There are two competing philosophies when it comes to adopting new business models or technologies: ‘if it ain’t broke, don’t fix it’ or ‘out with the old, in with the new’. And while there’s something to be said for ‘a penny saved is a penny earned’, there are often hidden costs to maintaining outdated infrastructure or ways of doing business.
Of course, the cost of any upgrade (especially in property management) needs to be weighed against not only the return on that investment, but the payback period of that return. After all, an investment might recoup in the long run, but as the great economist John Maynard Keynes put it, “In the long run we are all dead.”
That being said, any upgrade to a multifamily home should increase that property’s value by either decreasing costs or increasing revenues. But it’s the multifamily property management strategies that do both which offer the shortest payback periods, and the highest return on investment.
1. Energy Management
Whether certain utilities are the responsibility of property managers or tenants, energy costs are a significant factor for MDU operators. On one hand, if utilities are included with the rent, operators must bear the costs directly. On the other hand, if utilities are the responsibility of the tenant, anything that property managers can do to reduce tenant energy costs will make their units all that much more competitive in the marketplace — and support occupancy goals. And there are a number of energy management strategies, multifamily technologies, and property management best practices that MDU operators can employ to make their multifamily properties more energy efficient, reduce operating costs, and generate more revenue.
Renewable Energy
Arguably the most direct way to reduce energy costs is to become less reliant on whoever is selling it to you. And one of the best ways for MDU property managers to do that is to invest in self-sustaining renewable energy.
Specifically, solar panels allow multifamily operators to reduce energy costs on two fronts. First, they directly reduce costs by reducing a property’s reliance on (and consumption from) mainstream power grids. Second, they create opportunities to sell back any surplus energy production to that grid — creating a new source of revenue.
Demand Response Programs
Solar energy isn’t the only way that multifamily property managers can both reduce energy costs and generate more revenue. Demand Response Programs allow MDU operators to earn credits against their energy bill whenever they curb their property’s energy consumption during peak demand times.
Demand Response Programs (DRPs) are typically offered directly through utility providers and operate on an opt-in basis. Essentially, through their DPR, property managers receive notifications prior to a forecasted peak usage events, and unless the property manager opts-out of that event, onsite infrastructures and appliances will adjust to draw less energy from the grid. This allows multifamily managers to “sell it back” to the grid, and apply that revenue against their energy bills, reducing their overall overhead costs.
Smart Thermostats
When most people think of smart thermostats, what comes to mind are the more consumer grade models (such as those offered by Nest or Ecobee). And while these are perfectly suitable for single family dwellings, they can’t manage the requirements of larger multifamily properties.
Essentially, not all smart thermostats are created equal.
For starters, commercial grade smart thermostats and sensor networks allow multifamily home managers to track, monitor, and adjust energy consumption according to fluctuations in unit occupancy. Furthermore, smart energy management systems can monitor both common areas and private units for temperature, body heat, and motion, and then use that data to adjust room temperatures in real time. Smart thermostats, then, not only reduce energy costs (for both and property managers), but also create a better tenant experience which, in turn, supports occupancy retention.
Smart HVAC Technology
Climate control is an essential amenity for any multifamily property. After all, the primary value-proposition of any housing service is that it provides shelter from the elements.
Of course, for any MDU or multifamily home, there are two sides to the HVAC coin: there are the common areas where operators incur energy costs directly, and there are private units where the cost of heating and cooling indirectly impact the value of those units on the open rental market.
This is why many multifamily home managers are installing smart HVAC systems to help them (and their tenants) optimize energy consumption and minimize their respective energy costs.
Smart HVAC systems, such as Verdant Plus, use AI and machine learning algorithms that interface with smart thermostats and occupancy sensors to monitor and analyze fluctuating occupancy patterns, seasonal weather patterns, historical thermodynamics, and peak demand load times to continuously optimize student housing energy consumption all-year round. Indeed, by installing an HVAC energy management system, multifamily home managers can ensure that any given space is neither overheated or overcooled when no one is occupying it, and reduce HVAC runtime by up to 40%.
And implementing HVAC energy management tech is as easy as ordering one of Verdant’s affordably priced Starter Kits. These features four VX Series Smart Thermostats, one Online Connection Kit, and 60 days of Verdant Plus.
Air Source Heat Pumps
There are also HVAC system add-ons that multifamily home managers can invest in when upgrading their HVAC system to reduce energy costs. Specifically, Air Source Heat Pumps (ASHPs) reduce HVAC runtimes and energy consumption by transferring cold or warm air from outside an MDU property to where it’s needed on the inside. ASHPs also offer the added advantage that they can be used as energy efficient space heaters (or coolers), and help manage energy consumption in areas of a property that are thermodynamically problematic — e.g. common areas that are either more poorly insulated or particularly high-traffic.
Smart Lighting Systems
Lighting energy consumption is also a cost factor for multifamily operators (especially in common areas). Fortunately, smart energy management technology is also helping multifamily reduce both lighting costs.
