Welcome back for another installment of the Apartment Budget series. Today we are going to talk about Loss to Lease. Interesting side note, I did a piece on this a number of years ago and to this day it remains the number one read article on this blog.
Before we get started, I wanted to post a note of clarity as it relates to my last entry – Apartment Budgets: Rental Income. Where I refer to Rental Income in that post – I am really talking about Gross Potential Rent as being the top line. You may also hear it referred to as GPR. In any event, I wanted to head off any confusion.
Now unless you have a brand new community in lease up, you will have in place leases that are very likely below the GPR. The primary reason being rent increases. Any time you increase rents you create a margin between the in place leases and the new increased GPR. This can occur in reverse and the impact to the LTL can go in reverse. That is to suggest that you can decrease the GPR and the margin or LTL becomes positive. Not a scenario you see to often as rents generally rise over time in lieu of decline over time.
Loss to Lease – New Move In
To put it simply; if you lease an apartment below the GPR, the discount is captured in a Loss to Lease – New Move In line item. To put some math to it; if your apartment’s GPR is $500 and you lease it for $450, the $50 reduction in rent is capture in the Loss to Lease – New Move In line item as a -$50 charge. And, it will exist for the life of the lease.
Loss to Lease – Renewals
When leases come up for renewal and they are under the GPR number – the margin is by default in the current Loss to Lease line item. When the lease renews, if it is still under the GPR that new number gets captured in the Loss to Lease – Renewal line item. Putting some math to it. Suppose your apartment’s GPR is $500 and the current in place lease is $450 – you renew it at $475. The $25 margin is captured in Loss to Lease – Renewals.
Total Effective Rent
Once you have accounted for your losses related to in place, new and renewed leases under the current Gross Rent Potential – you come up with a Total Effective Rent. That is where we will pick up next week.
We have purposefully left out the analysis piece this week because I think it will fuel some crazy cool discussion. Hope to see you in the comment section below.
“The essence of strategy is choosing what not to do.” – Michael Porter
You may want to read and reread that last line a couple of times. [It’s okay – I’ll wait…..]
I think for many of us, me included, it’s usually more along the lines of what do we do next? What is the next thing to tweet? What is the next platform to try? What is the next marketing idea stone that needs to be turned over? How do we differentiate? How do we compete?
All good questions and likely good stimulates for conversation. But, what we leave out is equally if not more advantageous in forming an effective strategy.
We have all taken the 3am call for lock out service. “Hi, I locked myself out of my apartment; can you have someone from your team come and let me in?”
And we all have some form of the following:
Apartment Lock Out Policy
If residents lose their key or become locked out of their apartment, the following options are available: [loosely adapted from a quick search result on Google]:
1. During posted normal business hours (excluding holidays) residents may come to the main office for
2. After normal business hours, but prior to 9:00 p.m., residents may contact the emergency phone
number provided on the office door or on the recorded message, and a staff member, if available, will
open the door….
3. After 9:00 p.m., no lock out service is provided and residents have the option of calling a locksmith at
residents’ own cost and expense….
Is it Customer Service or a Serious Liability?
I do admit that I see the people side of this in that we want to be there to assist with any and all after hours calls no matter the nature. I also see the downside in that many of us do the service but charge for it if it is after hours. In that case, right or wrong, I see serious liability in asking my service team to collect a check, cash or money order prior to handing out a key. I also see liability in asking them to rifle through a resident’s file to compare and contrast ID’s against written records. Or, even worse, they just take the resident’s word for it.
In any case, I am looking for some quick thoughts on the subject.
Is it a good move to stop doing lock out service all together during off hours and leave residents on their own?
I wrote about an idea along these lines sometime ago and Wrapp just might be the early way to get it done.
Ran across Pepsi’s Social Vending Machine Story while I was in the process of purging some old files and it got me thinking about ways that we could make paying rent an even more social experience.
Is it reasonable to think that Facebook, Twitter, G+ or even resident portals could be robust enough to allow payments by third parties unassociated with lease contracts and the such?
Following the concept of Pepsi creating a the experience of sending free sodas to friends; could you see the same thing apply to rent payments? If my buddy knows that I have fallen on hard times and wants to help; could he go to our website, log in without disclosing his identity [at least to me] and pay my rent? Or, a portion?
It already happens in the analog world. Or not, if leases are written such that you can not take third party payments [not smart in my opinion]. In the former case, parent’s pay their student’s rent via various payment methods. A process, at least at Mills Properties, that is usually administered by our onsite teams. Can we make it DIY for third parties with technology? Do you employ such a service today? Tell us about it.
Your looking to make paying the rent a more social experience multifamily maniac,