Being Contrary for Fun and Profit|
By Rob Foellinger
Midwesterners are blessed with a personality trait that gives us a major advantage over the rest of the country, especially when it comes to making money. The trait I am referring to is our natural predisposition to be contrary. When told we must do something in a particular way because "that's how everybody does it", our first inclination is to do the complete opposite.
This is especially true in my delightfully contrary home state of Indiana. To illustrate, many years ago someone made the foolish mistake of advising Hoosiers that we will need to get on the bandwagon and start changing our clocks back and forth to Daylight Savings Time twice a year. Shortly thereafter, headstrong Indiana became one of only three states to have its own time zone, Indiana Time, and we never, ever move our clocks an hour ahead or behind.
But, can pigheaded contrariness really be profitable? Considering the fact that these same obstinate Hoosiers have amassed a rather tidy $1.5 billion or so state budget surplus (the largest per capita overabundance of cash in the nation, I am told), I would say there might just be a connection.
Actually, contrarian philosophies and strategies are nothing new in the business world, especially on Wall Street. Billions have been made in the stock market by devout nonconformists who simply figure out what most other market investors are doing and then do the exact opposite.
But what does all this have to do with making profits in the property management industry? Quite a bit, actually. Refusing to follow the crowd or subscribe to the "common knowledge" of our business often leads to enormously profitable opportunities.
For example, "everybody knows" that the amount of the rent we charge for our apartment homes is the most important financial consideration in the minds of our prospects, right? Nope. My consulting firm's research has conclusively shown that the number one monetary concern in their heads is actually the amount of the first month's check the resident is going to have to write in order to move into the apartment, rather than the just the rent amount itself. You know the check I am referring to, the one jam-packed with all the various deposits and fees and other upfront costs in addition to the rent itself. When prospects call you back after visiting your site and ask "How much did you say your security deposit is?" or "How much were your application fees?", they are doing the math themselves and computing the first month's cash outlay.
At most apartment communities, especially at older, modestly-priced properties, such a high first month's cash outlay often proves to be a hidden, yet devastating, marketing disadvantage.
The first step in dealing with this reality is to analyze how your first month's required cash outlay compares to that of your competitors. You are likely to be absolutely astounded by the range of outlays required in your market area. For example, in one small submarket of Indianapolis, despite the fact that the various rents were quite comparable, the required first month's checks for a small one bedroom apartment ranged from a low of $640 to a stratospheric $1575, a whopping difference of $945! Almost a thousand dollars difference in initial move-in costs for comparably-priced units! Understandably, the property charging the $1575 was experiencing lots of difficulty leasing their apartments and had no idea why.
Can you see how you can cause yourself big problems in leasing apartments by requiring a first month's cash outlay that is not competitive with the rest of your market? Remember this: It does not matter what your rent amount is if the prospect cannot afford the first month's required cash outlay. Further, does it make any difference if all your competitors are offering a free month's rent to be taken at the end of the lease, if their first month's check requirements are prohibitively high? I believe this is the sort of truly relevant information that your leasing staff should be routinely discussing with all their prospects.
Your competitors are probably obsessing about their rent amounts when they would be wise to pay a whole lot more attention to cash outlay requirements, like contrary folks do.
Here's where your contrary streak (and we all have one) can kick in and help you compete much more effectively. Rather than doing what everybody else is doing, which is trying to collect as much move-in cash as possible to pack away in the owner's account, all you need to do is adjust your first month's cash outlay requirement to be more competitive and then incorporate a discussion of the amount of the first month's cash outlay into your sales presentations. Utilize a chart entitled "First Month's Check" during your sales presentations which lists the amounts charged by your property in comparison to your direct competitors. When you do this you will finally be talking about the real number one financial issue in the minds of your prospects and they will be delighted by and impressed with your perceptiveness. If you would like to see what this type of chart looks like, just call me at (317) 770-8210 and I will provide you with a sample.
To take this strategy one step further, if your cash outlay totals, say, $984 on a particular unit type, teach your leasing staff to ask each and every prospect a very important question. The question is "Are you interested in keeping the amount of your first month's check under $1000?". As you can readily imagine, the answer is invariably a resounding "YES!". So, what if your "First Month's Rent" chart, which you've discussed with the prospect shows that four of your toughest competitors are currently requiring more than $1000 to move in? Can you see how you have helped the prospect eliminate these four competitors from their apartment search? And you have done so even though your actual rent amount might be considerable higher than those four unenlightened competitors.
It is truly astonishing what substantial improvements you can make in leasing effectiveness by putting forth the effort to figure out what is really important in the minds of your prospects and then helping them compare and see the really important differences in your competitive submarket. Incidentally, this is what consultative selling is all about and part of the reason traditional feature/benefit selling techniques are so ineffective.
Let's apply your newfound contrariness to another issue, that of accepting applicants with less-than-perfect credit. Start by reviewing your applicant qualification requirements to be certain that they are not overly strict. I know you may not want to hear this, especially if you have been going through the exasperating turmoil of evicting lots of deadbeats, but please, read on.