As with smart HVAC systems, smart lighting systems help multifamily operators (1) monitor energy consumption, (2) gain insight into their energy requirements, and (3) optimize that energy consumption, by (4) responding in real-time to changes in tenant occupancy patterns. And similar to smart HVAC systems, smart lighting systems leverage occupancy sensors and time-based schemes to reduce energy costs.
For example, an IoT-enabled smart lighting system will adjust lighting intensity according to the time of day, providing a seamless and more comfortable experience for occupants.
It’s also worth noting that some smart lighting systems can be integrated with Verdant Plus, allowing property managers to monitor both HVAC and lighting energy consumption patterns through a single interface. Specifically, Verdant’s line of occupancy sensors are able to integrate with third party lighting systems to ensure that lights automatically turn off or according to real-time occupancy.
2. Smart Maintenance Technology
Just as smart energy management can help multifamily operators reduce costs and optimize revenues, smart maintenance tech can help anticipate and prevent future costs. Essentially, property maintenance represents an ongoing expense for multifamily operators, and smart tech is now helping them predict, prevent, and mitigate those costs.
With predictive maintenance, multifamily operators can leverage sensor data to anticipate and identify maintenance issues before they escalate into more costly (and disruptive) ones. In the case of smart HVAC systems, for example, property managers receive diagnostic alerts whenever systems aren’t performing within expected parameters, allowing maintenance staff to identify, diagnose, and address malfunctions before they drive up energy costs and/or lead to critical HVAC equipment failure.
Water waste and damage is another operational cost that multifamily managers can reduce with smart maintenance tech. A single leak toilet, for instance, can cost up to $840/year. And other undetected plumbing leaks can lead to costly water damage costs. With waterline sensors and smart water meters, however, maintenance staff can detect such minor issues, and prevent them from escalating further.
When maintenance issues are identified and addressed before they escalate, not only do multifamily property managers save on repair costs, but occupancy rates remain stable — and so does their property’s revenue stream and overall valuation. So an investment in smart maintenance technology is an investment in the stability of a multi-family property’s physical and financial well being.
3. Smart Pricing Strategy
MDU managers collect data from different segments of their business before blending them to better understand their multi-family property. That insight will naturally factor into their pricing strategy. After all, what good is data if it can’t inform your price point and profit margins? As Multifamily Executive Magazine puts it:
those in the multifamily industry know that revenue management strategies can vary considerably from property to property.
[…]
By learning about […] pricing personas, multifamily executives can develop an easy way to understand and talk about revenue management strategies within their companies.
To that end, there are roughly five distinct pricing personas MDU property managers can adopt. The one that’s right for them will ultimately depend on (and should be informed by) their bigger picture revenue model.
The Balanced Pricer
This pricing strategy involves pushing rents whenever there’s an opportunity, but not allowing vacancy or exposure rates to get too high. Balanced Pricing is commonly found at average-sized MDUs that are stabilized because it strikes a balance between risk and reward. And while property managers that use this strategy are unlikely to see an above average ROI over any significant period of time, they’re also unlikely to see below average returns, as well.
The Occupancy Defender
As the name implies, the Occupancy Defender focuses on renting out as many units as possible for as long as possible. Operators who employ this pricing strategy are looking for a steady and reliable return on their investment, and usually maintain price parity in order to not lose tenants. Consequently, Occupancy Defenders tend to be more responsive to competitor pricing, as well as more attentive to the pace at which they’re leasing out units. Essentially, they prefer to avoid the risks that come with vacancy over pursuing the rewards of aggressive rent growth.
The Vacancy Averse
Whereas Occupancy Defenders are risk averse, the Vacancy Averse are risk allergic, even to the point of significantly dropping rent pricing and forgoing any kind of rent growth in favor of reaching maximum occupancy. Consequently, the Vacancy Averse set up their revenue management system (RMS) to respond to competitor pricing, reducing their rents to meet (or beat) the competition. Generally speaking, there are two kinds of Vacancy Averse multifamily operators:
- either they’re looking for a consistent revenue stream, and care more about reliable returns than larger ones,
- or they’re managing very large assets, typically in densely populated areas, where any measurable decrease in occupancy quickly converts into a measurable loss
The Rent Driver
Whereas Balanced Pricers and Occupancy Defenders reflect the traditionally conservative nature of the multifamily real estate industry, the Rent Driver is much less risk averse. Indeed, Rent Drivers are less averse to vacancy, and are often willing to let units remain unoccupied in order to obtain a higher rental price. They also tend to decouple their rental rates from competitors, and are less likely to lower prices in response to a shift in supply and demand or an increase in competition. Rent Driving is most common in markets with supply-side shortage (whether due to geography or strict zoning regulations), or with MDU property managers that are trying to increase property value ahead of selling it.
The Lease Up
Lease-Up pricing strategies are most common among MDU operators who have properties coming online, and have predetermined occupancy rates they intend to achieve through stabilization. Consequently, they tend to not give their RMS a lot of room to adjust pricing, set very high exposure thresholds to compensate for such high availability of new units, and configure that RMS to anticipate high leasing velocity. Generally, Lease-Up property managers keep rents down, and will even offer value-added concessions to tenants that expire at renewal. Of course, once they’ve reached their target occupancy rate, Lease-Up operators often adopt a new pricing persona and become more aggressive in pursuing rent growth.
