The Benefits Of Preferred Rent Options
Ellen Calmas is Co-Founder/EVP at Boston-based Neighborhood Pay Services, creator of the NPS Rent Assurance Rent From Payroll platform.
The multifamily industry has had 18 months like no other, driving companies to go beyond their Herculean efforts to assist renters while looking for new sources of ancillary revenue. Many operators are thinking outside the box by offering rental applicants the ability, within a range, to pick their own rent. To be effective for all parties, these offers are structured within a framework that creates an incentive for more reliable rent delivery without delinquency while simultaneously creating a strategy to drive higher average rents.
As with any industry, multifamily has grown revenues through a number of operational and technological advancements. These run the gamut from payment innovations like the introduction of automated clearing house transfers (ACH), Check 21 payments and the acceptance of credit cards, to what are now considered expected (and often costly) amenities in the form of package lockers, online maintenance services, laundry services, onsite gyms and a host of other improvements to the quality of apartment living. Forward-thinking operators understand that changes in rent setting practices will rival many of those advancements in terms of ancillary revenue opportunities, regardless of the size or class of a community.
If history is to teach us anything it’s that residents want choices, especially when it comes to rent. That’s why more residents are accepting a trade-off between cash savings on their monthly/annual rent expense and how their rent is delivered.
For certain, since the days of the first large-scale multifamily communities started some 50 years ago by leading industry firms like Essex Property Trust, Lincoln Property Company, WinnCompanies and a host of others, renters have had the power to determine how much rent they’re willing to pay. It’s quite simple as applicants have always had the option to accept the proffered rent associated with a lease or to walk down the street and try to get a better deal. They could pay by check in person each month or they could pay by credit card with associated fees of $35 to $50 per transaction. Sadly, for millions who don’t trust traditional banks, there have been few options besides paying by money order from check cashers with exorbitant fees relative to earnings. For many renters with less than perfect credit, accepting lease terms as presented is the only option.
Ancillary revenue streams are developed in the new rent setting scenarios that allow residents to opt into preferred rent options where they are also asked to enroll in proven programs in exchange for a lower monthly rent. (Full disclosure: NPS Rent Assurance offers one such program.) In short, how renters are willing to pay impacts what they are required to pay. For individuals who prefer to pay directly with one of the older options listed, the rent jumps above market rate by $100 monthly, $1,200 annually.
Firms are moving past the operational exceptions of the past 18 months toward the very reasonable expectation that renters will fulfill their lease obligations in terms, both in how much they pay monthly and in what efforts they employ to make sure funds are delivered in full and on time.
But why would a rental applicant decline the preferred rent option and elect instead to pay $100 more monthly, $1,200 more annually? Why indeed! Declining significant cash savings because of a lack of desire to structure rent delivery is a bit of a concern that’s only neutralized by a higher than average monthly payment. Operators know that residents who sign up for rent setting programs deliver rent reliably so interests are aligned with them paying market-rate rent versus other residents whose desired payment flexibility comes with a price.
In these very tumultuous times, with an excess of $40 billion of rent relief stuck in red tape and eviction moratoriums continually extended, property companies are eager to create greater economic occupancy among residents who are moving into new leases. While continuing to find ways to help prospective renters afford apartment living, they are also working strategically to protect their bottom lines.
The expression “you catch more flies with honey than vinegar” is generally believed to mean it’s a good idea to be nice to others as a means to make yourself happy. Significant savings of $100 monthly is a lot of honey for renters to accept in exchange for how they gain access to the hive.
To learn more about lease offer terms, prospective renters should speak with the community staff where they want to live. As important as the features of an apartment home and the physical community is the opportunity for cost savings provided. Fair Housing requires that lease offer terms are consistent based on set criteria and payment options that are typically associated with credit scores and credit and rental history. Finding communities offering rent setting options is a bonanza for residents who would otherwise be charged more if they qualify as conditionally approved due to the credit. The difference in monthly savings in exchange for rent delivery methodology can be the difference between residents moving into a new apartment or having to keep looking in a difficult housing marketplace. For multifamily operators, the give and take of rent setting options is proving to be just what’s needed for reducing bad debt expense while building ancillary revenue.
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