When it comes to the success of a multifamily community, there is one critical success factor: Occupancy!
Some may argue that the critical success factor is leasing, but even if you have the single best leasing team on the planet, not being able to keep the residents that you draw in to the property will result in a lower overall NOI and long-term return on the investment.
Keeping an eye on your occupancy rate by tracking it over time can be hugely beneficial to your bottom line. Tracking occupancy effectively can ensure that you’re staying within the appropriate range by discovering potential issues before they become big problems. Those big problems have a tendency to add up to a loss of time, money, reputation, and more.
It goes without saying that the effects of the COVID-19 pandemic may have hurt your occupancy rate. However, there are still many ways you can reach prospective residents and get back on track.
Here’s how regularly using an apartment occupancy calculator can help you stay on top with high occupancies and on top with a great return on investment.
What is an Apartment Occupancy Calculator?
Before we go too far down how an apartment occupancy calculator can save you time and money, let’s look at what it is and how it works.
Making money in multifamily living depends on apartment occupancy. Plain and simple. Paying residents need to fill all (90% or more) of the available units for most investments to peak. Measuring your apartment occupancy rates will help your team to see just how effectively you are accomplishing that goal of not just getting, but keeping residents.
An apartment occupancy calculator isn’t just point in time either. When done right, you’ll be able to model out when leases are ending, who has already renewed, who you need to work on getting to renew or upgrade, who’s rent has increased over time, who’s rent needs to increase, and so much more.
What Factors Go into the Calculation?
The factors in your apartment occupancy formula can be unique. The specific terms and structure of your investment mixed with the overall goal outcome for your community is the absolute foundational guide to base everything on. But those are the only things to guide how you should focus your energy on calculating your occupancy rates and models. There are some fairly universal factors that should be considered:
- Physical and Economic Occupancy Rates: Physical occupancy tells you the percentage of apartments that are currently rented out to residents. The economic occupancy tells you how much rent your renters actually pay. Communities have a gross potential rent – a GPR. A GPR is the full sum of rental amounts owed as stated in leases. However, many communities don’t pull in that full amount even if they are at 100% physical occupancy. Should that gap become too large, it can be a very negative impact on the bottom line.
Rarely will a community collect full GPR each month and that’s okay. Sometimes there’s a gap between one resident moving out and the next moving in. Or a discount is offered for rent. Sometimes it is worth the loss of rent to have apartment staff, such as maintenance or security, living onsite for free. While each of these could be a good business decision, they also decrease the potential revenue each month.
- Resident Engagement: Resident engagement is a tricky factor to include in apartment occupancy calculations. It’s challenging to track, but if you are having occupancy issues, physical or economic, this may be a place to look for improvement. How are you working to keep the residents that you already have occupying units? How many of them are actively participating in community events or taking advantage of community amenities? Are they engaged at a level that can make them an unofficial brand ambassador of sorts? While it’s not a tried and true scientific number, considering some sort of engagement factor in your calculation is a great gauge that can help steer the ship in the right direction to avoid potential pitfalls, low resident engagement, or poor reviews.
Why is Tracking Important?
Once all of your factors are in place, using your apartment occupancy calculation regularly will help your team track key metrics over time to ensure you’re staying within acceptable ranges. If you find that you have a falling occupancy rate based on your calculations, it’ll be a leading indicator that your team needs to take time to determine where you can make improvements.
If the issue is physical occupancy, consider the occupancy rate an opportunity to get in front of market trends. That can mean taking a look at how you are helping attract new residents and keeping old ones. Does the pool need a facelift? What about the communal area? How are you marketing the property? Are you using video tours to help prospective residents see what you have to offer?
Or is the issue the economic occupancy? Are there residents that are months behind on rent or too many units that have not had rent increases? Are your concessions too high? By considering all of these factors, you can decide what resources are best used and where to have a consistent idea of where your apartment occupancy rate stands.
At the end of the day, every property manager and leasing team must be ready to combat a low occupancy situation. It can happen, but if you understand that it may be coming and have the ability to track leading indicators, plan for it, and ramp marketing / leasing efforts well in advance, you will push through it. With a little effort you can make your apartment occupancy calculator a true guide for your community and team, and a true asset proving an invaluable return.
Let Us Help You!
Close more leases, market more effectively, engage with residents and, as always, keep it real. Do you have a question or suggestion? Or want to learn more about what you read? Email us at email@example.com. We’d love to hear from you!