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Multifamily Residential Top 4 Concerns Related to Rising Costs

Posted by Joseph Curd on Sep 5, 2023

The multifamily residential industry is still facing ongoing challenges that have persisted for several years. This includes inflation, rising interest rates, labor shortages, and supply chain breakdowns. Unsurprisingly, these issues affect the net operating income for the industry.

The National Apartment Association shares the results from Appfolio’s report, which is based on a survey involving almost 5,000 employees who work for property management companies. The findings of the AppFolio Property Manager Benchmark report reveal that now is a good time to own and manage a multifamily residential property. Yes, this is in spite of the economy and all its bumps in the road.

Respondents confirm inflation (46%), supply chain crisis issues (27%), hiring new employees (29%), and retaining employees (19%) are challenges.

The four biggest themes and concerns from the survey are operational efficiencies, staffing challenges, and revenue and profits. Staffing isn’t as much of an issue in 2023 as it was in 2021, but it remains a concern.

The largest concern is now operational efficiencies. This doesn’t surprise anyone because rising operational costs and inflation play a huge role in this. Here’s a look at the top four concerns, which all overlap and affect each other.

Staffing Challenges

Employee turnover and retention have been a long-standing problem in the multifamily residential industry. The Institute of Real Estate Management shows turnover is 33%. The national average for turnovers is 22%. Companies want to target a turnover rate of 10%. Anything over 25% is a major concern.

Why does the multifamily residential industry experience an unacceptable turnover rate? Is there a pattern to the types of jobs experiencing more turnover than others? There is not one singular factor causing the turnover rate. There is also not one job that has a higher turnover rate. It’s happening in maintenance, leasing, and property management. There is no pattern to the types of multifamily residential properties affected.

What benefits come with lowering the turnover rate? The most compelling benefit is that a standard 10% employee turnover results in a 3% resident turnover per Multifamily Insiders. It’s true that staff turnover has an impact on resident turnover. Therefore, the industry’s extremely high 33% employee turnover is impacting resident turnover by and additional 10% above normal averages.

This puts a property at risk of losing significantly more NOI. Vacancy creates a revenue void that can never be made up. One way to improve the employee experience is by automating repetitive tasks. This allows employees to focus on other areas that can boost resident retention. Again, as previously mentioned, there needs to be intention during the technology selection process. Every new technology comes with a learning curve.

Remember, replacing departing employees is not an easy or fast process. Even if you find the perfect employee with the right qualifications, there is always a ramp-up period. They need to learn the business processes and technology. No two multifamily residential companies will have the same processes and technologies. Considering the domino effect employees have on resident retention, it’s worth having a multifamily residential retention strategy.

Revenues and Profits

Although investing in technology comes with a price tag, the return on investment can positively affect net operating income. For example, a multifamily residential property invests in automation to replace the manual processes for paying rent and making security deposits. This expedites collections and reduces errors that could cause payment to arrive late or go missing.

It also eases the employees’ jobs. Instead of doing these tedious tasks, they can focus on value-added tasks that help increase NOI. Do you have tasks that could be offloaded to an outsourcing company? The outsourcing company may be able to do them faster and cheaper than the employees. This also allows you to bring in a resource without paying benefits.

The property management team aims to seize every chance to ensure that their employees remain attentive towards customer service. This could potentially sway residents to choose their property over a competing one. Creating a culture where employees return everyone’s calls and messages is vital to the property’s success.

Multifamily Executive strongly advises property managers to concentrate on the fundamentals, which are resident experience, employee engagement, and efficient operations. Addressing these three concerns will benefit the business in multiple ways.

Operational Efficiencies

Getting the most attention in the survey is streamlining and automating operations. Almost half of the property managers responding want to improve their project management processes by adding automation according to Multifamily Executive. In looking for opportunities to save on costs, one-third of the respondents want to streamline their operations and one-fourth want to add new technology.

Almost 40% plan to integrate or consolidate current software in hopes of simplifying their daily operations. This move is tied to the hiring and retaining of employees because automation can make a difference in the employee experience.

Multifamily Dive quotes Stacy Holden, industry principal at Appfolio, who says about 40% of the work employees do is busy work. Therefore, this increases the need for automation. It’s critical not to buy and implement technology for the sake of technology.

