Multifamily properties remain among the most safest and reliable forms of investment. As with most real estate, multi-dwelling units (MDUs) tend to only appreciate in value over time, all-the-while providing a consistent and reliable source of cash flow. That being said, successfully managing a multifamily property isn’t without its own unique challenges.
Managing any number of MDUs requires that investors and property managers adapt to market trends, adapt emerging technology, explore new revenue streams, and implement property management system that streamline operations and reduce costs. Essentially, an MDU property manager must not only manage day-to-day operations of the properties they oversee, but also find new ways to increase their property’s profitability.
Our guide to multifamily property management provides an overview of exactly what that looks like, including traditional property management, cost management strategies, and finally, how energy management technology can be used to maximize a a properties ROI while also increasing its sustainability.
What is multifamily property management?
Simply put, MDU or multifamily property management entails ensuring that a single or several properties are maintained to a standard that meets business, legal, and resident requirements. This can include, but is not limited to, building and facility maintenance, collecting rents, finding tenants, managing the property’s finances, leveraging new technology, managing marketing, and budgeting. Multifamily property managers are, in essence, end-to-end asset managers, dealing with both tenants while also protecting investors interests.
Setting and collecting rent
One of the most common tasks of a property manager is to ensure that landlords get paid in full and on time. If the rent is not paid on time, the property manager will then have to enforce the rental agreement and continuously manage the relationship with overdue tenant.
In many instances, rent collection can be automated via a Property Management System (PMS) – reducing the labor costs of manually collecting payments. However, the cost of implementing such a system should be weighed against the size of tenancy being managed. For example, whereas the cost of implementing a PMS might not make sense for managing a single 4-6 unit MDU, it would be an absolute requirement when managing much larger or multiple properties.
When vacancies arise, moreover, property managers have the authority to set rental prices according to market factors and negotiate accordingly with prospective tenants. In other words, they help keep the building’s rental units competitively priced by weighing occupancy against profitability.
Another important responsibility of any successful property manager is their ability to select appropriate tenants. Tenant screening is designed to minimize the risk of rental income loss, guaranteeing potential residents are suitable options for the community, and are likely to pay their rent on time.
Common tenant screening practices include, conducting credit and background checks, checking personal references of past landlords, and ensuring that applicants are a good fit with the greater tenant community.
There are different property managers philosophies of how to approach building maintenance. While cost-averse property managers might subscribe to the “if ain’t broke, don’t fix it” school of thought, more risk-averse property managers might be inclined toward the “an ounce of prevention is worth a pound of cure” philosophy.
Indeed, insofar as property management is a form of asset management, more successful property managers tend to be more proactive in their maintenance strategies, avoiding potentially more costly problems down the line. Common preventative maintenance tasks include cleaning, repainting, and regular plumbing and duct inspections, to name just a few.
Essentially, various amenities and facilities are part and parcel of a lease agreement with tenants, so it’s imperative that critical infrastructure remains operational. More importantly, if left undetected, infrastructure decay will not only lead to disruptive tenant experiences, but inflated repair costs as damage spread throughout (or to other) systems.
For example, a single leaky toilet can cost as much as $840/year in water usage. Add to that the costs of any potential water damage, maintenance costs can quickly sky-rocket when maintenance issues go unresolved.
Multifamily property managers must also ensure their multi-dwelling units abide by the municipal, regional, and national health, safety, and housing laws, limiting potential legal liability, as well as conflict with tenants. This can include drafting lease agreements, executing eviction procedures, and navigating and resolving any potential tenant disputes.
Budgeting is yet another crucial part of a multifamily property management, ensuring that revenue and expenses are properly tracked and balanced. The MDU’s operating budget helps plan for the fiscal year ahead, including adding new amenities to the building, regular maintenance, and even accounts for large-scale additions.
Finally, marketing is also a critical responsibility of any MDU property manager, especially as the industry continues to evolve and becomes more competitive. Multifamily property managers must regularly adapt their marketing strategies to fluctuating housing marketing conditions, balancing potential vacancies against occupancies, and the revenues they bring.
Multifamily Property Management Tips
With so many considerations to make on daily basis, managing a multifamily property can be overwhelming. However, having a Property Management System (PMS) in place can help streamline and simplify MDU management. Here are six tips for effectively managing a multifamily property.
Start small and scale appropriately
While multifamily properties represent a stable and reliable investment, it is important to not overextend your management resources. Consequently, it’s advisable to start with a single MDU or multifamily property and gradually expand your portfolio as new investment opportunities arise. Managing a preliminary MDU will equip you with the skills and resources you need to expand into additional properties, allowing you to scale your investments in a sustainable manner – ultimately setting you up for success.
Choose the right tenants
Just as any consumer goods company must target the right customers to support its business goals, choosing the right tenants is among the most important decisions a multifamily property manager can make. Not only is it critical that you find tenants who can pay their rent consistently and on-time, it’s also important that any potential new tenant is compatible with the greater community that the rest of the tenants comprise.
