subject: Vacancy Update - Competition From Neighboring Owners [print this page] To fully understand the complex economic environment as it pertains to running an efficient multi-family apartment dwelling it is critical to be aware of the ownership types. As a general rule, most owners fall into one of three categories in this business. The first type is the owner who has such substantial equity in their building/s that they are virtually indifferent about how the monthly income relates to the percentage return on their asset. These owners typically address vacancies with lower deposit amounts and lower rents. They are hesitant to reduce their screening criteria, but in all cases choose the reduced vacancy route despite sub-market rents.
The second type of owner is the one that has leveraged themselves and their asset beyond its means. These are the owners who are most novice and hit hardest by the past couple years. Most of the time these owners have recently made a poor decision to purchase a building based upon the premise of extremely high return or a flipping strategy. These owners cannot afford to cover their monthly fixed and variable expenses in the majority of circumstances. They are cash poor and are willing to take any potential applicant who comes through the door, ignoring standard industry practices such as credit checks, income verification, and the requirement to protect oneself with ample security deposit amounts. To these owners, the only thing that matters is managing their cash and avoiding tax liens, foreclosures, and the like.
The last type of owner is the most common of which we deal with as a property management company in Long Beach, CA. This is the owner who is able to cover their costs on a given building, yet sees their asset as an investment which is intended to provide a substantial return, and, in that, a return that is continually improving. These owners have benchmarks in terms of returns on their investments, and these benchmarks are only achieved through low vacancy factors with minimized expenses at market rents or rents slightly above market.
At this time in the rental market, the first owner and the second owner are the worst enemy of the third owner. Owner #1 and #2 are on opposite ends of the spectrum, yet are adopting the same practice- substantially reduced rental/deposit rates with minimal barriers to entry, to fill their vacant units. At a time when we are offering more than we ever have to generate interest on a given unit, both these types of owners are stopping at nothing to fill their spots. I am shocked that even the most attractive units which provide the most "bang for the buck" are sitting on the market despite the employment of even these tactics.
It is my hope that these types of owners (#1 and #2) eventually get their wish and fill their vacant units. If this is the case, the future months will bring substantial decreases in available rentals and it is likely we will be able to once again realize the benefits of a fluid market that matches quality tenants with quality units.
Vacancy Update - Competition From Neighboring Owners
