When it comes to successfully pricing your apartment homes, it’s critical to know who your competitors are and what rental rates they are charging.
Unfortunately, though, too many operators don’t have a true, clear-eyed understanding of their properties’ comp sets. Below are some common mistakes property managers make when trying to determine who the competition is.
Assuming neighboring properties are comps.
For sure, nearby communities – say, those within a one-mile radius – have a strong chance of being a competitor, but that’s not always the case.
Perhaps your community is a Class B asset, and the one down the street is a Class A or a Class C. Those may not be a comp. But the Class C across the street that is doing some value-add renovations, well, they may be another story. Visibility into property specifics like units, amenities and renovations can really help better determine what neighboring properties you really should be watching.
Assuming that communities with the same floorplan types are comps.
It’s tempting to assume that a nearby community in the same asset class as yours is definitely a comp if it offers the same floorplans as yours. But operators need to be more discerning than that.
For instance, say that nearby community’s one-bedroom units are only 450 square feet and yours are 900 square feet. A significant discrepancy between the size of your two-bedroom homes and theirs also exists. Should this property really be included in your comp set?
Not adjusting your comp set based on your community’s current situation.
Imagine that all of the one-bedroom units in your community are leased and occupied for the next half year. You have no upcoming exposure among this floorplan. However, occupancy is lagging among your two-bedroom units.
In this instance, you should adjust your comp set to make sure you’re paying the most attention to communities with similarly sized two-bedroom homes.
Assuming comp properties stay static.
Market dynamics today are fluid. Properties that might have not been comps can suddenly compete against your property. Say they renovated and do major upgrades to the community and interior units. Sometimes properties can compete for a specific period of time until they stabilize. This is especially the case with brand new lease-ups. For example, if your property is a Class A- and generally does not compete on price or product with brand new lease-up properties. However, these lease-up properties frequently offer high concessions in order to lease up as quickly as possible. They may take traffic and leases from your property that ordinarily would not be the case. This can last a few month or longer until they stabilize and concessions are phased out.
Get your comp set right by using as much information as possible. And periodically evaluate if all your properties on your market survey are truly comps. Don’t just settle for the old ways of doing things. Push your team to find new solutions and the right solutions for gathering data about potential comps. As business intelligence grows, your ability to better evaluate your competition will grow as well.
Make it as easy and automated as possible for other properties to consistently provide information. Pricing, floorplans, finish levels and amenities data can allow your team to make a rock-solid decision about whether those properties are truly competitors.
To make sure your community is performing optimally is to understand exactly who the competing communities are. And how they compete in terms of rental rates and occupancy. Determining exact competitors may take some digging and some new approaches, but the efforts will be more than worth it.