How Can Teamwork Deliver $100K+ to Struggling Rental Investors? Our December to Remember

2023 was a generally slow year for the rental market.  There were spurts of strong activity punctuated by long periods with little traffic at all.  Basically, unless you were cutting the price dramatically, you had a few small windows of time to act fast to fill a home before that wave’s crest had passed.

We see a minor form of this every year as shown in this seasonal chart from Apartmentlist.com.

Note this chart shows search intent, so website traffic in January and February is typically planning for a spring move. They are the slowest months for our company.

This year was more proncounced than most in just how slow the valleys were.  The fall bounce that we’re used to seeing came later than we’ve seen in our 20 year history. As Thanksgiving came around after several slow months in a row, we had a worrisome number of homes that had  already been on the market longer than we have ever seen. That is not the strategy we would have chosen as we consider vacant homes to be risky and costly.

That’s due to another trend in 2023 which is how difficult it was to convince owners to reduce their top-line rental rates, versus throwing money away on unproductive vacancy costs.

There are probably a lot of reasons why rental investors opt to pay $100 a day (a common cost of vacancy in our markets) versus reducing the rent $100 a month.  In effect betting big on the bird in the bush, rather than the one in the hand. The root causes are poabbly best left for psychologists, but we’ve heard a lot of mistaken assumptions like.

Professional managers accept vacancy cost in some situations.  Knowledge of when these situations makes sense is not standard in the industry, and is hard  to take advantage of if you aren’t in the trenches day after day. 

For example, as we write this article in late Februrary 2024 we’re beginning to enter a period where it may make more sense to “wait for a better market” though it’s still extremely risky. Given that things have been slow, we’re worried that it might be late Apri before the market really rebounds.  Perhaps mid May before prices have seriously increased.  So that strategy could still easily end up with 2.5 months of vacancy (thousands in even cheap markets) and a price that is only slightly higher than where we currently stand.

In those instances we often sign a 14-16 month lease to ensure that we don’t have so many seasonal challenges in the future.  Some owners further latch on to this decision as a concern beause “won’t I get a winter rate for longer now?”  Yes you would but you are missing the point.  Vacancy is the enemy here, not a slightly below market rate if that also translates into a higher quality resident.  What you give up on the top line rate you more than make up with a higher quality resident whos statisically likely to lead to less of every problem except job transfers.

High-quality renters who have buy now credit quality do tend to move more often but with much less vacancy and turnover cost in between it’s less of a challenge when they do.

Why do low credit quality residents move less often?  Becuase it’s extremely expensive.  They tend to lose dozens of application fees before approval and the overall process is a nightmare. So they tend to stay put for much longer periods of time, leading to much larger and stressful turnovers even if they do take better than average care of the home.

This was the backdrop our company faced when we came back from Thanksgiving. We had approximately 30 vacant homes on the market, and almost no traffic. 

We had been telling our owners for a month that we expected to see a bump in traffic any day, and even advised many of them to hold off on reductions until we saw a general pickup.

That’s a common strategy for us.  We hold our price reductions if we can, until we feel a general upsurge across all of our homes in a given market.  A small price reduction timed well, can all but assure that a home will be filled soon. 

Upon our return, the market was still showing no signs of life, and our company started moving into red alert mode.

Our leadership team met to discuss the challenges we faced, and what might be done to improve on them.  They ran some numbers and came to the realization that if we didn’t clear our inventory soon it would cost our owners over $45,000 just for the month of December. Add to that the fact that January and February are the slowest months of the year, and we felt we were staring down the barrel of almost $120,000 in vacancy cost, the most egrigious form of waste in our industry. Winter is also a terrible time to have a vacant home.

We then enacted fhe following strategy.

We always run social ads, so that alone wouldn’t have moved the needle much, even though we did fire off almost 20% of our entire years marketing budget during those three busy weeks between Thanksgiving and Christmas.

Our undeniable urgency and effort at this point was clear to the owners who had been holding out, and our messeging began to catch traction. With their increased confidence in our effort and advice, combined with their own concerns about winter vacancy we secured the needed deductions.

What happened from there was pure magic for a property management nerd.

Our operations division had mostly focused on building their division since it was only a few months old. At this point they shifted their focus to providing any and all support they possibly could to our account managers, to ensure they could stay firmly placed at their battlestations directing the flow of traffic both for the huge amount of home viewers we were lininig up, and our field staff themselves who were in need of disptach / admin services while they were zipping all over town. 

Also, up to that point our account managers had been quite skeptical of their new operations counterparts.  Probably due to human nature and worries that change might leave you disadvantaged, our account managers had not been taking advantage of the help we were trying to provide.  Sensing that, the operations division simply doubled down on providing them hard to decline support.

This shift began to reverse months of individual do it all myself mentality.  Finally we saw our account managers leaning heavily on operations because alone they would not be able to handle the dramatically increased load this overall strategy produced. Their increased engagement seemed to focus our inexperienced operations hires directly on their needs, which of course are almost identical to the needs of our customers, especialyl those shouldering vacant homes during this period.

For a company that was modeled on sports teams, talks teamwork constantly, and built a system that required significant amounts of collaboration in an industry not known for it at all, this was a magical moment.

Obviously the goal was always to rent those homes at any  cost, but the fact that it finally brought together the beneftis of collaboration between a division focused on customer and financial results, and one focused on efficiency and exectuting tough tasks quickly and effectively was a long term sign of amazing things just ahead.

Of course we knew that the only effective method to surmount the challenges we faced was through committed teamwork, so our goal had largely been achieved at that point.

From there it was mostly a matter of watching the results of a magic collaborative process roll in and fall into place, and that’s exactly what happened.

By the time Christmas arrived we had rented almost every one of our vacant struggling homes that had been languishing on the market.  Most importantly, to extremely high quality residents who often timed their move specifically to find a value.  As we write this in late February 2024 we estimate we earned $100,000-$150,000 in rent income that our competitors would not have, that otherwise would have been wasted with no benefit to our owners or residents.

That’s the power of great management.