How We Increased Rents by 29% During COVID

[Ellie Perlman]

As a value-add syndicator, we've all had to face some very tough decisions with the impact of COVID. I've noticed that there are basically 3 main concerns we've all shared in trying to navigate our investment properties through this:

1. We want to preserve our current tenants. I've seen many sponsors offer 0% rent increases for renewals, which I understand, but it doesn't help to continue to make the business more profitable.

2. Stopping renovations. With the concerns of finding new tenants, many of us have considered stopping renovations when we don't have as much confidence or assurances that foot traffic and new leases will be coming in at the normal rate of pre-COVID. If renovated units remain open on the market for an extended period of time, it becomes a loss on our books.

3. As sponsors, we need to maintain capital. Stopping renovations allows us to hold onto capital we may need to reallocate for operations or the mortgage as the economy continues to work our way through all this. 

So, in spite of these challenges, how did we manage to increase our rents by nearly 30%? I am happy to share with you the lesson we learned and the strategy we've implemented that turned things around considerably.

We stopped making assumptions. When COVID first hit, we assumed collections would begin to suffer. We assumed renewals might fall, as people moved to lower cost housing. We assumed the economic impact would deter new tenants from premium units at a higher cost. 

The strategy we took was simple, and what I'm simply now calling "renovation on demand". As prospective tenants have come in, or renewals that are upcoming, we stopped assuming what people would want and simply started presenting the options. We show them both the classic (non-renovated) units and a premium unit. MUCH to our surprise, nearly 70% of our new leases are opting for the premium units. Once they've signed the contract, we then begin the renovations with a 7-10 day turn around time. This has not only helped to mitigate risks, but has worked so well this is how we've increased our rents by 29% in the middle of a pandemic.

I hope you find this tip helpful and strongly suggest implementing it at your properties as well. For even more info about it, I did publish a podcast and youtube video if you'd like to hear every last detail, but this should give you enough insight to effectively help you increase rents even in the most challenging of times.

Cheers!