In Tough Times, Landlords and Tenants Both Looking to Get More For Their Money

In Tough Times, Landlords and Tenants Both Looking to Get More For Their Money
By: Nicholas A. Dunlap, CPM

With multi-family vacancy rates and California’s unemployment rate simultaneously reaching recent highs, it is important for multi-family owners and operators to consider a new look for their apartment homes or be forced to decrease rents far lower than the competition. The statewide circumstances have placed renters in dire straits financially. Many landlords have already reduced rents and have now begun to offer competitive move-in specials, in some cases labeled as free rent. This has been the state of the rental market in 2009.

Higher vacancy rates, higher turnover expenses and lower rents; these circumstances have been realized on a full-range of multi-family properties and product types, ranging from Class A Luxury to lower level C type properties. In some cases, there are no longer substantial leaps in price between product types and the dollar amount difference between well-kept B property and a C type property with some deferred maintenance or between well-cared for B type and the luxurious A product, that gap has also minimized.

Historically, it has been the larger 100+ unit properties that have boasted updates such as wood-vinyl flooring, a more plush carpet, designer paints and even designer finishes on lighting and cabinetry. But with the dwindling gaps between the dollar amounts of rents at A, B and C type properties, many smaller properties <100 units whose owners and managers are still trying to achieve an elevated market rent are introducing these improvements as well.

Now more than ever, it is imperative to understand the importance of the material finishes of your apartment homes. The dollar figure attached to the rent might be what gets the residents in the door, but the material finishes and property amenities is what gets them to stay. So goes the old aphorism, “sell the sizzle, not the steak”, the finishes are the sizzle and the dollar figure is the steak. With white walls and plain carpet, there’s just not a lot of sizzle to sell. Are you prepared to reduce your rents to levels lower than the rest of the marketplace? Rents are already down as much as 10 to 20% in various Orange and Los Angeles County Submarkets and not spending for the improvements can potentially mean that your rents will need to be lower than these already lower rents just to compete for residents.

Gone are the days when upgrades simply meant ungodly dollar amounts and ridiculous inconvenience to ownership and staff. Materials have become mass produced and customized in many areas to specifically fit and accommodate apartment kitchens and bathrooms. Pre-fabricated granite slab countertops are now affordable and easy to install or have installed in a kitchen or bathroom. Upgraded, modern flooring is not only a mere $300 more, but in some cases it comes with an extended warranty. Paying for future protection in an apartment? Yes, that’s right. And lastly, changing the paint color is as easy as picking up a Dunn Edwards swatch of colors and locating a nice, neutral alternative color to liven up the probably bleached-white walls.

Bargains are available in every product type. With more renters unemployed and out looking for deals, it is important not just to attract them, but to retain them with value. This value is the equivalent to the “bang for the buck” type of advertising programs that has infiltrated our minds through fast-food, dining and a variety of discount shopping avenues encouraging you to patronize their establishment and leave with a lot for less than you would spend elsewhere. Real estate is no different. Renters want the biggest and best place at the lowest and best price. Are you prepared to house them?