For example, when managing an MDU property that is predominantly young professionals who value their privacy and tranquility, a young family with many young children might not be the best fit as a new tenant. This might lead to an uptick in noise complaints, and ultimately exacerbate your vacancy rate the young professionals begin to look elsewhere for a more tranquil housing environment. Of course, it’s also important that you remain in compliance with any municipal or regional housing laws as you interview and screen prospective tenants.
Offer tenant perks
Adding tenant perks and additional amenities to your multifamily property is an effective way to encourage tenant retention, streamline filling vacancies, and maintain full capacity of your MDU. In addition to amenities such as parking and recreational facilities,
Smart home technology is a significant component of tenant retention which ultimately reduces vacancy rates. In fact, according to a study done by the NMHC and Kinsley Associates, 77% of renters would pay 30$ per month more if their apartment had smart technology.
Maintain the property
Successful property managers regularly look to maintain their MDU, limiting the potential for large-scale repairs down the road. Whether that means performing consistent inspections, hiring a landscape company, or maintaining the common areas, proactive property maintenance is a crucial function to any multifamily property manager’s job.
Market the property to limit vacancies
To successfully limit (and mitigate) vacancies, MDU management companies need to find ways to differentiate their properties from the competition. Multifamily property managers that learn (or know) how to effectively leverage marketing and advertising opportunities in their market will have greater success at attracting the right tenants to their properties, and balancing occupancy against vacancies at a price point that maximized their profitability.
When estimating the MDU’s operating budget, it is always recommended to overestimate the costs it will take to manage the property – i.e. err on the side of caution. In doing so, multifamily property managers leave a margin for error in their operating budget, can be better prepared for unforeseen maintenance costs or vacancies, and remain profitable despite unexpected expenses.
Factors affecting MDU management costs
There are several factors that go into determining the cost of multifamily property management, including unforeseen expenses and vacancies. Common factors affecting the cost of MDU management include but are not limited to current housing market conditions, the size, type, and location of the rental property, as well the condition of the property.
Indeed, the more maintenance work the property requires, the higher the operating cost will be. The biggest challenge multifamily property managers must navigate, however, is ultimately limiting vacancies as they directly compromise revenues.
Of course, property managers can fall back on dynamic and creative promotional and marketing tactics to address vacancy rates, but market conditions can always fluctuate due to factors beyond property managers’ control. So, when marketing to new prospective tenants, MDU managers might have to consider additional incentives, such as discounts in the form of first or last month’s rent rebates, or inclusive utilities such as hot water, electricity, or even internet access.
Energy cost management for MDUs
Energy management technology has emerged as a crucial feature in multifamily properties and is changing the way tenants interact with their home environments. In fact, multifamily property managers are now integrating these technologies into their MDUs, which not only improve tenant satisfaction and retention, but directly reduce operating costs and increase ROI.
When smart thermostats come to mind, most people thinks about consumer-grade thermostats, such as those offered by Nest and Ecobee. However, not all smart thermostats are created equal.
While consumer-grade smart thermostats are appropriate for private homeowners, MDUs require are commercial-grade smart thermostats. Specifically, multifamily properties require smart thermostats that can manage both multiple units and common areas. Furthermore, commercial-grade smart thermostats offer the added-value of being able to collect data that provides energy consumption insights that property managers can use to optimize their energy and operational costs.
Indeed, MDUs have energy consumption patterns that differ greatly from single-family dwellings. Not only might heating be included as an amenity, but the property’s common areas experience varying degrees of traffic and thermodynamic fluctuation. Commercial-grade smart thermostats can integrate with occupancy and temperature sensors to adjust energy consumption based on real-time occupancy in both common areas and private units. This not only reduces energy costs, but creates a more seamless tenant experience.
Smart HVAC technology
While smart thermostats and occupancy sensors are effective hardware solutions to managing and reducing energy costs, there is also a software side of the HVAC equation that MDU managers should consider. Specifically, Verdant’s EI energy management system integrates with smart thermostats and occupancy sensors, aggregates the data they collect (such as such as peak demand loads, historical thermodynamics, local weather patterns), and employs sophisticated machine learning algorithms to continuously analyze that data to optimize energy consumption throughout the year, on an ongoing basis.
Indeed, the cost savings of smart HVAC energy management systems is so significant that their adoption is already standard in the hotel industry, and can even increase the resale value of a commercial property. Smart energy management systems can also reduce maintenance costs. Verdant’s EI smart energy management platform, for example, allow MDU maintenance staff to continually monitor HVAC performance to ensure that HVAC hardware is running at peak efficiency. This includes HVAC diagnostic alerts whenever an HVAC system is not operating properly, allowing maintenance staff to identify, diagnose, and address malfunctions before they result in costly energy usage or complete system failure.
