JesseO
Contributor
Has anyone else had to deal with the intense competition that certain Arizona markets are producing due to new anti-immigration laws, hard economies, negative growth, and other issues? Well, if you have, I've got good news for you......there is a way to beat it all!
This doesn't just apply to Arizona. Anywhere, in any state with commercial real estate management should be feeling the pinch right now, even if you're not in one of the hardest hit markets around. There are some great steps to take to rise above the issues at hand even if you're leveraged at extremely high rates; so long as you made a good investment.
Forgive my spelling while I eat jalapeno chips and sweat while I write :smx3: Right now the market in Arizona is suffering due to the aforementioned reasons. Right now there is anywhere from an average of 8% to 18% vacancy rate in any given area. This amount is huge. A property with an income of $50,000 per year, with 18% vacancy will only make $41,000, and that is before any expenses like landscaping, maintenance, repairs, capital investments, salaries, but includes vacancy. As we all know, as vacancy rates go up, expenses increase. Instead of having to replace 1 or 2 carpets, you will have to replace 5 or 6 per month if your vacancy is high. The same goes for appliances, drywall, paint supplies, etc.
To fix this problem, there are a few different strategies. The owners who want to suffer the most will stick to the current price rates and blame as much as possible on management as well as the market. The real fact is that you create your own market. If you lower your prices, you will create your own submarket and--as I know from personal experience--fill up within a very very short time frame. If you take away all competition then you have made your own niche. You are now the cheap, classy, and desirable place to go! Your residents will now recommend people left and right, and you will fill up your vacancies with relatively little effort.
There are, of course, costs to lowering your rents to filling up so quickly. I feel that we should touch on this subject for just a moment before I post this topic. If for example you had a 100 unit complex, and 25 vacant apartments, then you are going to have to pay to replace possibly 15 carpets and vinyl, appliances, paint, A/C units, drywall, etc. You should immediately see what the competition is charging, and severely undercut them while spending the money necessary to fix up these new vacant apartments. You will now spend $25,000 or more to get these units ready. This is much better than the alternative...
Let's say you skimp on expenses and simply replace some carpets, and get the lowest possible denominator when it comes to renting. You NEED to fill apartments, so you allow anyone in, no deposits, and free rent all over the place. You have now set yourself up to be screwed. Keep your screening process 100% and only let the best in. Make sure they know that you're only letting in the best while at the same time having the best prices around! Make it seem as hard as possible to get in while at the same time approving the best applicants and rejecting the rest. You will fill up. To do this you should undercut your competition a LOT. You will get them, and they will stay as long as you do. your. job. Screen, screen, and screen your residents.
In terms of rent loss, with your 25 units you may lose as much as $5,000 per month because of your low low price!
In terms of not having a vacancy loss of $25,000 that is a steal!
You can always increase rents, and it is better to make $10,000 per month than lose $10,000 per month, wouldn't you agree?
There are many subtle marketing points, techniques, and issues to make sure to have if you want to get the best residents and get rid of any bad ones even while in this period. If anyone has any questions, please feel free to post them. This is not part 2 of my commercial management plan as we didn't really have the kind of base/interest to go into a whole series, but I think you guys may want to know a little bit about this the way the economy is going.
At the complex I am at--130 or so units--it makes a big difference when you beat the crap out of the competition when everyone else is losing 20k per month. This is a hard number to swallow. -$20,000 per month. Do you ever want to be in that spot? There are many in my area who are there right now. Make sure you know what you're doing before you jump into this awesome jungle
atriot:
This doesn't just apply to Arizona. Anywhere, in any state with commercial real estate management should be feeling the pinch right now, even if you're not in one of the hardest hit markets around. There are some great steps to take to rise above the issues at hand even if you're leveraged at extremely high rates; so long as you made a good investment.
Forgive my spelling while I eat jalapeno chips and sweat while I write :smx3: Right now the market in Arizona is suffering due to the aforementioned reasons. Right now there is anywhere from an average of 8% to 18% vacancy rate in any given area. This amount is huge. A property with an income of $50,000 per year, with 18% vacancy will only make $41,000, and that is before any expenses like landscaping, maintenance, repairs, capital investments, salaries, but includes vacancy. As we all know, as vacancy rates go up, expenses increase. Instead of having to replace 1 or 2 carpets, you will have to replace 5 or 6 per month if your vacancy is high. The same goes for appliances, drywall, paint supplies, etc.
To fix this problem, there are a few different strategies. The owners who want to suffer the most will stick to the current price rates and blame as much as possible on management as well as the market. The real fact is that you create your own market. If you lower your prices, you will create your own submarket and--as I know from personal experience--fill up within a very very short time frame. If you take away all competition then you have made your own niche. You are now the cheap, classy, and desirable place to go! Your residents will now recommend people left and right, and you will fill up your vacancies with relatively little effort.
There are, of course, costs to lowering your rents to filling up so quickly. I feel that we should touch on this subject for just a moment before I post this topic. If for example you had a 100 unit complex, and 25 vacant apartments, then you are going to have to pay to replace possibly 15 carpets and vinyl, appliances, paint, A/C units, drywall, etc. You should immediately see what the competition is charging, and severely undercut them while spending the money necessary to fix up these new vacant apartments. You will now spend $25,000 or more to get these units ready. This is much better than the alternative...
Let's say you skimp on expenses and simply replace some carpets, and get the lowest possible denominator when it comes to renting. You NEED to fill apartments, so you allow anyone in, no deposits, and free rent all over the place. You have now set yourself up to be screwed. Keep your screening process 100% and only let the best in. Make sure they know that you're only letting in the best while at the same time having the best prices around! Make it seem as hard as possible to get in while at the same time approving the best applicants and rejecting the rest. You will fill up. To do this you should undercut your competition a LOT. You will get them, and they will stay as long as you do. your. job. Screen, screen, and screen your residents.
In terms of rent loss, with your 25 units you may lose as much as $5,000 per month because of your low low price!
In terms of not having a vacancy loss of $25,000 that is a steal!
You can always increase rents, and it is better to make $10,000 per month than lose $10,000 per month, wouldn't you agree?
There are many subtle marketing points, techniques, and issues to make sure to have if you want to get the best residents and get rid of any bad ones even while in this period. If anyone has any questions, please feel free to post them. This is not part 2 of my commercial management plan as we didn't really have the kind of base/interest to go into a whole series, but I think you guys may want to know a little bit about this the way the economy is going.
At the complex I am at--130 or so units--it makes a big difference when you beat the crap out of the competition when everyone else is losing 20k per month. This is a hard number to swallow. -$20,000 per month. Do you ever want to be in that spot? There are many in my area who are there right now. Make sure you know what you're doing before you jump into this awesome jungle
atriot:
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and find out what their prices, specials, deposits, and quality are like. Right now we are very far below any of their prices. This is paying off hugely as we are now at a point to where we have an extra crew and processes in play to help get units ready quicker, as well as a waiting list. I know prices will be going back up very soon. If one of the neighbor apartments were to actually do their homework and find out what our prices and specials are, and then lower their prices below ours, then there would still be only two complexes in the area with great pricing. In the situation you mentioned where it might be the only apartments in the area, then yes I would go into a price competition until someone gives. I think of it this way: is it better to have bunch of empty units and lose $10,000 from vacancy, or have a bunch of low prices units and lose $1,000? Keep in mind we still have very strict requirements to move in; minimum income amounts, no felonies, no misdemeanors involving people or property (think assault or theft), etc.
