Despite the recent economic downturn, the majority of rental housing properties have performed well, and most are continuing to do so.
However, in the absence of a strong and speedy economic recovery coupled with potential further stresses to rental housing markets — including higher interest rates, less real estate tax exemptions and even declining federal rental assistance — effective management is more important than ever.
The following illustrates a couple of ways effective property and asset management can help owners and funders of rental housing to not only weather the storm but also help maximize the value of their assets.
Look Beyond Physical Occupancy
Owners and investors typically describe the performance of their housing portfolios by citing average physical occupancy among other factors. While the number of occupied apartments provides some indication of the health of the asset, it’s only one component of total rental revenue. High physical occupancy might be a good indicator but only if all (or most) of the tenants are paying their rents in full, which is often not the case. Asset managers seeking to understand the full economic benefit of occupied units also need to know if any tenants are delinquent on their rent payments which may lead to write-offs or bad debt; and, if any tenants are paying discounted rents due to move-in specials or other types of concessions. Particularly in challenged markets with declining rents and families unable to keep up with their rent payments, economic occupancy calculations are much more useful analyzing and managing revenue.
Going Beyond the Basics to Control Operating Expenses
Housing developments in struggling markets, for which even strong operators are unable to increase rents or occupancy, require asset managers to devote more time on the expense side to help improve or maintain overall financial performance. Controlling costs requires more than the common year-to-date actual vs. budget and year-over-year analyses.
The following questions suggest strategies that go beyond the basics for exploring ways to minimize operating costs:
- Are overall per unit expenses in line with other multifamily rental properties, of comparable age and type, in the owner’s portfolio and the local area?
- Is the owner contracting the right vendors?
- Are there any opportunities to conduct bulk purchases across the owner’s portfolio?
- Are there any opportunities to perform quick and inexpensive (“low-hanging fruit”) energy efficiency upgrades?
Other key management best practices include understanding the local market, hiring and retaining talented site and regional management staff and fostering a strong sense of community at the housing developments in order to attract and keep residents.