Multifamily Pricing & Revenue Management

• Understand your pricing strategy. Are you trying to maximize upcoming rental revenue? Get the highest valuation? Protect occupancy for an upcoming economic downturn? Trying to hit a specific lease-up or renovation goal? Different business objectives call for different strategies, and a good revenue management system allows you to set multiple parameters to fit your strategy rather than forcing your strategy to fit the system’s algorithm.

• Utilize a formal demand and supply forecast. Pricing apartments is a lot more than just an appraisal exercise. It’s about controlling demand through inflections of price in order to get the most out of whatever inventory you have. In the immortal words of Wayne Gretzky, that’s about “going where the puck will be, not where it is.” And that requires formal forecasting of demand and supply.

• Understand rent and demand seasonality. Apartment demand can vary dramatically from high to low season, especially in more northern markets. Understanding this allows you to implement a Lease Expiration Management plan to ensure that you don’t have too much availability in the low season and that you can leverage the high season effectively.

• Conduct Market Research and Analysis. Regularly analyze publicly-available market data to understand trends, competitor pricing, and resident demographics. This helps you set competitive and attractive rental rates.
  
  
• Set Optimal Rental Rates. Use data-driven insights from your forecasts and your understanding of the market to establish rental rates that reflect your strategy.
  
  
• Implement Dynamic Pricing Strategies. Make changes to your rental rates on a daily basis. This form of dynamic pricing adjusts rental rates on a continual basis thus reacting in near-real-time to changing market demand and supply cues.
  
  
• Leverage Technology for Data-Driven Decision-Making. Utilize advanced software and analytics tools to gather and interpret data,marry it with your strategy and make appropriate price recommendations. These tools enable precise pricing adjustments and thus revenue optimization.

• Balancing Occupancy Rates with Rental Income: Finding the optimal balance between occupancy and rental rates can be challenging, a challenge made even more complex when considering that different markets, and sometimes different properties within a market, may have different business objectives. An automated pricing system ensures regular updates, and weekly or bi-weekly reviews ensures that results are matching the desired outcomes.
  
  
• Dealing with Seasonality and Market Fluctuations: Separating seasonal trends from market fluctuations can be challenging. For example, a cyclical decline in demand could be hard to detect in the first half of the year when demand is rising seasonally. Separating these sometimes competing effects requires sophisticated mathematical algorithms.
  
  
• Handling Resident Turnover and Lease Renewals: Renewals often account for half (or more) of a rent roll. Automated pricing systems help owners ensure that their strategies are implemented across all expiring leases enhancing results and guaranteeing compliance with Fair Housing.
  
  
• Addressing Regulatory and Legal Considerations: The increasing quantity and complexity of rent control scenarios makes it increasingly difficult to be sure that new and renewal rent offers are compliant. Rather than relying on individual knowledge and/or manual processes, we can “build the genius into the system” and use these purpose-built pricing systems to implement all pricing and process rules.

Intelligent Pricing Inputs and Forward-Looking Metrics

Contemporary PRM systems should use forward-looking metrics such as availability rather than backward-looking ones like occupancy. Availability provides a better metric for pricing decisions as it reflects current market conditions more accurately. Additionally, incorporating leasing velocity – the pace of leasing – helps in making more informed pricing decisions.

These systems should also allow for flexibility in using competitor data. Users should have the option to include or exclude comp data based on its accuracy and relevance to their strategy.

Enhanced Workflows and Reduced Total Cost of Ownership (TCO)

A great contemporary PRM solution should streamline workflows to reduce the TCO. Improved user interfaces and alert-driven workflows can save time and allow revenue managers to handle more communities, thus enhancing productivity. For example, waking up in the morning and immediately seeing where to focus attention eliminates wasted time searching for issues and dramatically increases efficiency.

Reducing the number of clicks required to get the necessary data is another critical improvement. A well-designed user interface, built with the insights from two decades of experience, can significantly reduce the effort needed to interact with the system.

Flexibility and Customization

A modern PRM system must be flexible and customizable to fit various business strategies. It should provide comprehensive reporting at different levels – from unit to portfolio – and integrate seamlessly with analytics platforms. This flexibility enables revenue managers to configure the software to their specific needs and respond quickly to market changes.

Handling rent control and constraints efficiently is another crucial feature. A good PRM system should provide start and end dates for constraints, allow for rules-based caps, and consider process rules such as notice periods for significant rent increases.

It should also handle the many “special cases” pricing situations—renovations, lease-ups, small count unit types and concessions strategies.

Conclusion

Mastering multifamily pricing and revenue management is essential for maximizing profits and ensuring the long-term success of your property investments. By implementing the strategies and best practices outlined here, you can navigate market challenges, optimize your rental income and provide exceptional value to your tenants. Remember, continuous learning and adaptation are key to staying competitive in the ever-evolving multifamily industry.