In a perfect world, every renter would commit to a standard 12-month lease.

And routine, inexpensive turnovers during the prime rental season would bring about the same type of renter, and increasingly higher rents.

But it’s never that simple. Multifamily dwellers are not one monolithic group, and with an air of economic uncertainty lingering, particularly in urban environments, more and more renters are asking for flexible leases. And without revenue management software to lend a helping hand, it’s all too easy to tell a renter no.

“Really, we’re not saying no to lease terms for the applicant [anymore],” says Kevin Huss, vice president of revenue management at Philadelphia-based Resource Residential. “They have the option to move out whenever they want.”

Balancing Act

If an operator has plenty of leases expiring in a specific month, it might have backed away from offering a short-term lease expiring that same month. But instead of heaping more vacancies on that blackout period, operators can simply charge accordingly so that they’re not losing anything in the process, creating more options for the customer besides, Huss adds.

“You can balance their timing, their plans with your pricing,” says John Selindh, group vice president of sales and marketing at San Francisco–based BRE Properties, which has worked with both Rainmaker LRO and RealPage’s YieldStar revenue management software.

The software automatically offers odd-duration leases with prices that follow the property’s demand curve. This type of dynamic pricing would be very difficult to do manually, and flatly determining prices across the year without software minimizes the ability to maintain revenue at a higher level (for an example of dynamic pricing, see the chart opposite).

The software also helps to balance your schedule of upcoming lease expirations. Instead of having a set number of leases that expire each month throughout the year, you can consider variables as the software mirrors curves that occur during peak times.

“If you know your traffic is going to spike in July, the software is going to take more expirations,” Huss says. “It’s going to know that we’re going to have that demand to fill the supply.”

Revenue management software allows you to look at each month’s lease traffic to determine the optimal lease term and price point to maximize rates and occupancy. The system will first set optimal expiration until the price kicks in, and as you have more expirations going on during a particular month, prices will consequently rise.

“We’re OK taking a lease, because we know that we’re getting more money throughout that lease term to make up for any added challenges by having additional lease terms and expirations during that period,” Huss says.

The software will consider the floor plan of the unit, the history of its vacancies and rents, and particularly the cost of turning it over, to determine a price increase. It also looks at the competition, comparing pricing and availability with that in the local market.

If you’re highly occupied, for instance, and only have one apartment available, you can determine what to charge to avoid multiple, poorly-timed vacancies. And depending on how long an apartment has been sitting and the traffic (or lack thereof) it receives, the software might strategically drop prices.

Price Guarantee

If you’re having problems with occupancy, a longer lease term could also be effective. By locking in an ­individual to a two-year lease, you can guarantee that occupancy.

At Boston-based WinnDevelopment, a few properties offer multiyear leases with a modest annual increase to “guarantee income and revenue increases year after year,” says Michelle Tomassetti, WinnDevelopment’s divisional marketing coordinator. It won’t work in all markets, of course. But in those where rents are projected to go up substantially, a two-year lease can be a hot sell.

“People feel comfortable knowing they’re locked into specific rates [for the two-year period],” adds Tomassetti. “And we feel comfortable knowing that there’s guaranteed ­occupancy.”

If your primary focus is improving cash flow, ­however, operators should shy away from two-year leases, allowing themselves time to reset rates at higher prices. In a strong growth market, Selindh says, a company could handle shorter, six-month leases to go for higher rents, as opposed to locking in a full-year lease.

In the past, operators were wary of offering ­leases that expire during the holiday season; it’s always a struggle to fill units in the weeks between Thanksgiving and New Year’s Day. But even if a renter wants the lease to expire on Thanksgiving Day, you can price accordingly with the software.

“In stable properties, they push lease expirations off to spring so they’re not faced with that challenge,” Tomassetti says. But with the software, owners can “ramp up marketing even more, focus on specials to lease now, and [offer] incentives for prospects to lease during the holidays,” she says.

Truly, the prices for any lease term are easily determined with revenue management software.