As year-over-year rent growth slows, operators are finding ways to combat the rent growth decline focusing on resident renewals and identifying new NOI strategies so here are some examples.
A historic period of rent growth ended last year, subsequently followed by several months of decline that have carried into 2023.
According to the latest update from the Apartment List National Rent Report, year-over-year rent growth continues to decelerate and is projected to decline further in the coming months. Those headwinds pose a significant challenge to multifamily owner/operators, and their response to eroding market factors could dictate their portfolio performance for the foreseeable future.
While the typical industry reaction is to cut costs and batten down the hatches, inflation rates continue to limit the efficacy of expense reductions. Cutting staff and services can trim budgets but it also impairs resident retention efforts. Operators are finding that focusing on resident renewals and identifying new NOI strategies within day-to-day operations better positions them to weather the storm.
Here are other ways owner/operators can increase NOI in a potentially stagnant, inflationary period in 2023. In addition to developing new revenue sources, operators are increasingly seeking opportunities to limit revenue loss on the back end of leases.
Maximizing Rent Collection
According to the latest Household Pulse Survey from the Census Department, more than 8 million renters were not current on their rent payments at the beginning of 2023. While delinquency is always a concern in the industry, renters are at an even higher risk of becoming delinquent during an inflationary period or a recession.
Many operators are turning to rent payment innovation to proactively mitigate delinquencies, increase collections and position residents to successfully pay rent on time – no matter what’s happening in the economy. The most effective rent payment platforms allow renters to set up automated, customized payment schedules that align with their income and support them in sustainably paying on time and catching up on arrears. This comprehensive payment methodology caters to residents, but ultimately gears operators with a long-term tactic to maximize rental income and improve their NOI.
According to internal data from Circa, an innovative payment technology company, operators that extend a comprehensive payment platform to their residents experience a 17.5% increase in on-time payments at their communities.
“Many aspects of rental housing are customized for residents, but one area that operators can make a notable improvement to NOI is by extending that customized experience to rent,” said Leslie Hyman, CEO and co-founder of Circa. “When renters can customize their largest monthly payment on an automated schedule, it sets operators up to maximize rental income and recoup any losses. It’s an additional security tactic operators utilize to improve both their NOI and asset value.”
The rental industry files eviction proceedings on about 2.5 percent of units every year. While that number is small when viewed as a percentage, it can be overwhelming when looking at actual units. Even when things go well dealing with delinquent residents, the task can be overwhelming for property teams and managers. It’s when challenges arise that costs for even a single eviction can balloon quickly.
The smallest of errors or a missed deadline can result in a judge pushing an eviction back another 30 days or more. That’s additional rental income that may be lost, additional fees to re-file and additional costs for legal counsel. Add to that the fact that leasing teams chasing delinquencies are directing a lesser amount of effort into growing a community and its NOI. It’s easier than you might believe to introduce a mistake or miss a deadline, and it’s not necessarily the fault of the onsite teams.
“Evictions don’t just vary from state to state; you have different things going on at the county and municipal levels, as well,” explained Larry Bellack, Executive Vice President of Possession Partner. “The Los Angeles City Council recently moved to end eviction moratoriums, but the Los Angeles County Council is considering extending them to June 2023, and not all communities in the city are required to follow the county moratorium. With so many government entities making so many different decisions that apply differently to communities in the same area, it’s a monumental challenge to keep track and an invitation to error and increased costs.”
Some of the costs can be avoided with the implementation of a third-party eviction management system that can automate much of the process to meet deadlines and employ a team of experts trained to track and fully understand the frequent changes to eviction laws and regulations
Security Deposit Replacement
Operators are also realizing the benefits of optimized claims by replacing traditional security deposits and surety bonds with lease insurance. The deposit refund and claims process often prevents property teams from effectively turning the page on former residents, leading to bad debt and unnecessary vacancy.
Lease insurance replaces prohibitive upfront deposits with a modest monthly fee, streamlining the application and move-in process but more importantly expediting claims on the back end.
“Historically, security deposits have always presented a financial barrier to residency. Lease insurance eliminates that upfront expense for prospective renters who otherwise meet qualifications,” said Ed Wolff, president of LeaseLock. “That creates opportunities for renters and a much larger prospect pool for operators. It also erases the friction that often accompanies security deposit conversations at move-out. Without security deposits to manage or dispute, departing residents can move on without looking over their shoulders and management teams are protected from bad debt.”
Lease insurance technology helps operators start the claims process earlier to speed up the rate of return on that revenue by absorbing account balances at move-out. Claim returns are processed in roughly a week, establishing reliable back-end revenue capture and boosting NOI. Property teams simply need to close out the final account statement to initiate claims immediately through the native receivables process.
Whether managing an eviction or debt recovery, these processes are time-consuming and contentious. Lease insurance eases the burden of claims management for on-site teams and allows overstretched associates to focus on leasing and customer service. By removing security deposits from the equation, it also eliminates any brand damage stemming from the negative reviews that frequently accompany deposit refund disputes.
About the author:
Kevin Juhasz is a content manager for LinnellTaylor Marketing and a writer, editor, and storyteller.