Multifamily property managers devote a significant amount of time to courting new customers. We use all sources of marketing at our disposal to identifying viable leads, always seeking new and improved methods to target our audience. This post is about a single component. Marketing 101: identifying competitors.
The low hanging fruit in terms of knowing your competitors is finding other similar multifamily in your market, right? Simple. Yours is a Class B product in ABC market, find other similar property, shop the competition comparing amenities, price per square foot, age, parking, interior finishes, concessions offered, yada yada…
Alas, this is only one of the many competitors facing your asset. Following is a list of competitors to a multifamily asset.
- Mom. Based on the depth and length of the recession many young people are staying home with Mom. Only in 2014 has household formation begun to pick up pace. Frankly, there is little you can do to compete with free; free room, free food and maybe even free laundry service. If you know of a strategy to compete with Mom, please let me know.
- Room mates. What was once the standard one bed, one head is not always the case any more. There is the live-in couple with a two bedroom now willing to ‘sublet” their other bedroom to lower overhead. It’s survival by any means necessary and this is another unit without a tenant for multifamily operators. As the pace of job creation has pick up (the driver of new household formation) the norm will return.
- Banks. Certainly, banks prefer not to be home owners, they wish even less so to be landlords. Consider those with huge concentrated inventories. Whereas renting houses is out of their comfort zone, in some instances any rental income is good rental income to deflect the carry costs. This segment represents thousands of single family homes rented, therefore competing with multifamily for tenants. Add to this that some major players have scooped up these homes by the thousands specifically for the purpose of renting them out as a scaled business proposition.
- Motels. Any city of size has these, they are the outlier places where a person or family can rent a one room hotel for $189 a week. Granted, sometimes the location may be suspect, but hey, for $800 a month and the option of leaving at any time these dwellings are a competitor to some multifamily assets.
- Foreclosures. I’m excluding the shadow rental market here (although this is a segment of that). I’m referring to squatters. A disparaging term for good people that purchased a home in good faith only to see all of their equity disappear in the housing market collapse. Here is the best example as told by William Wheaton of MIT.
There are not less than three million homes in the United States where home owners have lost all or most of their originating equity. This equity is not coming back. In places like Florida it can take over a year for a bank for foreclose. Thus, there are thousands of “home owners” in Florida that if they so chose, could live in their same house free for a year.
This should make any multifamily owner shiver. For those thinking “we have tons of foreclosures in my market- why don’t we have more traffic”? Because there are no concessions you can provide that competes with free housing for one year. My point is that as a property manager, when identifying competitive properties in your marketplace, consider also the number and type of foreclosures occurring. Whereas we are on the downhill side of the bell curve for these occurrences they still linger.
What are some other competitive sources to multifamily assets? Please add to the list with your comments and I will revise this post to add your suggestions.
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