I recently received the following request from a multifamily investor: “Can you please send me a marketing plan post purchase for an apartment building I am buying (my bank wants this)”?
This is a fantastic question! When you approach a bank to finance your apartment deal, they most assuredly will want to see your apartment building leasing and marketing plan. Without a solid strategy, you risk losing financing and you’re more than likely ready to walk into apartment building ownership with blinders on.
Let’s make sure you’re ready with a great plan and strategy from day one of ownership. As an apartment building owner, you have to be proactive. In order to succeed you must:
• Know exactly how you will market and lease units
• Have a solid understanding of your market and your competition
• Put the best team in place
• Prepare an accurate budget forecast
All before you buy the building. This information will help you finance your deal and it will most likely help you negotiate a better deal with the seller. Here are 14 points to include in your planning:
1. Your Team: It’s time to show that you have the best team around. If you are light on experience or you are a seasoned professional real estate investor, this is your opportunity to let your lender know that you have the best multifamily real estate team in the business ready to step in the day you close on the deal. Your list should include your third party apartment building property manager, your leasing agents, your renovation and trade contractors. These professionals should have experience at the apartment building level. Be sure to point that out.
2. Responsive Apartment Building Maintenance: A top-notch maintenance team goes a long way in keeping happy residents. Promptly addressing maintenance requests equals less resident turnover. Put a plan in place for maintenance and your method of communication with residents. Include the details in your marketing plan.
3. Rent and Concession Comparables: Describe what your competing market is doing and how you stack up today. You must know the rents that your submarket competitors are receiving for comparable units and also if they are offering concessions or discounts. Include your research in your report. If your units are currently leasing below market rent, address this in your report. Describe how you plan to make changes – in both rents and concessions – in order to attract new residents to your building. This may involve:
• bringing in a new professional and seasoned management team,
• updating apartment units
• offering creative concessions and incentives to new and existing residents
• creating greater curb appeal to improve marketing
• establishing a new leasing and marketing plan and
• hiring a temporary leasing agent in addition to the leasing services your management company provides
4. Creative Concessions: If your market is giving away free or discounted rent in order to lease units, you and your management team can come up with alternatives that don’t cost you in property income. For example, if you charge for parking and your spaces are not full, give your resident free parking for three months instead of lowering the rental amount.
5. Current and Prospective Resident Incentives: Entice your current residents to get the word out about your apartment building and apartment units to their friends, family and coworkers. Create an incentive for prospective residents to help lease apartment units in lieu of offering them other concessions such as discounted rent. For each new lease signed, give the referring resident a $25 gift certificate or other attractive bonuses and incentives.
6. Current Vacancy: Providing a current rent roll and historical financials will be a requirement of getting financing. Your lender will ask for these documents and they will be fully apprised of any vacancies at your property. Don’t shy away from describing where you are today and where you plan to be in six, 12 months, etc. Let your lender know you have a solid plan for leasing and lease renewals.
7. Upside to Current Rents: A lender does not want to hear that you will be blazing new trails with the rents you plan to get. Do not be tempted to claim you can rent units for amounts that are far above what the apartment market receives – unless it’s true. And if you purchased a property that cannot command current market rents, you’ll need to address how you plan to make appropriate changes in order to catch up to your local apartment market. On the other hand, your lender will love to hear that your rents are below market and that you can easily catch up to the competition. By having solid market research on the comparable rents in your submarket, you will be able to address your plan knowledgeably.
8. Annual Income and Expense Budget Forecast: Provides a 12-month spreadsheet for income and expenses. This spreadsheet will include all income and all expenses for the property from day one through the next 12 months. You should also include all planned capital expenses that exceed normal property operation requirements such as major building system repairs or replacement.
Your commercial property management company can prepare an annual budget. Use it not only to project future cash needs if any, but also to monitor your property operations. If your income falls short of projections or your expenses exceed projections, you have a baseline to work from when you address the issue with your property management company. Read Creating an Annual Operating Budget for Your Multifamily Property to understand the benefits of preparing an annual income and expense forecast.
9. Additional Sources of Income: If you have untapped sources of income, describe them. For example, you might be able to rent out unused storage space, lease unused parking spaces, increase laundry coin operation amounts or implement a utility reimbursement plan (commonly called RUBS) where your tenants will pay for their utility usage. It is not unlikely that the current owner has overlooked additional sources of income. Let your lender know you have the expertise to increase revenue.
10. Advertising Strategy: How and where will you advertise units for rent? Make a list that includes:
• Online rental sites
• Local merchants
Clearly define your marketing budget, frequency of posts/ads/notices, system for ad response follow-up and professional appearance. Will you have a designated leasing agent? If so, include that individual in your list of team members with appropriate contact information.
11. Property Curb Appeal: An apartment building with great curb appeal is easier to rent. By investing a small amount of your time and renovation budget, you can change the entire look of your property. New shrubbery, signage, blinds and landscaping can have a major impact on your ability to attract new residents.
12. Local Apartment Market “Sizzle”: Market sizzle comes in all shapes and sizes. Your submarket renters might want free WiFi, wood floors or in unit washers and dryers. Study your local apartment market and let your lender know that you can give prospective renters what they’re looking for.
13. Current Leases and Lease Expiration Dates: Review all current leases and demonstrate a solid understanding of your current resident status and lease renewal dates. Have a plan for staggering lease renewals for all leases.
14. Local Police Department Premise History: Most police departments keep a log of all visits to a property. This is typically called a premise history. If it’s clean, use it in your marketing. For example you might advertise a “safe, secure, quiet building”. A good report speaks volumes about the neighborhood in which your property is located.
Theresa Bradley-Banta has owned single-family rentals, multifamily properties and international single-family development projects over the past 10 years. Reprinted with permission from Rental Housing Journal, Metro.