Lighting in both common areas and tenant units is another source of energy costs. Fortunately, for MDU managers, smart lighting systems can also help reduce operating costs. Specifically, smart lighting systems allow MDU managers to manage lighting energy consumption by adjusting to changes in tenant occupancy patterns in real time. Similar to smart HVAC systems, smart lighting leverages occupancy sensors to adjusts lighting energy consumption according to a number of variables, such as occupancy and time of day. They also contribute to a more seamless and comfortable experience for tenants. It should also be noted that many smart lighting systems can be integrated with energy management systems. Verdant’s line of occupancy sensors, for instance, can not only integrate with third party lighting systems to ensure that lighting adjusts to real-time occupancy patterns, but also allow multifamily operators to monitor and optimize both lighting and HVAC energy consumption through a single interface.
Finally, another area where multifamily property managers can reduce their (or their tenant’s) energy costs is through the appliances in both units and common areas. By upgrading outdated appliances such as refrigerators, stoves, dishwashers, and laundry machines with more modern, energy efficient counterparts, multifamily operators can further reduce energy consumption and operating costs.
Multifamily Management Strategies that Drive Revenue
In addition to smart energy management practices, there are additional ways that a number of property management strategies that MDU managers can use to reduce operational costs. And these range from structural to daily operatoins.
A significant way to reduce MDU operational costs is by taking a big picture approach. In other words, property managers should consider whether their different strategies are aligned in a way that supports a unified set of goals.
As data from different areas of a property’s operations are collected, MDU managers can piece those datasets together to map out a big picture view of their costs, efficiencies, risks, and overall operational performance. And with that perspective, they can understand where their greatest revenue opportunities lie, and realign their different departments (maintenance, leasing, marketing, supply, etc.) to work in concert toward realizing those opportunities. This approach to organization integration is commonplace in tech and manufacturing, but can also be applied in property management to improve revenues by doing so.
Smart pricing strategies
Another way that collecting data across their business can drive revenue is by using it to inform 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, “By learning about […] pricing personas, multifamily executives can develop an easy way to understand and talk about revenue management strategies within their companies.”
Indeed, there are five different pricing personas that MDU managers can adopt depending on their business goals:
- Balanced Price: this strategy involves pushing rents whenever there’s an opportunity, but not allowing vacancy rates to get too high, and is commonly found at average-sized properties that are stabilized.
- Occupancy Defender: this strategy focuses on renting out as many units as possible for as long as possible, maintaining price parity in order to not lose tenants, and avoiding the risks of vacancy over the pursuit of aggressive rent growth.
- Vacancy Averse: where Occupancy Defenders are risk averse, the Vacancy Averse are risk allergic, even to the point of drastically reducing rent pricing to meet (or beat) the competition in favor of reaching maximum occupancy.
- Rent Driver: this strategy is less averse to vacancy, involves leaving units unoccupied in order to obtain a higher rental price, and is most common in markets with supply-side shortage or when trying to increase property value ahead of selling it.
- Lease Up: this strategy is common among multifamily operators who have properties coming online, and have predetermined occupancy rates they intend to achieve through stabilization; these property managers keep rents down, and will even offer value-added concessions to tenants that expire at renewal.
Where pricing strategy is focused more on short-term outcomes, Lease Retention tactics are more part of a longer-term revenue strategy. Essentially, by investing in infrastructure and amenities that appeal to tenants in a specific market, MDU managers can reduce both tenant turnover and the costs that come with it. While this approach does come with upfront costs of investing in that infrastructure and those amenities , it is often more than offsets by the reduction in vacancies down the line.
Smart supply chains
Managing and operating larger multi-family properties involves a lot of different inputs and working with different suppliers. By choosing tech-enabled suppliers, however, MDU managers can achieve cost-savings and other efficiencies that will reduce their overhead costs while allowing them to amenities that support their occupancy goals.
For example, large property managers often negotiate bulk discounts from their vendors and insurance companies. By choosing to work with suppliers who are also invested in smart-tech infrastructure, however, they can also access data that allows them to better understand their relationship with that vendor, and then optimize costs of that relationship.
Maximizing your ROI with Verdant’s Smart Technology
There are many facets to multifamily property management, but as with any business, the priority should be to maximize profits to the full potential of whatever business model is in place. Regardless of pricing strategy and short- or long-term goals, MDU property managers must meet their responsibilities as service providers, while ensuring that the different components of their operation are aligned in a way that reduces costs and maximizes revenue.
One area of costs that’s universal throughout all multifamily properties, however, is energy consumption. Whether utilities are included with unit rentals or are the responsibility of, smart energy management systems can drastically improve the ROI of any MDU property – either by reducing energy costs directly or supporting occupancy goals as a value-added amenity.
Verdant’s EI energy management system along with its line of commercial grade smart thermostats and accessories allow property managers to improve the ROI of an MDU by reducing energy costs, while also increasing the value of the multifamily property itself.