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Give Your Renewing Residents Your Current Concessions

Yes, you read that right. Consider giving your renewing residents your current concession.

No, I'm not crazy. I've always been an advocate of this ideology. And I've been severely criticized for it my entire career. I first mentioned it to some owners I worked for when I was a brand new Leasing Professional. My owners looked at me as though I was completely insane. If our industry ever needed to reconsider their ‘we don't give concessions on renewals' strategy, now is the time.

Let's look at the math for a second, shall we? The average cost to turn an apartment these days is $2500, so as soon as a resident gives notice we're already at a negative $2500. So saving the resident already puts that money right back into our pocket. If we're giving away a month or two in free rent, we are probably locking the new resident into a longer lease term as well, so you're already getting the renewal resident for a longer lease term. Hopefully, you're managing your renewals with your traffic patterns so you don't end up loading some low traffic months for renewals (that's never smart).

If you're watching the market and doing your rent surveys (this is assuming you are not using a revenue management software, such as Yieldstar) you have your apartments competitively priced. You're doing everything you can to stay ahead in this challenging economy. Everything but rewarding your current residents with the pricing incentives that you'll gladly give to someone with whom you have absolutely no relationship who just happens to walk through your door. Doesn't really make sense when I put it that way, does it?

Your residents are smart. They read the ads. They see the banners at competitors properties. For goodness sake, they see the banners at YOUR properties! Why wouldn't they want the same deal? And yes, moving costs money, and it's a hassle and it takes time. But if it's going to get someone two, three and sometimes four months rent FREE, they are going to make the move.

Now, maybe you're not doing an ‘across the board' special. If you're only concessing specific apartment types or specific apartment units (the one that faces the dumpster; the one that looks out on the adjacent highrise and gets no sunlight, etc.) good for you. Explain to your renewing residents that your concessions are unit specificand offer them one of your concessed apartments. But make sure the apartment in which they reside is not one that would qualify for such a concession before you offhandedly make your decision.

Today's New York Times front page article, "Why Are These Renter's Smiling" sums up the average renters attitude fairly well. It featured a renter named Liz Sterling. Ms. Sterling appears to be a typical renter. And here's what the article said about her most recent renting experience:

"...toward the end of her lease, she began looking elsewhere. When she saw how far rents had fallen, she asked her landlord to drop hers to $1,650 per month. But, she said, "they wouldn't lower my rent. So I moved."

She looked at some 25 apartments and finally settled on a large one-bedroom in just the location she'd hoped for, the Lower East Side. "It's exactly where I wanted to be," Ms. Sterling said."

Think about it. And now, let the debate begin!

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This comment was minimized by the moderator on the site

Great post -

We recently swallowed this bitter pill at one of our student communities in Illinois. Unlike the loss of jobs driving this current economy - we were struck by oversupply and declining enrollments. The market took on 2500 new beds all the while the local university was experiencing a five year sequential decline in enrollment.

In lieu of using and offering concessions we cut our top line rate and offered the discount to the existing residents. We become an instant hero in the eyes of many.

I believe, strongly, that with the advent of the Internet, peoples innate need to be social and the proliferation of social networks - I think the risks of not offering the same deal far outweigh the temptations to stick to your guns. Putting the math aside - it just makes sense.

  Mike Brewer
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Mike- the pill won't taste nearly as bitter when you're the only guy with good occupancy in town, I promise you that!

Besides which, offering the current concession to a renewing resident makes them feel like you still care about them. That's the part that always cuts to the bone for me. Why should I stay somewhere, pay more than a new move in, not get treated the same, and be taken for granted? If I had a boyfriend like that, I'd chuck his PS3 out the window.

Awesome Post, Lisa!

  Heather Blume
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Quick! Someone who didn't fail every form of math, give me some #'s to prove the efficacy of this concept! I'll need the stats to sell it!

  Tara Smiley
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Well, you're damned if you do, and you're damned if you don't. There are so many variables on this one. Just like offering concessions in the first place this option is a shortcut for a much bigger problem. If your property is already playing the concession game then this is a great strategy. Keep your current customers happy with a price.

