Don't Reduce Your Rents
Do this instead
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The first thing most investors do when they run into a roadblock is drop rents.
This is death by suicide.
A rent reductions is the absolute last lever you should pull.
It’s the big red button on the switch board that should only be pressed in dire straits.
The next time you’re considering dropping your rent rates to fill a vacancy, think back to this advice I gave to a couple of apartment investors who own buildings throughout the midwest.
I’m pretty sure this one simple layout change will drastically increase occupancy, plus save them from abandoning their original business model.
The Players
This past week I crossed paths with two fellow Midwest investors.
Coincidentally, we both own small apartment buildings in nearby pockets of South City St. Louis.
After exchanging tenant war stories and a few contractor referrals, they began telling me about how things are going with one of the properties they’re operating as an Air BNB.
It’s a six-family situated in Holly Hills, and for the most part, it’s been cranking out cash-flow.
The Problem
They’ve been getting both short-term weekend bookings, as well as longer mid-term bookings that sometimes extend three to four months. But the one leak in their bottom line has been the vacancy across their two-bed units. They said their one-bed listings go like hotcakes, but the two-beds often go stale with little activity.
After monitoring the trend for a while, they deduced that most of their guests are solo travelers or couples that don’t see the need for an extra bedroom that’ll sit empty.
So here they were with a firm grasp on the issue, but still in search of the best solution.
They were torn between dropping their nightly rate, or scrapping the short-term rental strategy altogether and turning a portion of the units into long-term traditional rentals.
The Fix
That’s when I proposed an alternative route that would potentially solve the vacancy issue, while also keeping them from abandoning the short-term rental strategy.
Here’s what I advised:
Rather than reducing the rate, simply reposition the listing.
Swap the bed that’s occupying the second bedroom with a Peloton, a few yoga mats, and a sleek work station. With this simple furniture change you’d essentially ‘amenitize’ the unit.
Instead of an un-needed extra bedroom, guests would get a home-gym plus an office.
This would eliminate the hassle of scouring the city for a place to take Zoom calls or get a decent workout. Not to mention, you can still squeeze in a futon or pull-out bed to accommodate those guests that need a place that sleeps four.
This layout would attract a larger breadth of guests - especially those that are looking for convenience without the steep cost - and ultimately lead to an increase in bookings.
Problem solved.
While this advice was tailored to the short-term rental approach, the takeaway applies equally to long-term rentals.
Whether you’re renting a unit for the weekend or for the next twelve months, always aim to maximize the perceived value of every square foot.
Sometimes the solution isn’t as simple as moving furniture around or rewriting the listing description, but 9 times out of 10 there’s always a smarter way to optimize a space.
Hopefully you found this helpful.
Until next time.
What’s your take on today’s topic? Do you agree, disagree, or is there something I missed?
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