There are risks to multifamily revenue in the current economy so here is a look at those issues and 5 ways mitigate those risks.
By Mark Peters
It’s critical for owners and operators to prepare and protect themselves ahead of a potential economic downturn. This process begins with identifying the top five risks to multifamily revenue and determining the best approaches to mitigating these risks:
Risk 1: NSF Returns, payment errors and chargebacks
Transaction errors and fraud pose a notable risk during rent collection cycles, particularly during recessions. According to the NAA, property managers lose around $17,000 annually per property to collections.
Payment technology tools offer one remedy to identify and prevent fraud. These tools ensure sufficient funds are available to cover payments, by instantly verifying bank account information. Additionally, chargeback defense teams offer further protection by helping to recover lost revenue.
Risk 2: Delinquent rent
Late or missing rent payments reduce cash flow and interrupt productivity by diverting resources to collections and evictions.
Fraud detection providers can offer respite by verifying renters’ identification in real time, eliminating the risk of fraud and delinquencies before a lease is signed. Operators can also reduce delinquencies by offering residents payment flexibility, which is a major upside as high rents continue to burden many people. This solution allows operators to get paid in full and on time, while allowing residents to pay in installments that work within their budget.
Risk 3: Paper-based payment processing
Manually processing paper rent payments is inefficient and error-prone. Yet, 42 percent of rent payments are still made with a check and 16 percent with money orders. This is due to the portion of renters that remain unbanked, are unwilling to change their check writing habits or want to avoid digital processing fees.
As an alternative, forward-thinking operators are offering digital payment portals, modern lockbox solutions and digital cash payment solutions. Not only are these systems more secure than checks or money orders, they can also improve cash flow and negate fraud by reducing the time money is tied up in accounts receivable, thanks to immediate deposits.
Risk 4: Paying utility invoices without auditing them
Utilities are a major expense for apartment communities. While operators don’t have a hand in bringing utility costs down, there is an opportunity to save significant sums of money by catching errors in utility invoices.
At least 17 percent of utility invoices contain errors, which can amount to hundreds of thousands of dollars on operator’s books. Establishing a consistent and standardized process for monthly utility invoice audits can help operators avoid this.
Outsourcing this task to a provider can also prove beneficial for smaller teams that may lack adequate resources to take on another task. Enlisting the help of a third party frees up time for property teams to focus on more important, mission-critical tasks.
Risk 5: Suboptimal utility cost recoupment
While there are a variety of present day factors driving energy costs at any given time, one aspect of navigating the utility market as a property manager remains true – including utilities in rent or charging a flat fee leaves cash flow vulnerable to rate fluctuations.
Billing residents for their actual usage mitigates the risks associated with utilities-included or flat-fee approaches and also creates a new revenue stream through recuperated costs. This added revenue increases NOI and, after factoring in cap rates, can also lead to a spike in property value.
While there isn’t a magic path that would allow operators to completely avoid the impacts of a less-than-ideal economy on business, years of property management data and analysis have brought incredibly helpful solutions to the marketplace.
By leveraging solutions specifically designed to address risks to multifamily revenue, operators can position themselves in the best possible way for weathering an economic challenge.
About the author:
Mark Peters is president of Zego a property management automation company.