I am convinced that most apartment communities should consider implementing a credit-scoring system, much like the ones utilized for decades by banks and the rest of the financial services industry, coupled with a graduated security deposit plan where the size of the deposit goes up as the riskiness of the applicant increases. One or two months rent in advance as a security deposit should, in most cases, cover your potential losses. Obviously, you should continue to reject all applicants with chronic "behavior problems" and histories of recurring (more than twice in one year) slow rent payment. In the vast majority of cases, your target market is not necessarily going to have perfect credit and it would be counterproductive to unnecessarily reject applicants after going to so much trouble and expense to attract them.
There is an vast, mostly untapped and rather unappetizing market niche here, similar to the mother lode discovered by the used car business a few years ago when it started marketing to customers with less-than-perfect credit. Of course, these car buyers find themselves paying downpayments of 30%, 40% and 50%, obscenely-high interest rates and outrageous prices for the privilege of not walking. The main reason that used car prices have skyrocketed so much faster than new car prices over the last ten years, is because the used car industry single-handedly opened up a huge untapped market niche and, in the process of doing so, increased demand for its product dramatically.
This even improves resident retention. How? If your competitors won't approve these residents' applications, their alternative housing choices are severely limited.
Have you noticed that many banks, credit unions and home mortgage lenders are eagerly marketing to customers with imperfect credit? If you have not seen this in your part of the country yet, you will soon enough.
Admittedly, this strategy is somewhat risky and a can be a management hassle, but it is also potentially very lucrative. What you are doing, in essence, here is trading management hassles for marketing opportunities. And balancing this trade-off is essential for successful business management.
Finally, I strongly urge you to consider automating your resident selection process. This will help with setting up the credit-scoring program as well as minimizing potential exposure to Fair Housing lawsuits.
Now for something even more controversial. I suggest that you test the limits of your contrariness and carefully reconsider your policies regarding pets, especially larger dogs.
My consulting firm, MarkeTactics Consulting Group, recently concluded the most comprehensive survey of pet professionals (veterinarians, dog trainers and humane societies) ever conducted regarding their opinions about various pets residing in apartments.
The responses from the more than 1200 pet professionals surveyed all over the United States are quite intriguing and run completely counter to the common beliefs held by the majority of property management people in our industry regarding dogs, especially larger dogs, in apartments. The survey asked the pet professionals to list the ten breeds of dogs that, in their experience, tend to do best in apartments and the ten breeds that should never set paw in an apartment.
The ten breeds that the respondents felt were likely to do well in apartment environments were Border Collie, Golden Retriever, Shetland Sheepdog, Labrador Retriever, English Springer Spaniel, Collie, Cocker Spaniel, Weimaraner, Dalmatian and Dachshund. The average weight of these dogs is about 50 pounds and only one of the breeds mentioned is under 20 pounds.
The ten breeds they believed were likely to do poorly were Beagle, all Terriers, Chihuahua, Lhasa Apso, Shih Tzu, Basset Hound, Pekingese, Bloodhound, Chow Chow and Miniature Poodle. Ironically, most of these troublesome breeds would be accepted by apartment communities with a 20-pound weight limit for dogs.
Is it not amazing how completely contrary to our "common knowledge" these findings run? If you would like to explore this subject further, pick up a copy of "Evans' Guide To Civilized Canines" by Job Michael Evans. This book was written to advise metropolitan apartment dwellers about which breeds of dogs to choose. The "top dog" for urban apartments in Mr. Evans' opinion is the Golden Retriever (weighing in at about 70 pounds) and virtually all of his recommended breeds would be promptly rejected at most apartment communities.
According to the experts, the smaller breeds of dogs which we now welcome with open arms are the very ones most likely to damage the apartment and cause problems. As you are beginning to see, the best predictor of how a particular dog will do in an apartment is breed, not weight.
If you would like receive a copy of the complete survey findings as well as the pet policy recommendations provided by these pet professionals, please call me at the above telephone number.
Of course, you are welcome to cling to the "common knowledge" of our industry and ignore the research data presented, but in doing so you may be unnecessarily eliminating a large market segment that would help significantly in leasing apartments.
If you remain squeamish about the larger dog issue, for the sake of experimentation, you could designate a building or two for larger dogs (no, this is not Fair Housing discrimination--dogs are not yet a protected class!) and see how it works for you.
Finally, maybe you should consider eliminating the Pet Deposits you might be currently requiring and replacing them with a $10 to $30 or more per month Pet Fee, in the form of additional rent for each critter. Consistent with our contrarian approach, this strategy serves to keep the first month's check low, while generating $120 to $360 or more in additional annual rent.
Additionally, by adopting these policies we are once again improving our ability to retain residents by accepting pets that would be rejected elsewhere and, thereby, limiting our residents' alternative housing choices.
Well, that concludes this introduction to the many profitable virtues of the contrary personality. Please make an ongoing effort to see the numerous other opportunities in our industry to cash in by doing the opposite of what everybody else is doing. Non-conformity is good. And very, very lucrative!
Rob Foellinger is President of MarkeTactics Consulting Group, 1-800-770-3201. He is an award-winning national speaker who has earned recognition as a marketing consultant, strategist and author as well as a master trainer in leasing, marketing and resident retention.
Rob Foellinger's Bio and list of his articles.
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