In this program we’re presenting to you five areas to assist in rental revenue growth. But it goes beyond just rents and goes beyond just ancillary income. We know that most revenue from a rental property comes from rents but that’s not the whole story.
[00:00:02] I have a question for you. To my and loyal listeners: how many rental revenue growth strategies are you deploying presently on your property? 1? 3? 5? How many are in process: working, operational, functional and bringing in dollars on your property? For some folks that’s an easy question. They can rattle off those that are implemented and bringing in money and for other people you’ve got to stop and think about it.
[00:00:35] In this program we’re presenting to you five areas to assist in rental revenue growth. But it goes beyond just rents and goes beyond just ancillary income. We know that most revenue from a rental property comes from rents but that’s not the whole story.
We also know that having income that’s too high in certain areas is not necessarily a positive such as late fee income. If late fee income is high there’s a reason for that whether it’s because of resident screening or the quality of the property or the quality the resident base. There are some areas of ancillary income that when they increase it’s not necessarily a good thing.
We want to have revenue sources that are appropriate for the assets that you own and we want to have revenue sources that are sustainable. Those are the areas that we’re covering in today’s program.
[00:01:33] Today’s topic is five rental revenue growth strategies. But before I dive into that I want to bring to your attention an article by Michael Lanning. He is the president of Institute of Real Estate Management. In one of his articles Mike makes a very good point that there is a substantial difference between focusing exclusively on rent growth versus focusing on maximizing property value. Whereas today’s episode is all about revenue growth, or rental growth, I just want to bring that to your attention at the front of the program that as much as we always want to focus, as an owner, on rental revenue growth, our real objective should be higher than that. That higher objective is to maximize the value of the asset.
[00:02:24] What do we mean by that? One example I can give you is, in some instances, not many, but in some instances, the value of the dirt under the property, your rental property, sometimes has a higher value than the property itself. And if that’s the case we don’t necessarily want to put more lipstick on the pig. That is the property itself, if in fact, the dirt value, or the land values, has a greater potential for us as an investor than does the asset sitting on top of the dirt.
[00:02:59] Yes, rental revenue growth is a great thing. We should always strive to obtain that. But as Michael Lanning had stated: it’s often in our own best interests to think more about maximizing the value of the asset versus exclusively maximizing rental revenue. I’m detracting from the topic a little bit but I wanted to give you that bigger picture.
[00:03:26] There’s five areas we’re going to speak about today. Of course, there’s always more than 5, there’s always more than 10. The objective of this podcast is to give you a bite sized piece, something that you can dive into and actually implement with the assets that you already own. Let’s talk about our five areas.
Renewals. Number one is renewals. It’s always at the top of the list. Nothing keeps income ticking like retaining existing in-place residents, or customers or clients. We always want to start the renewal process early. Sometimes as much as six months before the end of the lease term. Recognize that retaining an existing client, or resident, is almost always more cost effective than replacing them. Whenever we can reduce our turnover rate we are automatically saving money because of the cost we don’t have to spend for repairing the unit and making it ready for the next resident. Renewals are always going to be at the top of the list when talking about attaining maximum rent growth.
Resident Screening. Second on the list is residents screening. Our customers make or break our business of course. Yes, we want to have quality standards and you need to stick to those standards. Residents screening is a cornerstone for making sure that we’re bringing quality people into our buildings and those that can stay for a long time.
Expanding Other Income Categories. Third on the list is expanding the other income categories. If you have other income, or other revenue categories, such as application fees, late fees, pet fees, storage, cable revenue. These are all well and good but you can’t do all of them. So, pick the one or two that you can implement, that are reasonable to implement, and get that done. And then move on to the next and onto the next. Having a huge list of other income categories that you might/maybe do one day doesn’t produce a single dollar of revenue. But selecting one or two that’s appropriate for the property that you have and implementing those- that will have an impact and that will bring in more than a dollar once you get those in place.
Resident Referrals. Next is resident referrals. I know that sounds like a small thing but if you have existing customers that are happy with the service that you’re providing very often a small incentive will allow them that incentive to talk to their co-workers, talk to their friends and say hey this is a good spot and I think that you should join us over here. Because as much as people complain about where they live, that’s not everyone. For those clients, customers, residents, our clients, that are happy with where they reside try to give them a resident referral fee of X that makes it worth their while to bring people to your doorstep.
E-mail. Next is email. E-mail is the best way to communicate with clients. We’ve seen over the last 10 years how online sales have overtaken in-store sales. A lot of that marketing is accomplished through e-mail or e-mail marketing where a business stays in touch with their client base almost exclusively by e-mail. Meaning there’s no phone calls. There’s no knocking on anyone’s door. There’s just this little electronic box we call our e-mail account where people communicate. And for those of us in the rental business this will become an even larger part of our marketing going forward. Having an e-mail address for your existing resident base, having an opportunity to market to your existing customers, this will be a segment of your marketing activity going forward and frankly there’s no way around it. Certainly, there’s always another mousetrap. I mean we could say Facebook advertising or Instagram or some other online presence. But today’s date e-mail is still king for consistent communication with people.
[00:07:48] Yes we still have telephones. Yes, we still can leave something on their door. Or knock on their door but e-mail communication is consistent. And with that consistency that assist in bringing the relationship to the next level. Because when someone is allowing you to be in their e-mail box that means they have a certain level of trust in you and your business. That when they receive an email from you it’s usually specific to them and it’s usually specific to the business that you’re in. And with that you have an opportunity to communicate with your existing client on a regular and consistent basis. That’s the thing that email marketing brings: that regular and consistent communication between you and your client. That will lead to a higher retention rate, or a higher renewal rate, which is where we started. Here is a recap:
Think about the most effective rental revenue growth strategies that you have at your disposal and don’t try to implement all of them at one time. Select the one or two you know you can implement and start with those. And identify those that are suited best for creating rental revenue growth.
[00:09:07] We can’t tell you which one will work best for you. There’s a substantial difference between a scale of 2 units and a scale of 200 units. There’s a difference between urban and rural environments. But there’s always going to be one additional service or potential revenue stream, that you can bring on-line if you think through the process and you decide on, based on your property, what you know will work for that asset in this market.
[00:09:37] Let me share with you two sure fired ways to fail increasing rental revenues. The first is to do nothing. If you do nothing, you’ll never raise a dollar. You’ll never increase rents in any form or fashion nor will you bring into existence any additional revenue streams or ancillary revenue streams if you don’t implement any of the programs or options that you have or your disposal. The first way to surefire fail is to do nothing.
[00:10:07] The second sure fire way to fail is to try to do too many all at the same time. Because when you do that you’ll do none of them well. Imagine attempting to cooking, clean, do laundry and showering at the same time. Many of us have those busy lives where we’re trying to do a lot of things at once, that multitasking perspective.
You can’t be in the shower and in the kitchen at the same time. Nor can you implement revenue growth strategies if your full effort is not behind those that you’ve selected for success. Success will require of you to have focused attention and will require you to implement the programs that you’ve selected in a professional manner if you want them to take hold, maximize revenue and be part of a going-forward revenue stream.
[00:11:00] You can’t take these things lightly and you can’t do them ad hoc. And you can’t implement 5, 10 or 15 all at one time. You must find those that fit your property, implement them appropriately and then once they are installed, move on to the next and then the next until you implement all of those that you’ve decided fit for you and your assets.
This has been John Wilhoit on Real Estate. Thanks for listening.
John Wilhoit is a real estate professional specializing in residential asset management and property management. John has an undergraduate Degree in Business and a Master’s Degree in Urban Studies. Learn more about John here.