consistently show that residents move when the work orders they submit aren’t promptly and effectively addressed. Implement a maintenance tracking system, and ensure all work orders are initially responded to within 24 hours and completed within 5 days.

Ask what else you can do. After you’ve fixed whatever needs attention, check in to see what else you can do for the resident. A simple text that says, “I see your work order was completed, is there anything else we can do for you?” will go a far way in building up good will between you and your tenants.

Keep the dialogue going. When renewal is approaching, reach out to residents at least 60 days ahead of time and ask how they are doing, and whether they’ve thought about their renewal plans yet. Invite them to the leasing office to meet one on one, ask them how their living experience has been at the property and if there are any outstanding maintenance items they haven’t been able to call in or request.

Be flexible on renewals. With rents dropping, residents will be wary to extend a lease at an elevated rate. You can counter this by offering long-time residents rent freezes – “We’re happy to renew your lease at its current rate” – or by giving them the choice of a shorter term at just 2.5% more.

As the apartment market changes, pivoting from an attitude of inviting residents to move to enticing them to stay will take focus and consistent attention from staff. Giving them the tools and programs they need to do so, while remaining honed in on the fundamentals of good property management can help hold onto the residents you have and keep your occupancy up in a falling market.