The stats back up what California multifamily owners already know: operating expenses are going up across the board.

While this certainly presents some challenges, it is not the apocalyptic scenario that some have made it out to be. In our last blog post, we discussed some tried and true expense containment measures that property owners can use to keep their budgets in check. In this blog, we’ll discuss the issue from the other side: revenue optimization.

The truth is that there are many strategies that multifamily owners can adopt very quickly that can offer a significant boost to monthly revenue. It’s all a matter of identifying which ones are right for your business.

This blog post is the first in a three-part series that tackles each of these areas separately. Read on to learn some key strategies that multifamily owners/operators can use to reduce operating costs and ease the sting of expense inflation while maintaining high standards of service and tenant satisfaction.

New Leases: Maximizing Occupancy and Revenue

Lease terms, occupancy, and collection rates are the foundation of a healthy multifamily business, so this is the right place to start. Consider the following strategies and best practices to ensure that your leasing practices are setting you up for success.

Price New Leases 1% Below Full Market

Setting rents 1% below the full market rate can be a strategic move, positioning your properties as competitive in the eyes of potential tenants. Even a very slight undercut like 1% can significantly increase the number of applications and reduce vacancy periods.

Monitor Your Comp Set Closely

Regularly reviewing your competitive set (comp set) helps you stay informed about local market trends. Understand what similar properties in your area are offering in terms of rent, amenities, and concessions. Use this information to adjust your strategies dynamically, ensuring your properties remain appealing and competitively priced.

Limit Concessions

While concessions like free rent or reduced deposits can attract tenants, over-reliance on them can quickly erode your profits. It’s usually better to focus on enhancing the intrinsic value of your properties (e.g. better amenities, superior maintenance, and exceptional customer service). By providing genuine value, you can limit the need for concessions.

Enforce Collections Above 98.5%

Maintaining a high collection rate starts with tenant selection — highlighting the importance of the previous points focusing on demand maximization.

In general, you should strive for a collection rate above 98.5%. This is achievable through implementing strict but fair rent collection policies, using automated payment systems, and offering incentives for timely payments. And don’t overlook the importance of proactive communication and support for tenants facing financial difficulties.

Renewal Leases: Balancing Retention and Revenue

With renewals, it’s generally best to aim for the “Goldilocks zone” — incremental increases that avoid excessive turnover.

If Rents are More Than 15% Below Market, Maximize Renewals

When current rent is significantly below market (over 15%), renewal offers should aim to bring rents closer to market rates. However, consider the balance between increased revenue and tenant retention. Gradual increases can often be more palatable to tenants and reduce turnover costs.

If Rents are Within 10% of Market, Aim For 1.5% – 5% Increases

For renewals within 10% of the market rate, smaller incremental increases (1.5% – 5%) are advisable. This strategy maintains affordability for tenants while ensuring your rents keep pace with the market. Regular, moderate increases can also build tenant expectations and help reduce resistance to future rent adjustments.

Ancillary Income and Amenities

In our experience, nearly all multifamily properties have overlooked opportunities for increasing revenue. It’s all about understanding your comp set and the needs and wants of your tenant base.

Pets

Pet fees and rent can provide significant additional revenue in the form of a one-time fee upon move-in and/or monthly rent surcharge. Ensure your policies are clear and fair, and invest in pet-friendly amenities like waste stations and pet parks to attract pet owners.

Parking

If you have the room to make it work, parking can be one of the most attractive amenities in urban areas. Offer reserved parking or consider implementing tiered pricing based on location (e.g., covered vs. uncovered spots).

Laundry

Adding laundry on-site or in-unit can be a significant upfront cost, but the increased rent will make up for it over time. It also tends to attract better tenants who stay longer, leading to less vacancy time.

EV Charging Stations

With the rise of electric vehicles, installing EV charging stations can be a forward-thinking investment. Charge for usage and consider partnering with EV charging companies to offset installation costs. This amenity can attract environmentally conscious tenants and position your properties as modern and sustainable. This is another amenity that tends to attract quality renters.

Bike Lockers

In bike-friendly communities, secure bike storage can be a sought-after amenity. Consider charging a monthly rate per user or building it into the base rent.

Ratio Utility Billing System (RUBS): Reducing Utility Expenses

A Ratio Utility Billing System (RUBS) is a method for allocating utility costs to tenants without submetering individual units, which can be very costly or impractical to retrofit.

With RUBS, each unit in the building pays a percentage of utility costs (water, sewer, trash, and electric) based on factors like unit size and occupancy. This method not only promotes conservation but also aligns with the growing trend of tenants paying for their utility usage.

Have Questions?

As you can see, there are many options for increasing your revenue, and this is not an exhaustive list. It’s just a matter of recognizing which opportunities fit your property the best, and sometimes being willing to think outside the box.

Don’t be afraid to reach out if you have questions. As an experienced Southern California property manager, we’re proud to serve as a resource for property owners throughout the region. If you have any questions about maximizing your revenue or would like to learn more about how Fairgrove can help you, contact us today and we’ll respond ASAP.