St. Louis Apartments
Apartment Budgets: Loss to Lease
Welcome back for another installment of the Apartment Budget series. Today we are going to talk about Loss to Lease. Interesting side note, I did a piece on this a number of years ago and to this day it remains the number one read article on this blog.
Before we get started, I wanted to post a note of clarity as it relates to my last entry – Apartment Budgets: Rental Income. Where I refer to Rental Income in that post – I am really talking about Gross Potential Rent as being the top line. You may also hear it referred to as GPR. In any event, I wanted to head off any confusion.
LTL
Now unless you have a brand new community in lease up, you will have in place leases that are very likely below the GPR. The primary reason being rent increases. Any time you increase rents you create a margin between the in place leases and the new increased GPR. This can occur in reverse and the impact to the LTL can go in reverse. That is to suggest that you can decrease the GPR and the margin or LTL becomes positive. Not a scenario you see to often as rents generally rise over time in lieu of decline over time.
Loss to Lease – New Move In
To put it simply; if you lease an apartment below the GPR, the discount is captured in a Loss to Lease – New Move In line item. To put some math to it; if your apartment’s GPR is $500 and you lease it for $450, the $50 reduction in rent is capture in the Loss to Lease – New Move In line item as a -$50 charge. And, it will exist for the life of the lease.
Loss to Lease – Renewals
When leases come up for renewal and they are under the GPR number – the margin is by default in the current Loss to Lease line item. When the lease renews, if it is still under the GPR that new number gets captured in the Loss to Lease – Renewal line item. Putting some math to it. Suppose your apartment’s GPR is $500 and the current in place lease is $450 – you renew it at $475. The $25 margin is captured in Loss to Lease – Renewals.
Total Effective Rent
Once you have accounted for your losses related to in place, new and renewed leases under the current Gross Rent Potential – you come up with a Total Effective Rent. That is where we will pick up next week.
We have purposefully left out the analysis piece this week because I think it will fuel some crazy cool discussion. Hope to see you in the comment section below.
Your – lovin’ budgets – multifamily maniac,
M
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Multifamily #Trust30: Greatness
Moving past the halfway point with day 16 of the #trust30 challenge –
Greatness appeals to the future. If I can be firm enough to-day to do right, and scorn eyes, I must have done so much right before as to defend me now. Be it how it will, do right now. Always scorn appearances, and you always may. – Ralph Waldo Emerson
Trusting intuition and making decisions based on it is the most important activity of the creative artist and entrepreneur. If you are facing (and fearing) a difficult life decision, ask yourself these three questions:
1) “What are the costs of inaction?”….
2) “What kind of person do I want to be?”
3) “In the event of failure, could I generate an alternative positive outcome?”
Multifamily greatness
We recently purchased a property from a lending institution who had in turn taken it back from a previous ownership interest. When completing the due diligence phase of our process we discovered roughly 40 units in various stages of disrepair. Units we classify as down. Down to mean not habitable absent some major rehab.
It spoke loudly to the point of the first question – inaction. Banks are not property managers. And, in lieu of spending $25 to $30k to replace the roofs, they left them alone. Result of that inaction? Several hundred thousands of value wiped away.
Greatness starts with forecasting the consequence of in-actions. In this case, it would suffice to say that some back of the napkin math would have yielded an ROI that would have driven a decision to replace the roofs.
What kind of company do we want to be
At Mills Properties, we ask that question a lot. As of late it has been in the area of branding, marketing, digital footprint and the such. We have been slow in moving toward what we want to achieve part and parcel because of near 50% growth in community and unit count over the past four years. And, in part not having a real plan.
Fast forward to today. We have taken the time to craft a 40+ page branding/marketing plan that includes everything from font types and size for all thing forward facing to big ticket strategies to dominate the St. Louis Apartments on and off-line space. It lays it all out and captures how everything from curb appeal to lease contract signing ladders up into an overarching message for the neighborhoods and communities we serve. And, in advance our striving to make a splash nationally at some point.
It all starts with asking the right questions.
Multifamily failure
I think the best way to overcome failure is understand that it going to happen from time to time. In fact, I like what Tom Peters has to say about it, “reward
failure.” If you are not failing, you are not trying, you are not learning and thus you are not growing. Equity Residential cements this in their 10 ways to be a winner – one being ‘take educated risks.’ The expectation is that you gather every piece of information you can to include the counsel of others before you pull the trigger. And, if you fail, you simply have a group postmortem where you examine the facts and the various action points to see what could have been done better.
Off for a float trip
It’s Saturday, it’s raining and we are headed out for camping and a float trip. Should be loads of fun. I say that with lots of hope in mind.
Your hoping you have an amazing weekend contributor,
M
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Mills Properties: Blog Stats
Thought it would be fun to share our Neighborhood Blog stats from time to time in a snap shot view.
Melissa P wrote about the team in her post titled: (B)usiness (L)ove and (O)ther (G)uts whereby she laid out the overarching premise of our new marketing strategy.
Our first blog post went live on November 24, 2010 and since that time we have achieved the following.
Stats are accurate as of lat May, 2011.
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Multifamily #Trust30: Five Years
#Trust30 – Day Five
Great questions coming out of the #Trust30 challenge. Today, the prompt is what would you say to the person you were five years ago? And, what would you say to the person you will be five years from now?
Growing up Multifamily
I’m entering year seventeen in the multifamily business and I think it goes without saying that I have met some amazing people and learned a ton about our business. Five years ago marks a point of significance in my life that really defined some things for me. I had become so consumed by my work that I lost touch with those that mattered most to me.
What would I say to that person? It’s time to grow up.
What would I say to the person I will be five years from now? You have a long way to go; take care of your health and welfare so you can take care of those you care about. Keep family front and center to all decisions you make and trust that honesty and forthrightness are your friends even when they feel like they are not.
What about you – what would you say to these respective persons?
Your thinking these questions are not getting any easier contributor,
M
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Multifamily Leadership: Relentless Courage
We have all been there; sitting around the conference room table discussing the latest property management opportunity, issue or otherwise and you just know in your heart of hearts that no one including yourself is saying the tough stuff. Just this week I posted over at propertymanager.com about courageous conversations and moments of truth. In my head, it is the only way to grow an organization.
I love the way Hugh captures it visually over at gapingvoidgallery
The sting of unspoken words gives cause for what Hugh calls, complete agreement. On the backside we have; 1. That is the stupidest idea I have ever heard. 2. That will never work. 3. I am doing my own thing. Or, worse yet – 4. I’m not changing a thing.
Take away: Don’t be “That Guy” or “That Gal” Instead be – “Not Afraid”
Silence or compliance cheats the group out of being a better organization and you out of being a better leader.
Your ‘Not Afraid’ Contributor,
M