Attracting residents with cash back rewards can be more effective than traditional rental concessions, such as a free month of rent or gift card, and incentive optimization platforms can help.
By Andrew Ruhland
Apartment operators everywhere are trying to maintain steady cash flow and, if plausible, increase revenue in today’s economic uncertainty.
Resident retention is key, and the best way to maintain ideal occupancy rates begins with meeting renters where they are and responding to them with immediacy. Operators are turning to incentive optimization tools that can not only enhance the lives of residents, but also help operators boost renewal rates and lower their operating costs.
Forward-thinking operators are tapping into technology-powered incentive optimization, such as cash back for renters who pay their rent on time. These tools garner higher resident engagement while empowering them to establish financial security. This is a significant resource for renters, especially with ongoing inflation, rising mortgage costs, skyrocketing rent and a looming recession.
Incentive optimization platforms notably work in the operator’s favor by promoting positive renter behaviors, such as paying rent on time, and adds another layer of financial security to communities. This multifaceted approach is a bonafide win-win for renters and operators. By maximizing renewals, reducing concession costs and mitigating delinquencies, incentive optimization is quickly becoming the industry’s next powerful resident engagement strategy.
Rethinking concession strategies
Traditionally, operators offer concessions as a means to attract as many residents as possible and boost occupancy rates.
The problem is, many of the typical concessions, like heavily discounted rent or one month free and gift cards, do not equate to increased revenue, nor higher renewals. They aren’t long-term solutions, and they’ll never yield long-term results.
“We frequently struggled with whether concessions, particularly at lease up communities, were the best value for ourselves and for our customers,” said Paul Seifert, Executive Vice President of Operations at Continental Properties Company. “Up front concessions come with enhanced delinquency risk for the owner while creating uneven cash flow for the resident. We desired an approach that upended that structure and provided more value to each stakeholder. Stake, a financial technology company had a mission that aligned with our goals and we decided to roll out Stake’s incentive optimization platform across much of our portfolio, substituting cash back rewards for our residents instead of concessions.”
The next generation of renters values financial stability and resilience, especially during economic volatility. By offering incentives that align between renters, operators and investors, incentive optimization platforms allow everyone to benefit long term. It also gives operators a more tactical approach to reducing concession costs.
Stake, which currently operates in more than 50,000 apartment homes across the U.S., has allowed its clients to significantly reduce spend on concessions by replacing traditional concessions with cash back on rent. Based on internal data, Stake clients in Class A communities reduced spend year-to-date by 21.3 percent while Class B and C communities reduced spend by 15 percent and 24.9 percent respectively.
“We’ve seen a lot of value from incentive optimization, and not just savings on concession expenses,” Seifert said. “We’ve also been able to tackle other challenges, like attracting more qualified residents and mitigating delinquency rates. Delinquencies are an industry-wide challenge, and a resource like cash back on rent is a really holistic approach. It really incentivizes residents to pay on time, in full, and allows them to benefit from making that largest monthly payment. In turn, it serves as a proactive delinquency mitigation tool because you’re encouraging those positive actions and rewarding residents for it. It creates a much better cycle that establishes a better community cycle and overall financial ecosystem for both residents and operators.”
Attracting residents who pay and stay
With economic uncertainty and income volatility, many renters struggle to make their largest monthly payment and simultaneously build financial stability.
Providing cash back on rent empowers renters to better manage their finances and accumulate wealth; it’s a life-enhancing amenity. Return on rent through cash back is a long-term benefit that operators can extend to renters, and a sustainable tactic that addresses many of the key challenges both renters and operators face.
Stake’s data also shows positive delinquency trends for operators who offer cash back to renters. Stake clients experienced a significant year-to-date reduction in delinquencies across Class A (44.6 percent), B (35.3 percent) and C (37.9 percent) communities.
Once a resident moves in, it’s only the beginning of a longer game. Incentives need to align with the long game, and operators are shifting their focus to creating an environment that enhances renters’ quality of life and one they want to stay in – they may not get the same experience elsewhere.
After Stake was implemented as an incentive at renewal time, clients’ year-to-date renewal conversions increased across all asset types: Class A (14.5 percent), B (22 percent) and C (19.3 percent).
“Typical concessions may get residents in the door, but beyond that, they don’t really serve the resident, nor the operator,” said Rowland Hobbs, CEO and co-founder of Stake. “There has been a massive shift within the industry to focus more on Environmental, Social, Governance factors and sustainability initiatives, but the social aspect of ESG can be really challenging for operators. Incentive optimization, at its core, is that social aspect; the S is essential to creating long-term revenue streams. Something like cash back on rent allows operators to effectively implement and track the social component and make a substantial financial impact within apartment communities and society as whole.”
Incentive optimization has quickly become a viable substitute for traditional concessions. By empowering residents to build financial health, rewarding them for on-time, in-full rent payments, building trust and soliciting feedback, operators are mitigating financial risks and tackling some of the industry’s biggest challenges.
While incentive optimization platforms create clear advantages for renters, they’re also helping operators increase their revenue streams, maximize rent collection, proactively reduce delinquencies and increase renewals.
This is the formula for more financially stable and resilient communities – even during tough economic times.
About the author:
Andrew Ruhland is an account executive and content writer for LinnellTaylor Marketing, which focuses exclusively on the rental housing industry, its trends and technology innovations.