Post on 31-Dec-2015
The Importance of Proper Pricing
“Fiduciary Responsibility”
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Are you leaving more money on
the table than you think?
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Mistakes of the Past in
Apartment Pricing
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Flat Rate Pricingversus
Variable Pricing
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Which would you Which would you rather have?rather have?
OccupancyPercentage
Is higher better?
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Market Demand Curve Market Demand Curve Specific Unit TypeSpecific Unit Type$825
$800
$775
$750
$725
$700
$675
$650
$625
$600
$575
80% 85% 90% 95% 100%
Occupancy Rate
Ave
rag
e R
enta
l R
ate
$730
$690
$650
$610
$775
$186,000
300 Apt. Community
$183,000
$185,250
$186,300
$186,150
255 apts 270 apts 285 apts 300 apts240 apts.
Concessions
• Pro-Rated vs. Upfront
• Net Effective Rents
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Base Rent / Market Rent
1) What is base rent?
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Base Rent / Market Rent
2) What is market rent?
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Laying the Foundation for a Profitable Pricing Model
Supply/Inventory – What does it mean to have a lot of a floor play type versus very little of a floor plan type?
• • Do you have an idea of what the Do you have an idea of what the most desirable apartment floor plan most desirable apartment floor plan type is?type is?
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Laying the Foundation for a Profitable Pricing Model
Demand – Do you know your customer’s preference?
• • Are you tracking requests from Are you tracking requests from the Internet to telephone to foot the Internet to telephone to foot traffic?traffic?
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Laying the Foundation for a Profitable Pricing Model
Absorption – How can you use this to monitor pricing?
• • How many pieces of traffic How many pieces of traffic actual lease? How many actual lease? How many actually move in?actually move in?
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Laying the Foundation for a Profitable Pricing Model
Performance – How are you rewarding your leasing team?
• • Should you reconsider Should you reconsider and adopt another bonus and adopt another bonus strategy that not only has strategy that not only has short-term but long-term short-term but long-term benefits?benefits?
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Laying the Foundation for a Profitable Pricing Model
Inventory Management – What does this mean to you?
• • Why apartment management Why apartment management continues with only short-term continues with only short-term goals instead of short and long-goals instead of short and long-term goals.term goals.
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Laying the Foundation for a Profitable Pricing Model
• • When to use a short-term When to use a short-term strategy …strategy …
• • When to use a long-term When to use a long-term strategy …strategy …
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Laying the Foundation for a Profitable Pricing Model
Competing Properties … Do as I say, not as I do
• • Look at your property first Look at your property first before considering pricing before considering pricing strategies – only then, look at strategies – only then, look at the competition in the sub-the competition in the sub-market.market.
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Laying the Foundation for a Profitable Pricing Model
Competing Properties … Do as I say, not as I do
• • Adopt a strategy for attracting Adopt a strategy for attracting and winning the lease by NOT and winning the lease by NOT doing what your competitors doing what your competitors are doing.are doing.
Application of Limited Resources
Internalvs.
External
How do you know?
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Calculate your Hurdle Rate:*
Number of vacant apartments at the beginning
of the month (carry forwards) 6
+
Number of scheduled unrented move-outs in next 30 days 8
Net to lease 14
Divided by last 60 days’ closing ratio (30%) .30
HURDLE RATE for monthly qualified traffic 47
Average Number of monthly traffic (previous 2 months’ average) 51
* (150 unit property, 70% average turnover)
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
If the number of monthly traffic exceeds your Hurdle Rate, you have an INTERNAL challenge
Solutions:Market Ready ProductSales Training
Telephone Conversion RatiosSufficient Quality Labor Curb Appeal Enhancement
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
If the number of monthly traffic is less than your Hurdle Rate, you have an EXTERNAL challenge
Solutions:Sufficient AdvertisingEffective AdvertisingWritten Marketing PlanCorporate Outreach ProgramsOthers
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Pricing ModelPricing Model Marting Rent Matrix
• Has been used for more than 10 years
• Subject of award winning article for JPM
• Increased cash flows and values by
millions of dollars
• Removes burden of arbitrary price setting
• So simple it works!
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Marting Rent MatrixMarting Rent Matrix
Dynamic vs. Static Pricing
Supply vs. Demand Pricing
Customer ultimately sets price
Taking baby steps . . .
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Marting Rent MatrixMarting Rent Matrix
ASSUMPTIONS– Rents are market driven (Supply & Demand)– There is a point at which rents are maximized
RANGE OF RENTS– 100% Occupancy at $1.00 mo. rents– 0% Occupancy at $10,000 mo. rents– What is the point of maximized rent?
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Are You Prepared to Adjust Your
Rents?
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
First Things FirstFirst Things First
PROMOTION PEOPLE PRODUCT PRICING
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Prepare PeopleTrain, Train, Train!
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Marting Rent MatrixMarting Rent Matrix
PricingLast, Not First
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Marting Rent MatrixMarting Rent Matrix
How Do We
Adjust Prices?
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Marting Rent MatrixMarting Rent Matrix
MOTIVATIONS TRIED AND FAILED
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Marting Rent MatrixMarting Rent MatrixHuman Reaction
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Marting Rent MatrixMarting Rent Matrix
When Do We
Adjust Prices?
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
HISTORICAL METHODHISTORICAL METHOD
JAN 1ST FEB 15TH MAR 15TH APR 15TH MAY 15TH91
92
93
94
95
96
97
98
99
94 94
92
95
98
Occupancy %
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Marting Rent MatrixMarting Rent Matrix
Set up is very important Break apt. mix into homogeneous groups 20 - 60 apts. per group 6 - 9 groups
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Marting Rent MatrixMarting Rent Matrix
Use base rents - can add premiums Count all apts. (incl. models,
employee, guest suites, etc.)
Set a benchmark occupancy %
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Marting Rent MatrixMarting Rent MatrixAdjust prices weeklyAbandon prejudicesAbandon paradigmsLet the numbers guide youUse some common senseSet a strategy and be able to
explain it
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Marting Rent MatrixMarting Rent Matrix
NO CHANGE =NO CHANGE
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Marting Rent MatrixMarting Rent Matrix
Optimally Pricing Your ApartmentsOptimally Pricing Your Apartments
Jennifer Nevitt is CEO of Bravo Strategic Marketing, Inc, a national consulting firm building return on investment strategies for real estate investment portfolios with a capitalized value exceeding $6 billion dollars. She is also CEO of Apartment Marketing Coach.com, which offers operations teams performance enhancement content via the Internet on a subscription basis. She was also inventor and co-founder of YieldStar Technology, a yield management software program whose assets were acquired by RealPage. Her newest program offered to multifamily real estate firms is a two-day pricing workshop, "Increasing ROI and Asset Value Through Proven Pricing Strategies," that provides participants with an in-depth review of pricing theories and practices to improve return on investment potential.
Brad Marting, CPM, CCIM, CAPS currently serves as Second Vice President and Portfolio Manager of Real Estate for Delaware Investments. His formal education includes a Bachelor of Science degree in Business and a Masters of Business Administration degree. He is a licensed real estate broker and holds designations as a Certified Property Manager® from the Institute of Real Estate Management®, Certified Commercial Investment Member from the CCIM Institute®, and Certified Apartment Property Supervisor from the National Apartment Association®. He has more than 25 years of real estate experience and has served as an officer and past chapter president for both IREM® and NAA®. He is an Accredited Apartment Association Instructor (A.A.A.I.) and placed second for the "Article of the Year" Award from the Journal of Property Management.