“We have all of this tech, yet we’re still mired in busywork,” Neil Cadman, president of the Cadman Group, says. “Technology has not made us better, it’s allowed us to put more work on our staff. [And] each time that we leverage something new it’s like we relearn the wheel again. We’re property managers … We’re not tech people, and sometimes [learning] the tech gets so involved that it’s taking us away.”

Multifamily residential property managers must be intentional about the technology and processes. Technology is not a cure-all and it’s often not plug-and-play. It depends on people and processes. One of the most important factors for residents is to give them the ability to pay and process their rents online as 46% in the Appfolio survey indicate this is a priority for streamlining operations.

Offering online rent payments and security deposit options benefits management and residents. It removes the time and tediousness associated with manually managing and tracking checks and cash payments. Residents like the online payment and security deposit process because they provide protection while saving time in dealing with a manual, error-prone process.

An automated online leasing process will also allow the team to spend more time on other activities, such as customer service. If they spend more time taking care of residents, it will improve the retention rate, which is the ultimate goal. Additionally, taking manual and tedious processes off the employees’ plates improves the employee experience.

Investing in multifamily residential security is a standard part of doing business. This is a must-have, not an amenity for residents. Prioritizing security can go a long way with resident attraction and retention.  Fortunately, there’s a way to put a high priority on security for multifamily residential while boosting net operating income.

However, the kind of security solution matters. The wrong security technology increases operating costs and overhead. The key is to invest in an integrated security solution that’s proactive.

Rising Insurance Costs

The multifamily industry has been dealing with a relentless surge in insurance costs. Property coverage expenses have reached unprecedented heights, far exceeding the benchmarks set in recent memory. These soaring costs have compelled policyholders to make difficult decisions, including the necessity of raising deductibles, while insurance companies are left with no choice but to implement restrictive policy amendments. These adjustments often involve diminishing coverage amounts to curtail their own financial exposure.

The escalation of insurance costs in the multifamily sector can be attributed to several significant factors. Among these is the increasing occurrence of natural disasters in recent years. With a surge in such catastrophic events, the vulnerability of multifamily residential properties to unforeseen risks has intensified. This surge in claims has inevitably exerted pressure on insurers to adjust their premiums and coverage terms to account for the elevated risk environment.

How Integrated Security Helps Multifamily Residential Properties

Centralizing security with an integrated security solution ensures the security functions can be managed in one place. It simplifies security as it won’t require using different systems to manage different security processes. For instance, multifamily residential properties often include an access control system and video surveillance.

Combining these two distinct security functions means all video recordings will have a time stamp from the access control system. This simplifies tracking activities and searching video recordings.

Another factor in an integrated security system is live remote monitoring. Some properties don’t have monitoring. This turns the video cameras into a reactive system. Live video monitoring is proactive, especially when the system uses both video analytics and trained human monitoring operators. This set up allows them to help spot problems before anything happens.

It’s possible to have this solution help monitor package delivery. Package management has become a bigger problem in recent years. The New York Times reports that property managers say deliveries are a problem. The onsite staff won’t have to worry about packages, security, and access when it’s outsourced.

The technology and remote monitoring service can be more affordable than hiring full-time employees. This security technology can help with staffing retention and improve operational efficiencies while strengthening NOI.

Multifamily residential owners and property managers are responsible for keeping the community safe for residents, employees, visitors, and vendors. If anyone gets hurt on the property, it can open the door to a liability claim. That’s another benefit of the integrated security system that comes with remote monitoring. It can help lower liability.

If you don’t know what integrated security solution to get, interview security consultants using this list of questions to ask a security company. The right integrated security solution, like the one from Stealth Monitoring can yield a ROI within months. At the same time, it helps increase the net operating income.

In selecting Stealth Monitoring as your security partner for the multifamily residential property, you’ll work with security professionals who have a wealth of experience securing multifamily residential buildings.

To learn more about Stealth’s integrated solutions, check out this guide on Monetizing Security While Balancing Access, Safety, and Profitability. If you’d like to learn more or have questions, please contact us.

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