4. Leasing and Retention
If there’s anything that MDU pricing strategies underscore, it’s the conservative, risk-averse nature of multifamily investors. Indeed, three of the five pricing personas fall more on the risk averse side, while the other two more risk tolerant personas tend to only be adopted with short-term goals in mind. The appeal of investing in a multifamily home, after all, is stable revenues and long-term returns.
Unsurprisingly, then, Lease Retention tactics are an effective part of a stable, longer-term revenue strategy. These tactics, however, don’t come without an upfront investment price-tag:
Many property management firms target their marketing to the demographics best suited for the community by highlighting amenities, apartment features, and neighborhood attributes to attract potential residents. This makes for a satisfied and, likely, long- term resident. Reduced resident turnover and shorter vacancy cycles are good conditions to have—and good property managers will have a tried-and-true resident-retention formula.
In other words, investing in infrastructure and amenities that best suit the needs of tenants in a given neighborhood is a great way to reduce tenant turnover. While this tactic naturally incurs upfront costs, it is often more than offset by the reduction in vacancies down the line, delivering a seamless tenant experience.
5. Smart Supply Chains
Managing and operating large multifamily properties requires many different inputs, and that means sourcing different suppliers. And choosing to work with tech-enabled suppliers can offer cost-savings and other efficiencies that can help multifamily property managers reduce overhead while offering services and amenities that support occupancy targets.
It’s commonplace, for instance, that multifamily managers that operate multiple properties will negotiate bulk rates from their suppliers and discounted rates with their insurance companies. By working with vendors who are also invested in smart-tech infrastructure, multifamily can benefit from their third-party data, and optimize the terms of that vendor relations, reducing costs in expanding revenue across all their properties.
6. Organizational Integration
A significant determinant of whether any multifamily revenue management strategy will be successful is whether it’s informed by a big picture perspective — i.e. whether it’s applied in a silo, or alongside complementary strategies that all support a unified set of goals. As Gong explains:
A high-functioning RevOps team ensures that your marketing, sales, and customer success teams move from being strong solo players to a unified front for revenue generation, in three complimentary divisions. This team is all about creating cross-functional partnerships.
In other words, as multifamily managers collect data from different areas of their operations, they can piece those datasets together to map out a big picture view of their costs, efficiencies, risks, and overall operational performance. From there, they can understand where their greatest revenue opportunities lie, and realign their departments (marketing, leasing, supply, maintenance, etc.) to work in concert toward realizing those opportunities.
The idea of aligning different departments is very commonplace in tech and manufacturing, but is often overlooked in more traditional business models, like multifamily property management. That doesn’t mean, however, that there isn’t considerable opportunity to improve revenues by doing so.
For example, perhaps maintenance frequently incurs certain infrastructure costs — say laundry room repair. That data can be compared against marketing and leasing and supply data to determine the source of this cost. Can these increases in maintenance costs be correlated with a change in appliance supplier? Or are the machines simply experiencing more wear and tear due to an increase in occupancy? Or perhaps in resident demographics, such as an increase of young families vs childless occupants, who tend to do less laundry than a family of four?
Equipped with this insight, multifamily managers can make a number of strategic decisions, such as replacing an appliance supplier whose reduced pricing is more than offset by higher maintenance costs, or adjusting marketing strategies to target non-family tenants who put less stress on communal infrastructure. Essentially, but leveraging data from separate departments, multifamily managers can develop predictive analytics that range from supply-and-demand forecasts, leasing team execution, and the effectiveness of different marketing channels.
7. ESG Compliance
A final multifamily property management strategy that MDU operators can employ to reduce costs and generate additional revenues is becoming ESG compliant. Essentially, ESG (or Environment Social Governance) is about adopting business models that prioritize environmental sustainability, social inclusion, and ethical governance. And by becoming ESG compliant, multifamily home managers are (1) reducing energy costs, (2) supporting occupancy goals, and (3) gaining access to more strategic financing options — allowing them to further invest in cost-saving property upgrades
Simply put, multifamily home managers become ESG compliant by tracking data on their environmental footprint, investing in sustainable infrastructure and social efforts, and documenting that data and those investments. Whether that entails adopting renewable energy, installing smart energy management systems (such as Verdant’s ZX and VX Thermostats), or sponsoring social initiatives, achieving ESG targets don’t just reduce costs, but are proven to bolster property finances.
Growing a Revenue Ecosystem
Multifamily revenue growth has many aspects to it, and they all interact and influence each other, much like different species in an ecosystem. Some contribute directly to a property’s revenue, while others play a more indirect role by supporting its overall health.
For multifamily operators that want to drive significant growth, they need to consider each of these aspects, in turn, and ensure they’re receiving the attention they require to fulfill their role in the bigger picture ecosystem. Depending on the specifics of any given property, of course some aspects will require more attention than others, but what is certain across all multi-family properties, is that none can be overlooked or ignored.