While we do this, however, we should be thinking about how to prevent being in this situation the next time around. Last time I walked into a Mac store, they didn't have 1 sign up that said "Sale" or "Specials". Sales of Apple products are not price driven. When you own an Apple product you do for the experience. Our communities are more than a box with a price. In an apartment dream world there should be a resident referral waiting to move into the apartment of the person that is moving for a price. Maybe I'm living in a dream world, but it's pretty fun here.

  Mark Juleen
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Thanks for the comments one and all!

Mike: Don't you agree, like Mark Juleen says, that we've created this problem ourselves? It's a 'shortcut' to (hopefully) higher occupancy without weighing all of the variables involved.

Heather: Don't chuck anything out the window. You might hurt someone down below.

Tara: Send me some numbers from your property and I'll help you with the math.

Christi: Thank you for bringing up all the 'unknowns' on the new renter side. And to add to your kids programming, we need to constantly be adding value to the experiences of our residents!

Mark: I live just down the street from you in Dreamland. In a brand new highrise.

  Lisa Trosien
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Lisa - you make me laugh.

  Tara Smiley
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Wouldn't it be better, if possible, to switch to yield management software? The expenditure would be more efficient because either way you're going to "spend" something. It also provides a reply as to why you never offer specials.

On the other hand, my philosophy is that residents who really like a community can stand being told, "The specials are just for new residents" and then offered an alternative, like carpet cleaning. If the staff projects an exceptional, bright energy and the community is clean and well-kept, I believe you can survive concessionary times.

  Chuck Mallory
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OK, I cant resist jumping in. You all make great points. But ever the contrarian, let me offer a couple of different perspectives. First, I think we are using the wrong definition of a concession. It is not a discount. It is a marketing utility. You offer it to make your product sound more attractive. This means that if offering a concession is what you want to do then go for it. But you do not necessarily need to lower your effective rent. Raise your asking rent to compensate. One thing that revenue management teaches us is that we must be "priced" at the correct perceived value in order to win the business. Price is effective rent (the amount they write checks for) not market rent. So you can have your (effective) rent and eat your concessions too:)

More important point - Roper's school of renewals: Renewing residents are, in fact, less price sensitive than new residents for all the obvious reasons. Renewing residents like the property and the management, have kids in schools, and dont want to hassle with u-hauls, utilities and address changes. This doesnt mean we get to gouge them but it does mean they are not inclined to leave. Now here is where we run into some statistics. I divide existing residents into 3 categories: leavers, stayers and undecided. Leavers generally constitute about 40% to 45% and are not renewing, no matter what because they have other plans. Stayers generally constitute another 40% to 45%. They are happy, comfortable and really dont want to move so they plan on renewing provided the offer is reasonable (not necessarily equal or lower than new lease pricing, just fair). This leaves us with the undecideds. Maybe they have had marginal neighbors or a bad maintenance experience or something. And maybe if we offer a discount they will change their minds. But the problem is we dont know exactly who they are. So in order to hopefully attract a few of the undecideds (we will never get all of them) with price we end up...

OK, I cant resist jumping in. You all make great points. But ever the contrarian, let me offer a couple of different perspectives. First, I think we are using the wrong definition of a concession. It is not a discount. It is a marketing utility. You offer it to make your product sound more attractive. This means that if offering a concession is what you want to do then go for it. But you do not necessarily need to lower your effective rent. Raise your asking rent to compensate. One thing that revenue management teaches us is that we must be "priced" at the correct perceived value in order to win the business. Price is effective rent (the amount they write checks for) not market rent. So you can have your (effective) rent and eat your concessions too:)

More important point - Roper's school of renewals: Renewing residents are, in fact, less price sensitive than new residents for all the obvious reasons. Renewing residents like the property and the management, have kids in schools, and dont want to hassle with u-hauls, utilities and address changes. This doesnt mean we get to gouge them but it does mean they are not inclined to leave. Now here is where we run into some statistics. I divide existing residents into 3 categories: leavers, stayers and undecided. Leavers generally constitute about 40% to 45% and are not renewing, no matter what because they have other plans. Stayers generally constitute another 40% to 45%. They are happy, comfortable and really dont want to move so they plan on renewing provided the offer is reasonable (not necessarily equal or lower than new lease pricing, just fair). This leaves us with the undecideds. Maybe they have had marginal neighbors or a bad maintenance experience or something. And maybe if we offer a discount they will change their minds. But the problem is we dont know exactly who they are. So in order to hopefully attract a few of the undecideds (we will never get all of them) with price we end up offering the same discount to everybody, including the stayers! This can add up to a lot of lost revenue chasing a few unknown opportunities.

