The major advantage many long-term apartment owners have had over those with newer, greener units is a stronger equity position. Seasoned owners successfully compete with features like larger bedrooms, more parking spaces, nostalgia and often a lower building mortgage payment. Will this be enough as tastes change, apartment inventories increase and people adjust to tighter budgets? Probably not.
According to the Consumer Expenditure Survey of 2005 (CES) published by the Bureau of Labor Statistics, renters spent an average of $30,462 for housing that year compared to the $54,216 spent by homeowners. Housing is expected to remain the largest budget item for American families. In fact, the average income reported by renters in the study was $20,000, surprising as the statistics show the average expenditure was $10,000 more. In other words, monies are generated in the ‘gray-economy’ - money paid under the table, illegal activities, unreported roommate contributions, etc. - as well as renters’ use of credit.
As this makes statistical comparisons as a percentage of income unreliable, let’s just agree people spend a major percentage of their income on housing. However, when they do spend large amounts on any big ticket item, they expect performance. This is true whether it is a new car, an HVAC system or an apartment.
The United Kingdom’s version of Investor Today noted this week that their Retirement Nation survey showed 48% of people had cut entertainment spending and 39% had “consciously cut back on the type or amount of food and drink they purchase”. With North America and Europe experiencing similar economic impacts from the recession, it is a logical assumption that many Americans are making these same choices. This becomes a problem for landlords because when residents are experiencing increasing expenses and stagnant wages, they stay home a lot more. Estimating how many of these ‘trapped’ residents will focus dissatisfaction on their apartments is impossible, but it will happen. Even a minor lifestyle change like canceling a club membership can have a boomerang effect, if in the renter’s view a pool-less apartment seems suddenly inadequate.
Giving renters the perception that they are getting more for their money is one way for older properties to compete. Granted, optional spending in a poor economy may seem counter-intuitive and take some salesmanship to sell to management initially, but as an investment it pays off. Responding to known or emerging cultural preferences can both retain and attract residents but first a little realism. Here are a few ways managers can please residents, remain solvent and operate a bit more sustainably.
Managing Use: Greater use of an apartment will also tend to create more noticeable wear and tear. A stained hallway carpet or flickering light fixture have been known to motivate more than one on-line apartment search. Property managers need to acknowledge that ‘apartment fatigue’ is a real problem and devise some creative strategies to overcome it.
Delay or Reduce Rental Increases: Rental increases – or the fear of one – may prompt otherwise happy residents to scatter. Let a few rumors fly that so-and-so’s rent was upped by ‘x’ amount as was unit B’s and mutiny may be too soft a word. Clear communication is the remedy here. If management intends to raise rents - and many will as the rental market improves – give tenants sufficient notice or even spell it out in their initial lease. Nobody likes surprises but properly educated residents can understand water delivery increases and see the fairness in a modest rent increase.
Good-Enough: There is a point at which renters deem the ‘extra’ expense of a move to a ‘luxury’ building worthwhile. Although it would seem less likely in this economy, renters statistically move more often than homeowners. As their dreams of home ownership dampen, they may decide to upgrade – regardless of whether it makes economic sense. Rather than waiting for a vacancy to manage the turnover expense, why not parcel out needed upgrades and policy changes to retain tenants instead? Here are a few options:
- New carpets may be too disruptive for an existing tenant, but matching area rugs to cover trouble spots around couches or in entryways is not. In fact, for new tenants supply these area rugs – and replace them as needed - and you will prolong the installed carpet life.
- Flor carpet tiles can be installed without glues or tearing up an entire apartment, so consider these as an interim, one-room solution.
- Allow tenants to call a drape cleaning service at their convenience and management’s expense - a winner, particularly for people with allergies.
- Replace old bathroom and kitchen faucets with new pretty ones. If you buy the ones with the best aerators, the water bill savings will substantially accelerate the payback period.
- Replace incandescent bulbs with the new softer light CFLS or LEDs and install occupancy sensors where needed for more light.
- Upgrade laundry room facilities by installing the energy and water saving front-loading models and higher-efficiency dryers.
- Change your policy to allow pets and advertise “pet friendly” in your listings. According to the American Pet Products Manufacturers 2009-2010 survey results, 39% of U.S. households own a dog and 33% own a cat. That translates to 77 million dogs and 93.6 million cats (many owners have more than one pet). This crowd pleaser will help retain tenants and attract new ones. Pet owners are also very willing to pay pet deposits.
- Offer portable room dividers to all your tenants but particularly those with expanding families. The dividers pictured here are from the Room Divider Store and range from $104 to $856. They vary from rigid one piece units to flexible three piece versions of varying heights. The beauty, of course, is that they are not permanently affixed. Not only can the tenant close/move the screen at will, but when the tenant no longer needs the screen it can be retrieved.
Serenity Areas: If a property lacks a community room, pool, barbecue area or some other gathering place for residents, why not consider creating a few ’serenity spots’ in small spaces? One of my favorite setups was between two buildings. The space was no more than 15 feet wide but ran the building’s entire length of about 60 feet. The two adjoining owners had created a sweet bricked-in spot with a jungle-like, plant covered waterfall inset in the 20 foot high back wall which also blocked the sightline to the next street and created a cozy, safe area. The water feature camouflaged the noise of the street traffic and the owners had placed tables and chairs close enough for conversation, all surrounding a children’s play area.
Parking Charges and Shared Cars: Charging residents extra for parking privileges may not set well with everyone, but it is a good way to discourage private automobile usage and raise some extra income. Adding an electric vehicle charging station to a property is also a pretty hipster move, but unless your tenants are flush enough to afford the hefty price tags, you may be better off assigning parking spaces for shared car services. When the true cost of private automobile ownership is calculated - purchase price, interest, tires, servicing, repairs and auto insurance - most people are paying a minimum of $1,000 a month for the privilege. Charging a monthly parking fee is becoming common where development is dense, there is public transit and street parking is limited.
Other Articles of Interest: