Chicago Becomes the Hottest Rental Market Amid a Nationwide Cooldown

While the autumn months brought a cooldown in rental prices across the U.S., some metro areas, such as Chicago, Boston, and New York, are bucking the trend with double-digit growth, according to a report out Tuesday.

In November, the median asking rent across the 50 largest metros tracked by Realtor.com increased 3.4% yearly to $1,712. According to the report, the annual growth rate was the slowest in 19 months.

“Many Americans’ budgets are being pulled in multiple directions as the holidays approach, bringing a more typical seasonal cooldown to the rental market that we hadn’t seen in the last few years,” Danielle Hale, chief economist at Realtor.com, said in a statement.

In the Sun Belt, where both sales and rental markets experienced a pandemic boom, rental prices saw the most significant cooldown. The median asking rent in Riverside, California, fell 5.5% in November to $2,071 per month. In Las Vegas, the monthly rent dropped 4.9% to a median $1,481, according to the report.

In major economic hubs such as Chicago, Boston, and New York, where there are more employment opportunities and higher concentrations of college students, monthly rents climbed by double digits compared to a year ago. Chicago experienced the largest annual growth, with the median rent increasing 20.8% to $1,949 monthly.

Boston’s median rent rose 11.8% year over year in November to $2,865 per month, surpassing New York’s monthly rent of $2,727, which was 9.4% higher than the same period last year, according to the report.

Also, the rental market is expected to remain competitive in 2023 as still-high inflation, and interest rates will deter potential buyers from purchasing homes.

“Despite this recent relief, renters will continue to be challenged by affordability in 2023, with rents forecasted to hit record highs,” Ms. Hale said.

 

 

 

Source: Chicago Becomes the Hottest Rental Market Amid a Nationwide Cooldown

https://www.creconsult.net/market-trends/chicago-becomes-the-hottest-rental-market-amid-a-nationwide-cooldown/

What’s the Outlook for Affordable Multi-Family Housing in 2023?

During the past two years, prices for single-family homes rose at record-breaking rates, forcing many first-time buyers to postpone their plans and continue to rent.

In addition, demand for affordable multi-family housing increased as more Generation Z renters (age 18 to 23) left their family homes for apartments.

This is good news for investors searching for affordablemulti-family housing for sale, as their cash flow will increase with the passive income generated by tenants’ rent.

However, renters and investors are still coping with the effects of runaway inflation, living and renting in an increasingly expensive world. In addition, Fannie Mae is predicting aslowdown in multi-family construction. How will this affect next year’s multi-housing outlook?

The Federal Reserve’s Plans for 2023 Interest Rates

It’s impossible to predict an accurate outlook for multi-family housing and renters without reviewing the predictions issued by the Federal Reserve, or “the Fed” as it’s commonly known.

One of the Fed’s primary responsibilities is tomonitor the nation’s financial systemsand to support a healthy economy.

This responsibility has been evident from 2020 to the current date.

• During 2020, the Fed Reserve responded to fears of a lasting recession by reducing the federal funds rate to around 0.25%.


• Fast-forward to late 2021, the national economy was hit with runaway inflation.


• The Fed responded with four interest rate hikes during 2022 that increased the federal funds rate from 3.75% to 4.00%.

The Fed hopes to discourage consumers and businesses from buying with credit by creating more expensive credit. This helps “cool” the economy and put the brakes on inflation.

This strategy has been described as "bad-tasting, but effective" economic medicine.

How lousy will rates taste next year?

Rate Predictions for 2023

During 2023, the taste of Federal rate hikes probably won’t improve. According to the President of the Federal Reserve Bank of Chicago, rates are expected to continue rising from 4.5% to 4.75%.

The question for investors financing their purchases of multi-family properties is:How many will postpone their investments in 2023?

It’s possible that, even when paying more for commercial property financing, investors who don’t postpone their expansion into multi-family property sales may still profit. This is because rental rates and demand for additional units continue to grow.

How Rising Rates May Affect Multi-Family Investors

While most developers dislike postponing a new project, higher rates create expensive credit. Some analysts predict that some 2023 apartment builds will be delayed, but not all.

For example, a developer’s financial backers may opt to raise the rental rates of a completed building, as this will help cover the additional cost of credit used to buy construction materials.

This may translate into higher rent rates for newly-built multi-family real estate.

This is only half the picture. It’s not realistic to consider how rising interest rates will affect investors without considering the effect on their tenants.

Will Renters’ Preferences Change?

It’s well worth it for investors to research potential renters in their preferred area.

• In some cities, more renters are opting for roommates.  Developers may want to add more two- and three-bedroom units to new projects.


• Not all renters plan to share, especially those who work remotely. They’re often willing to pay more for one-bedroom and studio apartments.

One example: When an NYC developer announced plans for a multi-family building composed entirely of 302 sq. ft. studio apartments,60,000 potential renters appliedfor one of the 55 units before they were completed.

Here are details of new affordable multi-family housing projects planned for construction during 2023.

Multi-Family Projects Expected for 2023

As the number of renters continues to grow, so does the demand for rental units.

During 2022, multi-family construction skyrocketed, hitting an all-time high of 841,000 units under construction. In addition, building permits rose 25.5% year-over-year.

With more would-be homeowners priced out of the market and younger workers leaving the family home, some industry analysts have identified a logjam of renters.

Rates that sidelined would-be homebuyers are also affecting developers. Some have already decided to postpone construction starts. This is evidenced by the number of multifamily units officially authorized by city officials but have not yet started.

Industry experts fear that this trend will only become worse in 2023. Will the number of renters in 2023 cause the predicted logjam? Will rents rise, and by how much? Apartment managers have their data.

Tenancy and Rent Rates: Data and Predictions

According to theresearch team at Apartment List, the national rental price index fell by 0.7% during October 2022. This isn’t a surprise, as fall and winter are slow rental months.

However, rent prices continued to pull ahead of pre-pandemic numbers. As of November 2022, rents for the year have increased by around 5.8% annually.

Researchers also found that the vacancy index grew to 5.5%.

If you’re wondering why vacancies increased, this is due to a slower rate of what’s referred to as“household formation.” More nervous, young, would-be renters prefer to stay at the family home or with roommates.

That said, today’s vacancy index remains below the pre-pandemic norm. This translates into a year of opportunities for careful investors.

One Thing's for Sure: Additional Housing Is Needed

While industry analysts don’t all agree about the current outlook for multi-family housing, the need for additional units during 2023 and beyond has been identified.

Unit shortages in many areas are due to increased mortgage costs, more first-time homebuyers being priced out of the market, and inflation.

Rising interest rates may result in some, but not all, new multi-family builds being postponed.

As with any investment plan, start with research of today’s markets and the assistance of a broker if you’re starting.

 

Source: What’s the Outlook for Affordable Multi-Family Housing in 2023?

https://www.creconsult.net/market-trends/whats-the-outlook-for-affordable-multi-family-housing-in-2023/

Cushman & Wakefield, Marcus & Millichap Quietly Cut Jobs Last Year As Business Slowed

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Two of the nation's largest brokerage firms saved millions of dollars by quietly laying off workers at the end of last year.

Cushman & Wakefield and Marcus & Millichap reported headcount reductions in their fourth-quarter earnings reports. However, details regarding the number of layoffs and which departments were most impacted were scant.

Cushman & Wakefield cut $24.4M in operating and administrative expenses in Q4 primarily through lowered employment costs. The firm also reported an increase of $800K in restructuring changes, which was linked to severance payouts.

Marcus & Millichap's workforce shrunk by 5% last year, with the majority of turnover concentrated among employees who had been with the firm for one to three years, CEO Hessam Nadji said during the firm's earnings call.

In December, the company tightened expenses by reducing headcount, Nadji said, though he stopped short of sharing how many employees were laid off.

The reduction at Marcus & Millichap was relegated to corporate staff, Vice President of Public Relations Gina Relva told Bisnow. She said that despite economic headwinds prompting some layoffs, the company has also hired new agents and loan originators.

"Marcus & Millichap remain focused on strategically managing controllable expenses while continuing to provide best-of-class services on behalf of our clients and sales professionals," Relva said in an email.

Cushman & Wakefield did not respond to Bisnow's request for comment.

A growing number of large brokerage firms have implemented cost-cutting measures following a steep decline in transactions and capital market activity in the latter half of 2022.

JLL reported spending $9.3M in severance costs in Q3 before laying off an unspecified number of workers in November. CBRE also confirmed plans to reduce expenses by $300M through staff reductions.

Those staff reductions are "largely done," a CBRE spokesperson told Bisnow Thursday following the firm's Q4 earnings call.

 

Read: eXp World Holdings Reports Q4 and Full-Year 2022 Results

 

Source: Cushman & Wakefield, Marcus & Millichap Quietly Cut Jobs Last Year As Business Slowed

https://www.creconsult.net/market-trends/cushman-wakefield-marcus-millichap-quietly-cut-jobs-last-year-as-business-slowed/

eXp World Holdings Reports Q4 and Full-Year 2022 Results

2022 Revenue of $4.6 Billion, up 22% Year Over Year

Segment Reporting Introduced Highlighting Profitable Q4 in North American Realty

Company Declares Cash Dividend for Q1 2023 of $0.045 per Share of Common Stock

Glenn Sanford Returns as CEO of eXp Realty to Drive Next Phase of Agent-Centric Growth

BELLINGHAM, Wash. — Feb. 28, 2023 — eXp World Holdings, Inc. (Nasdaq: EXPI), (or the “Company”), the holding company for eXp Realty®, eXp Commercial, Virbela, and SUCCESS® Enterprises, today announced financial results for the fourth quarter and fiscal year ended Dec. 31, 2022. Beginning in the fourth quarter, the Company has revised its operating segments providing greater transparency into the drivers of its financial performance.

Fourth Quarter and Full-Year 2022 Consolidated Financial Highlights as Compared to the Same Year-Ago Period:

• Revenue increased 22% to $4.6 billion in 2022 with revenue of $933 million in the fourth quarter of 2022.


• Gross profit increased 24% to $366.9 million in 2022 with gross profit of $83.1 million in the fourth quarter of 2022.


• Net income of $15.4 million in 2022 with net loss of $(7.2) million in the fourth quarter of 2022.


• Earnings per diluted share of $0.10 in 2022 with a loss per diluted share of $(0.05) in the fourth quarter of 2022.


• Adjusted EBITDA (a non-GAAP financial measure) of $60.5 million in 2022. Adjusted EBITDA was $3.6 million in the fourth quarter of 2022 compared to $13.1 million in the fourth quarter of 2021.


• As of Dec. 31, 2022, cash and cash equivalents totaled $121.6 million, compared to $108.2 million as of Dec. 31, 2021.


• Distributed $204.7 million to shareholders in fiscal 2022, including approximately $179.5 million of common stock repurchases and $25.2 million of cash dividends.


• The Company paid a cash dividend for the fourth quarter of 2022 of $0.045 per share of common stock on Nov. 14, 2022. On Feb. 9, 2023, the Company’s Board of Directors declared a cash dividend of $0.045 per share of common stock for the first quarter of 2023, expected to be paid on March 31, 2023 to stockholders of record on March 13, 2023.

Management Commentary

“I am excited to return as CEO of eXp Realty to drive our next phase of growth by doubling down on agent-centric innovation,” said Glenn Sanford, Founder, Chairman and CEO of eXp World Holdings. “Our model was designed to withstand varying market conditions, which uniquely positions us to continue investing in the agent experience in a down market. In turn, we maximize long-term growth and profitability.”

“Thanks to the hard work of our agents and our industry-leading operating efficiency, our core eXp Realty North American business remained solidly profitable in the fourth quarter despite the market downturn. In line with how we manage our business, we are now reporting segment-level financial information, which also provides transparency into the financial performance of our core business and the investments we are making to reinforce and extend our position as the most agent-centric brokerage on the planet.”

“We believe Net Promoter Score (NPS) is the best way to measure our success, and we were thrilled to end the year with a global agent NPS score of 73, a level which rivals the most loved consumer brands in the world. As market conditions improve, we expect our unrelenting focus on agent success to deliver lasting growth and the potential for significant wealth creation for our brokers, agents and shareholders in the years ahead,” concluded Sanford.

“In 2022, we generated $4.6 billion in revenue and over $242 million in Operating Cash Flow⁽¹⁾ while maintaining a strong balance sheet with $122 million of cash and no debt,” said Jeff Whiteside, CFO and Chief Collaboration Officer of eXp World Holdings. “Moving forward, eXp’s profitable North American Realty segment will enable us to continue investing in the eXp platform to accelerate agent success and drive long-term, profitable growth.”

Fourth Quarter and Full-Year 2022 Operational Highlights as Compared to the Same Year-Ago Period:

• Agents and brokers on the eXp Realty platform increased 21% to 86,203 as of Dec. 31, 2022.


• Real estate transactions closed increased 15% to 511,859 in 2022 and decreased 13% year over year to 109,168 in the fourth quarter of 2022.


• Real estate transaction volume increased 20% to $187.3 billion in 2022 and decreased 16% year over year to $37.6 billion in the fourth quarter of 2022.


• eXp Realty expanded into six new international locations in 2022, including the Dominican Republic, Greece, New Zealand, Chile and Poland. In late 2022, eXp Realty announced operations in Dubai, which is expected to be fully operational in 2023.


• eXp Realty ended 2022 with a global Net Promoter Score of 73, a measure of agent satisfaction, as part of the Company’s intense focus on improving the agent experience.

^{(1) Operating Cash Flow presented is net cash provided by operating activities excluding change in customer deposits.}

Fourth Quarter and Full-Year 2022 Results – Virtual Fireside Chat

The Company will hold a virtual fireside chat and investor Q&A with eXp World Holdings Founder and CEO Glenn Sanford and CFO Jeff Whiteside on Tuesday, Feb. 28, 2023 at 2 p.m. PT / 5 p.m. ET.

The investor Q&A is open to investors, current shareholders and anyone interested in learning more about eXp World Holdings and its companies. Submit questions in advance for inclusion to [email protected].

Date: Tuesday, Feb. 28, 2023

Time: 2 p.m. PT / 5 p.m. ET

Location: EXPI Campus. Join at https://expworldholdings.com/contact/download/

Livestream: expworldholdings.com/events

About eXp World Holdings, Inc.

eXp World Holdings, Inc. (Nasdaq: EXPI) is the holding company for eXp Realty®, Virbela and SUCCESS® Enterprises. eXp Realty is the fastest-growing real estate company in the world with more than 86,000 agents in the United States, Canada, the United Kingdom, Australia, South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama, Germany, Dominican Republic, Greece, New Zealand, Chile, Poland and Dubai and continues to scale internationally. As a publicly traded company, eXp World Holdings provides real estate professionals the unique opportunity to earn equity awards for production goals and contributions to overall company growth. eXp World Holdings and its businesses offer a full suite of brokerage and real estate tech solutions, including its innovative residential and commercial brokerage model, professional services, collaborative tools and personal development. The cloud-based brokerage is powered by Virbela, an immersive 3D platform that is deeply social and collaborative, enabling agents to be more connected and productive. SUCCESS® Enterprises, anchored by SUCCESS® magazine and its related media properties, was established in 1897 and is a leading personal and professional development brand and publication.

For more information, visit https://expworldholdings.com.

Use of Non-GAAP Financial Measures

To provide investors with additional information regarding our financial results, this press release includes references to Adjusted EBITDA, which is a non-U.S. GAAP financial measure and may be different than similarly titled measures used by other companies. It is presented to enhance investors’ overall understanding of the company’s financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.

The company’s Adjusted EBITDA provides useful information about financial performance, enhances the overall understanding of past performance and future prospects, and allows for greater transparency with respect to a key metric used by management for financial and operational decision-making. Adjusted EBITDA helps identify underlying trends in the business that otherwise could be masked by the effect of the expenses that are excluded in Adjusted EBITDA. In particular, the company believes the exclusion of stock and stock option expenses provides a useful supplemental measure in evaluating the performance of operations and provides better transparency into results of operations.

The company defines the non-U.S. GAAP financial measure of Adjusted EBITDA to mean net income (loss), excluding other income (expense), income tax benefit (expense), depreciation,  amortization, impairment charges, stock-based compensation expense, and stock option expense. Adjusted EBITDA may assist investors in seeing financial performance through the eyes of management, and may provide an additional tool for investors to use in comparing core financial performance over multiple periods with other companies in the industry.

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to Net Income (Loss), the closest comparable U.S. GAAP measure. Some of these limitations are that:

• Adjusted EBITDA excludes stock-based compensation expense and stock option expense, which have been, and will continue to be for the foreseeable future, significant recurring expenses in the business and an important part of the compensation strategy; and


• Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation of fixed assets, amortization of acquired intangible assets, and impairment charges related to these long-lived assets, and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future.

Safe Harbor Statement

The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. These statements include, but are not limited to, statements about the continued growth of our agent and broker base; expansion of our residential real estate brokerage business into foreign markets; and revenue growth and financial performance. Such forward-looking statements speak only as of the date hereof, and the company undertakes no obligation to revise or update them. Such statements are not guarantees of future performance. Important factors that may cause actual results to differ materially and adversely from those expressed in forward-looking statements include changes in business or other market conditions; the difficulty of keeping expense growth at modest levels while increasing revenues; and other risks detailed from time to time in the company’s Securities and Exchange Commission filings, including but not limited to the most recently filed Quarterly Report on Form 10-Q and Annual Report on Form 10-K.

Media Relations Contact:

eXp World Holdings, Inc.

[email protected]

Investor Relations Contact:

Denise Garcia

[email protected]

The following tables reflects Revenues and Adjusted Segment EBITDA by reportable segments:

Source: eXp World Holdings Reports Q4 and Full-Year 2022 Results

https://www.creconsult.net/market-trends/exp-world-holdings-reports-q4-and-full-year-2022-results/

How to Get the Most Profit When Selling Your Investment Property

All too often I receive inquiries from a potential seller that wants to “get the highest price” for their property, but does not want to list it, or market the property. This seems counter intuitive, especially to the basic law of economics… supply and demand. Although there is not much an average seller can do to affect the supply line, they can create demand by using a good agent.

We’ve seen this over and over the last few years in this current “sellers” market. Almost to the point where we now receive as many calls from investors saying they only want to look at “off market” deals, believing they’ll get a better price without other competing investors. So, is the answer that simple? If seller wants the highest price, do they just need to make sure the property is seen by as many possible interested investors?

Not exactly, to ensure the greatest exposure for the property, and therefore the best likelihood for the highest price, a seller should make sure the agent they use to represent them does ALL of the following, not just market to their own buyers. After all, even if that agent has a buyer it doesn’t mean that the agent’s particular buyer will pay the highest price. A good agent will create a marketing plan to provide maximum exposure for the property. This plan should include:

1) Placing it in Multiple Listing Services

2) Contacting every owner of similar properties within the surrounding few blocks to see if other landlords are interested in acquiring additional investments in the area.

3) Sending out email flyers to their buyers’ lists, local brokers, and property owners.

4) Making direct contact with every client that has purchased an investment property within the last two years.

5) Making direct contact with every broker that has represented a buyer that purchased an investment property in the last two years.

This may sound like a lot of work , but a good agent will go above and beyond.

Please do realize though that no experienced real estate agent is going to do any of the above if they are not insured a representation commission. So to ensure maximum exposure, and thus maximum returns, make sure you draft up and enter into a fair listing agreement that details out what the agent will do for you, and what type of compensation they can expect from a sale

 

Source: How to Get the Most Profit When Selling Your Investment Property

https://www.creconsult.net/market-trends/how-to-get-the-most-profit-when-selling-your-investment-property/

If You're Hesitant To Hire A Broker For Your Multifamily Property Read This

Multifamily brokers frequently hear this comment from apartment property owners: “I don’t want to list, but you can bring me a buyer.” Their reasons sometimes include previous bad experiences, fear of getting “tied up” in a formal agreement, tenants finding out the building is for sale and making anxious calls to management, thinking the commission will be halved, or not really being interested in selling. Whatever the reluctance, the reality is that if an investor wants or needs to sell, the best thing they can do is hire a broker. Let’s address a few of those common objections first.

If you had a previous bad experience, more than likely, you hired the wrong broker. The specific agent you hire or the firm they work for should have experience in both the geographic market and transaction size — ask for their track record. While you’re at it, ask for references from clients, and make sure at least one is for a listing that did not sell. These simple steps will give you insight into whether you’re working with a pro.

As for getting “tied up” or having anxious tenants because the building is selling, a professional broker typically allows you a cancellation right for the listing. If there are deadlines you need to meet, make sure your broker understands. And while no broker can guarantee tenants won’t find out the building is being sold, experienced brokers can modify marketing by limiting showings to only vacant units, specific hours for low visibility, limiting digital footprint tenants might see, etc., to reduce the probability of tenants finding out.

That said, the best course is simply to announce to tenants that the building has been listed for sale, explain the sale may not be successful, and assure them that their lease runs with the building, not the owner, and is their protection during the lease term against rent increases or being forced to move.

These are certainly not the only reasons clients are reluctant to list but whatever is yours, talk to your broker about your real concerns. A seasoned broker will most likely have previously faced a similar challenge and should be able to address your concern. But this only addresses your concerns about why you shouldn't hire a broker — it doesn’t explain why you should.

The first benefit is understanding the value of your property. A professional, qualified broker who specializes in your asset or area will be able to give you a price range to expect so that you can decide whether selling makes sense. If you move forward, this specialist will also have databases of the most qualified, active investors in the market and have relationships and influence with them. The ultimate buyer of your property will more than likely come from one of these relationships. But a broker won’t rely exclusively on these relationships. A good broker will also create a professional marketing plan with appropriate amounts of promotion across email, mail, websites, and listing services.

All this leads to the most important part of hiring a broker: competition. Trying to sell your building by letting a broker “bring you a buyer” is like having an auction for a painting, and one person shows up to bid. If the building is priced correctly, a professional marketing plan will create a competitive environment for investors so that the process itself determines not what the market wants to bid but what the market is willing to bid.

Larger portfolio owners might be reluctant to list with a specific broker because they have relationships with numerous brokers or firms in the market, and they don’t want to offend anyone by choosing a competitor. Instead, they tell every relationship to “bring me a buyer.” If this is you, think a few more steps down the chain of events.

First, this may only create chaos. You not only have brokers racing each other to bring clients, but each is advocating to you why their buyer is the best so that they can get the commission. Then you ultimately have to pick one buyer/broker anyway and disappoint the others after they’ve put work in. Alternatively, a listing agreement assures a commission for the listing agent if the property sells; therefore, there is no incentive to advocate for any one specific buyer.

An additional benefit of listing a property with a broker comes after a sale contract is signed. Any number of unexpected or challenging issues can arise during the escrow period of a sale. A seasoned broker has probably experienced something similar before. This person will also quarterback the entire process of due diligence, appraisal, and loan approval.

The most important benefit of exclusively listing your property with a broker is representation. You will have a hired gun with a fiduciary obligation to advocate for your best position in a deal. A professional broker will be ethical, transparent, and fair but will also be your personal fighter in the arena of marketing, negotiation, and escrow management.

This short list does not address every objection an owner would have for not listing, nor every benefit you receive from hiring a professional broker, but hopefully, it gives you a few things to consider. If you want to maximize your price and minimize your anxiety with the selling process, hire a broker. The benefits far outweigh the cost.

Have you thought of selling your property and would like to know what it's worth? Request a valuation for your property below:

Request Valuation

eXp Commercial Chicago Multifamily Brokerage focuses on listing and selling multifamily properties throughout the Chicago Area and Suburbs.

We don’t just market properties; we make a market for each property we represent. Each offering is thoroughly underwritten, aggressively priced, and accompanied by loan quotes to expedite the sales process. We leverage our broad national marketing platform syndicating to the top CRE Listing Sites for maximum exposure combined with an orchestrated competitive bidding process that yields higher sales prices for your property.

 

 

https://www.creconsult.net/market-trends/if-youre-hesitant-to-hire-a-broker-for-your-multifamily-property-read-this/

9 Mistakes Property Managers Make with Utility Management

Utilities are one of the biggest expenses for apartment communities. And with inflation pushing the price of utilities to record-highs, it’s even more important that you’re keeping these expenses to a minimum.

Luckily, the right utility management strategies will not only help you keep costs down, but present an opportunity to bring in added revenue. Before that can happen, you need to assess every aspect of your utility program. Because most companies usually have a few areas that need improvement. Here are the most common mistakes that result in apartment operators spending more than they should on utilities.

