“Make new friends, but keep the old. One is silver; the other one’s gold.” These lyrics by Grammy Award-winning songwriter Christopher Cross speak to Christy Freeland, CEO of Dallas-based fee management titan Riverstone Residential. But instead of stirring up nostalgia, the song reminds the 30-year industry veteran of something else: the age-old property management quandary: How do you bring in new renters and keep the old? And what happens when new renters swing better deals than existing residents? For Freeland and many other managers, the bottom line is to keep residents in place, or “heads on beds,” as she says. The upfront costs of fine-tuning units for the next resident, as well as orchestrating background checks and accommodating other move-in details, are timely and costly. Chris Kearns agrees: “Turnover cost will eat you alive,” says the owner of Badger Properties in Auburn, Ala.
And yet, turnover is a reality of the business. New renters must be welcomed if they are to stay and become the “old friends” that keep a particular property thriving. In the end, these competing interests become a balancing act with no safety net, just a few guidelines for the tightrope ahead.
Kearns, who oversees 51 units across five properties in Auburn, has a decidedly smaller operation than Freeland, but he agrees that pricing is like doing the limbo. If the rent is too high, residents bail. If it’s too low, the property manager can’t pay the bills.
In Auburn, a university town of about 55,000, Kearns also faces the problem of constant turnover. Nevertheless, “I don’t want to run off the good people,” he says.
Unfortunately, when a new renter takes the stage, sometimes managers such as Kearns find themselves struggling to keep the spotlight on existing residents. Who’s the priority? “The goal is to renew the resident,” Freeland sums up. “Look at current rent for new renters, look at what the existing resident is paying, and get it as close as possible.”
In other words, know your market. For Kearns, the big factor is the cost of living. “My locations are premium,” Kearns says. “People want to get close to school.”
This reality makes it easy for him to raise the rent incrementally without alienating prospective renters or losing existing ones.Yet when Douglas Hanrahan prices his units, he generally gives new renters more concessions than existing ones. Why? Again, he knows his market.
“Rent has escalated the past few years, and we haven’t pulled back on the rent,” says Hanrahan, director of property management for Chicago-based Wirtz Realty Corp., which manages 1,900 units throughout the Chicago metro area.
But that didn’t stop him from doing what he could to keep a valued resident of 18 years. “I went down far enough so that it wasn’t worth it for her to move,” he adds. “It’s slow out there, but not so slow that we want to give away the farm.”
Knowledge is Power
For Freeland, competitive pricing means doing your homework. Know what’s out there. The average apartment seeker used to have to scout out numerous properties just to get a few quotes. Today, the Internet provides instantaneous comparability.
Interactive online features can also determine a renter’s fate. A 2008 Pew research study revealed that 54 percent of those who bought or rented a home in 2007 took a video tour of the property before signing on. “We’ve got a very educated consumer base,” Freeland explains.
Given the information edge that the average consumer now brings to the leasing office, it is important to keep everyone “in the know.” Never assume ignorance. “Everybody knows what everybody else is paying,” Kearns says.
This is especially true when he sends out his renewal notices, generally 60 days before the end of a lease. Kearns lets his existing residents know in writing both what their rent will be should they renew as well as what their rent would be if they were a new renter. For example, if a current resident pays $700 a month for a unit, it might cost $720 to renew. But if they were new renters, Kearns informs them that they could be paying $780 for the exact same apartment.
Freeland isn’t as direct as Kearns. “It is not my responsibility to do the research for them,” she says. But if an existing resident says, “Hey, wait a minute,” Freeland instructs on-site associates to provide an honest look at the situation. “Most of the time, we’ll be matching or close to matching what a new renter is getting.”
Hanrahan also keeps the door open, but only for the most pesky, market-savvy residents. “If someone comes to me and they’re over market for whatever reason on their renewal, then I’m going to make an adjustment on it, if they’re adamant about it,” he says.
In some cases, property managers may have to rescind and lower the offer as stated in the first renewal notice—if residents aren’t signing on. A manager’s special might also entice them to stay, Freeland suggests.
Another option is to sweeten the deal with free carpet shampooing or carport discounts. These promotions, however, can’t be divvied out to just a few. Fair housing laws mandate that occupants of similar units be accommodated in the same way.
Even so, the market can shift between an initial offer and the time renters sign their leases, so it’s important to stay current. What residents may not realize, however, is what their concessions were when they originally signed their own leases. These concessions may have been more favorable at that time than those now being offered to new renters, even at a different dollar amount.
Ultimately, few clear-cut rules to pricing properties and pleasing people exist. But the consensus among property managers in the game today is that a robust knowledge of the unit, its occupant, and the local marketplace is the key to keeping old friends—and residents—and making new ones.
Alison Flowers is a freelance writer living inEvanston, Ill.
When it comes to rents and pricing, individual units and layouts matter as well. Property managers say there are three unit-specific factors that play into the pricing equation when they’re negotiating lease renewals and new sign-ups.
1. Unit size. The price point for a one-bedroom unit will clearly differ from a two-bedroom, but not all one-bedroom units are created equal. Remind residents of this, particularly if they feel slighted by seemingly better deals for incoming renters. While many property managers agree that upgrading disgruntled residents to larger units is not a valid form of concession, some do allow them to switch to smaller units at the current rate. “When people are downsizing or just want to save, whatever it might be—they lost their jobs, they want to stay in the building—we want it to work for them,” says Mick Kappaz, who oversees the 218-unit Wyndham Apartments in Chicago.
2. Floor level. At many mid- or high-rise towers, the higher the floor of the unit, the higher the price point. In this case, Kappaz might appease those residents looking for a break by signing them to a different floor. Again, he will give them the same concession as a new sign-up. “I am willing to work out whatever is going to make the deal work, provided that we stay within certain guidelines,” Kappaz says.
3. Amenities. In properties undergoing renovations, some units may have upgraded features that can factor into pricing and lease negotiations. For example, in-unit perks such as washers and dryers, patios and balconies, and hardwood floors can be used to either sweeten the deal for renewals or remind residents why someone else’s unit with fewer amenities might be cheaper. Douglas Hanrahan, director of property management for Chicago-based Wirtz Realty Corp., which manages 1,900 units locally, cautions that a leasing agent should not work backwards on a rental. Amenities should be reflected in their lease but he says, “I might cut them a deal on [a unit] if there is resistance to the pricing.”