"Landlords adopt RealPage recommendations on pricing 80-90% of the time, which explicitly drives up revenue by holding apartments off the market. "
Can somebody explain how holding apartments off the market is driving up revenues?
Can somebody explain how holding apartments off the market is driving up revenues?
If the rent to leave 10% vacant is 11% higher, I basically break-even on cash-flow and have a higher building valuation (on a multiple of rents when fully-rented basis).
If it's 12% higher, I make more cashflow (plus giving myself an easier job with more freedom in operations to do medium maintenance between tenants and have units free for temporary dislocations, etc;).
The small landlord/owner with a couple of houses or condo units is going to want them 100% rented because leaving even one of them vacant is going to be significant impact on revenue.
Just as much, small landlords are terrified of the damage a bad tenant can do and might not have the resources and experience needed to quickly get rid of such a tenant and finding a tenant can be expensive and time-consuming giving them further incentive to leave the place vacant. And also having less knowledge and experience, small landlord aim to follow the market and they'd aim to have an apartment as "market rate". Certainly, lowering an existing unit's price would only bring in "less desirable people" since "desirability" is very much a function of income.
If you rent that out for $900 a month, you will basically never have it empty, because those in it won't want to move (they lose the $100 bonus) and if they do, someone will grab it right away.
If you rent it for $1000 a month, it'll fill up relatively easy (compared to the market it is in) so you'll often have relatively low vacancy (but even one month empty is paid for by ten months rented.
If you rent it for $1100 a month, it'll be vacant much longer, perhaps forever depending on supply.
You are assuming that the marginal cost of turnover is zero, which it definitely isn't. Putting a unit on the market, showing it to prospective tenants, processing applications, background checks, income verification, etc is labor intensive and expensive. This is during the period where you have 0 income from the unit.
1. You won't increase rents for existing leases, these need to be up for renewal so you can make changes to them.
2. You are assuming that you control the whole market. Even if 70% of landlords use RealPage and their pricing recommendations, the remaining 30% should be able to absorb some of the people moving out as a result of this if the new rent is substantially over market.
3. This creates somewhat of a prisoner's dilemma problem. Any non-compliant landlords inside the 70% bucket could only raise their rent by 5% instead of 10%, get full occupancy rates and come out ahead of their competitors.
It means that 30% people will get market-determined terms and other 70% will have no choice but to accept RealPage pricing. Because they need to live somewhere.
In China this level of crime gets you sent to re-education camps or just executed.
It increases revenue with fewer units rented, the claim is not "maximize" revenue, but, for a property manager, that they "increase" revenue, in step with a sizable portion of that local market. It's a marketing claim to property owners, not a global/overview claim to the public.
Holding housing stock level constant, they can set prices that a renters moving in, in the coming years, can't improve on.
This is artificially limiting supply so instead of saying you have "100 units for rent" you only show 3 or 4. Done strategically this can give the appearance of a limited supply, even when the supply is not limited.
Imagine you go to 5 different complexes and they all say "Oh man, we only have 1 unit left and it's $$$". You're going to behave differently, especially if you're in need for a room then if you go to those 5 complexes and they say "Oh, yea, we have 40-50 units vacant at the moment". A sense of urgency is put on the renter.
But you seem to be suggesting the opposite: As price rises, landlords are less willing to sell a lease, and tenants more willing to buy a lease.
The law of supply and demand observes that when people are more willing to sell or less willing yo buy, the price declines. (And, when they are less willing to sell or more willing to buy, price increases.) Supply (willingness to sell) and demand (willingneess to buy) determine price
But that's in a perfect market with perfect and symmetric information and pure rationality, and the upthread poster is talking about psychological tactics that leverage the fact that the real world doesn't feature perfect and symmetric information or pure rationality.
When you get into the meat of it, what the previous commenter is trying to say is that rent is quite inelastic and thus people will happily pay a lot more than is necessary when you can employ some clever marketing tricks. But the strange wording has it going all over the place.
Economic behavior is not physical law. Awareness of economic behavior can change behaviors. For example if you observed that ice cream stocks went up the day that hot weather was forecast you'd quickly find yourself in a battle to predict when it was going to be hot at earlier and earlier dates.
>happily pay a lot more than is necessary when you can employ some clever marketing tricks.
And the marketing trick is called lowering supply.
>People (or other animals, I suppose) determine price.
Quite often by controlling supply
The original contextual comment indicated that there was no reduction in supply, merely false claims of the "there is only one unit left!" nature. Normally a buyer would look around to make sure the claim is true, but I guess the idea is that people get so emotional about housing that they don't give it a second thought, which plays into why there is such inelasticity to exploit.
Try reading the thread before replying next time.
I wonder how many of these large property owners engage in such rent seeking behavior too.
Lower supply means the price of existing offerings goes up.
Obviously, it's not holding all units off the market but collusion to hold enough units off the market to get a maximum value of the units times price, what they called in econ back in the day the monopoly equation.