#1 Including utilities in the price of rent

The worst mistake you can make with utilities is including them in the price of rent. That’s because you aren’t recouping money to match your actual expenses. Plus, residents don’t receive any kind of utility bill, which does not give them any motivation to conserve.

Another problem with including utilities in the rent is that it’s difficult to raise rent and remain competitive with other apartment communities. With rents rising so steeply over the past year, apartment residents are more sensitive than ever to rent prices. A “utilities-included” model can scare away some prospective renters if other communities in the area charge for utilities and have lower rent.

#2 Charging a flat fee for utilities

Charging a flat fee is also a risky move since utility costs fluctuate. And lately, they only seem to be going up. Your fee has to be high enough that you aren’t losing money, but you also can’t overcharge either. In some states, overcharging for utilities is illegal.

#3 Neglecting inefficient features that waste energy and impact NOI

When your buildings are not energy efficient, it hurts your business in two ways. One is that you use more energy which ultimately means higher expenses (and lower NOI).

The other way is that it could detract renters. An ACEEE study found that not only were renters more likely to visit communities that advertised energy efficiency, they were also willing to spend a little more on rent. On average, renters would increase their budget by 1.8% for a one-unit increase in energy score (on a scale from 1 to 10). That generates $400 per unit in additional annual revenue for an average-priced rental unit.

#4 Overlooking important utility metrics

Monitoring data associated with utilities is one of the most effective ways to improve your overall utility program. But many multifamily companies don’t do this at all or to its fullest potential.

However, by not actively monitoring utility data, you are missing opportunities to reduce your expenses and improve revenue. Plus, many cities and states are enacting laws requiring multifamily buildings to annually assess and report their energy performance. Like it or not, reviewing utility data is more important than ever.

#5 Paying utility bills without auditing them

Many companies simply check the balance due amount before issuing a payment. That strategy can result in a mountain of unnecessary charges. According to studies done by Engie, one of the nation’s largest utility billing auditors, at least 17% of utility invoices contain an error. With all the invoices your firm receives, it’s likely many have errors that go unnoticed.

This is why utility billing audits are so important. With the help of utility expense management companies all of your utility bills are audited for errors and savings opportunities. When errors are spotted, the provider disputes the charges on your behalf until a resolution is achieved.

#6 Accumulating and paying late fees every month

Most utility invoices have a fairly short payment window. To further complicate things,  sometimes your utility invoices don’t arrive at all, forcing your associates to track down what’s missing.

Because of these two scenarios, it’s easy to get dinged with late fees. That’s unfortunate, because they can really add up. Many utility companies assess fees that are equal to a 12-, 18-, 24-, or 36-percent annual interest rate. In other words, utility late fees are steep. And they add up in a major way. It’s vital to your NOI that utility invoices are always paid on time.

#7 Paying for renters’ utilities after they move in

Utility theft can cost property management companies thousands of dollars per year. Most of the time, this happens simply because renters forget to transfer utilities into their name. Whatever the reason, this miss can lead your company to pay thousands of dollars per year in charges that aren’t yours.

#8 Failing to monitor utility regulations for your states

Each state and municipality has different rules around handling utilities. So if you operate in different regions, it’s necessary to see what rules apply to each and every community in your portfolio.

The consequences for violating utility regulations can be costly. Most states levy fines on a per instance basis. So let’s say you’ve made a minor error in billing your entire 300-unit community. That’s 300 fines imposed - not 1!

#9 Overlooking the utility payment experience

How residents receive and pay for their utility charges is often an overlooked component of a utility management strategy. But if you aren’t taking into consideration how the process goes from a resident’s perspective, you could be damaging your bottom line.

In the short term, a poor payment experience can lead to late payments and frustrated residents, particularly if they need more clarity about their charges.

In the long run, a poor utility payment process could impact resident retention. When the payment process is inconvenient, or when residents don’t feel well-informed about what they owe, it impacts satisfaction since the situation is repeated month after month.

How to overcome utility management mistakes

If your company is making any of these mistakes, don’t worry. There are several easy strategies to get you back on track. Your best bet is to consult with a utility management provider that specializes in the multifamily industry. They can advise you on the most effective ways to tighten your expenses.

 

Source: 9 Mistakes Property Managers Make with Utility Management

https://www.creconsult.net/market-trends/9-mistakes-property-managers-make-with-utility-management/