So I caution about focusing too heavily on price as your retention tool. It is quality of life and customer service that are the two biggest drivers for renewals. If you stay continually focused on these you have more opportunity to improve your renewal conversion rate than trying to compensate after the fact with deep discounts.

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  Jeffrey Roper
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Hi Chuck: I agree with you that revenue management software is a great thing! I even referrred to Yieldstar in the post. I love being able to remind residents and prospects that my rents are very fairly priced as they are based on the market.

I do have to respectfully disagree with you on your second point however.Let's put ourselves in our residents' place on this. Banners at the entry sign, or on the ILS advertisement or on our Facebook page say "One month rent free". My resident of two years comes into my office and asks for the same deal. I tell him that 'specials are for new residents only' and I offer him a carpet cleaning. I really believe that most residents would be (and justifiably so)insulted. The new guy off the street, with whom I have absolutely no prior relationship with, gets an item worth $XXX and I offer him a carpet cleaning. I'm sorry...that just doesn't work for me. If it works for you, great. But I have a very hard time seeing that be effective, especially in today's market.

Regardless of whether or not I agree with you, I really appreciate your opinion and your willingness to sound off on this topic. Your comments are very much appreciated by me and everyone else! Keep commenting!

Dear Guest: I really wish you'd tell us who you are, especially since you quote 'Roper's School of Renewals". I didn't go there but obviously you did! I truly appreciate your contrarian point of view, but I really am unsure of your 'raise the rent to cover the concession' approach. Can you share times that you have done this in this current market with success? I always like listening to other points of view.

I also like the distinction you make regarding 'concession' -vs- 'marketing utility'. You make an excellent point. I also agree with your remarkes about quality of life and customer service. Focus on these IS essential and always has been.

My greatest advice right now to multifamly owners, managers and other individuals who work in our industry is this:...

Hi Chuck: I agree with you that revenue management software is a great thing! I even referrred to Yieldstar in the post. I love being able to remind residents and prospects that my rents are very fairly priced as they are based on the market.

I do have to respectfully disagree with you on your second point however.Let's put ourselves in our residents' place on this. Banners at the entry sign, or on the ILS advertisement or on our Facebook page say "One month rent free". My resident of two years comes into my office and asks for the same deal. I tell him that 'specials are for new residents only' and I offer him a carpet cleaning. I really believe that most residents would be (and justifiably so)insulted. The new guy off the street, with whom I have absolutely no prior relationship with, gets an item worth $XXX and I offer him a carpet cleaning. I'm sorry...that just doesn't work for me. If it works for you, great. But I have a very hard time seeing that be effective, especially in today's market.

Regardless of whether or not I agree with you, I really appreciate your opinion and your willingness to sound off on this topic. Your comments are very much appreciated by me and everyone else! Keep commenting!

Dear Guest: I really wish you'd tell us who you are, especially since you quote 'Roper's School of Renewals". I didn't go there but obviously you did! I truly appreciate your contrarian point of view, but I really am unsure of your 'raise the rent to cover the concession' approach. Can you share times that you have done this in this current market with success? I always like listening to other points of view.

I also like the distinction you make regarding 'concession' -vs- 'marketing utility'. You make an excellent point. I also agree with your remarkes about quality of life and customer service. Focus on these IS essential and always has been.

My greatest advice right now to multifamly owners, managers and other individuals who work in our industry is this: When we get out of this current economy, keep obsessing on service, pricing and quality as you have been doing since this economy started.

Thank you again for your post.

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  Lisa Trosien
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Hi Lisa - This is Jeffrey Roper. I am the one that posted the comments (so, yea, I went to the Roper school). Sorry about the "guest" thing. I was logged in so I thought it should have signed it correctly. But I am not very technical, you know.

With regard to using concessions as an add on, that is how YieldStar does it. So it determines what the right effective rent is and then bolts the concessions on top. The main thing here is that it should be done across the board for consistency but thats about it. The nice thing is you can offer 1-month free to both new and renewing residents and still have different pricing for each.

Thanks for letting me participate. I will try to figure out the guest issue.

Jeffrey

  Jeffrey Roper
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