Welcome back to our final installment of How Much to Charge.
Passion Can Be Costly
Entrepreneurs need to be careful their passion and enthusiasm isn’t keeping them in the poor house. Entrepreneurs can be hard workers and not clock watchers. Sometimes it may be a good idea to measure all the time put into a job or a sale to see just how much you’re making per hour. Prepare to be shocked.
Price increases are hard but necessary. In recent years, operating costs in the apartment business have exploded. Fortunately, rents have gone up too. Rents are going up faster than incomes and our tenants are getting pinched. Sometimes when our residents receive their increase notices, our leasing agents gets an earful. We’ve even been threatened with lawsuits.
But typically, the individual stays in their apartment and pays the increase.
Price Increases Require Courage
Price increases take courage. You may be all alone in proposing an increase. One of our leasing agents was a rock star. She cared about her residents. She helped elderly residents make out checks to pay their bills. She drove others to their doctor’s appointments. She was managing market rate apartments, not senior housing.
If she had one fault, her empathy for our residents made it nearly impossible for her to advocate for a rent increase. Never mind that she was managing the building with the eight elderly aid recipients described in Part One. In other words, she had been a witness to residents volunteering for an increase they could have avoided.
One year, I told her I was going to tie her increase in pay to the same increase in rent we would pass along to the residents. She replied, “then don’t give me an increase this year.” We still passed along an increase, and she got a wage adjustment too.
Ten years ago, I was building 82 apartments in a smaller community. Sometimes when the costs for a construction job come back, they are higher than anticipated. That happened to me on this job. I did what I could to rein in costs, but they were still too high relative to the original assumption about what we would charge for rent. The only way to resolve the problem was to assume higher rents would be possible.
In this instance, it was more than wishful thinking. I did research to develop rent comparables that would support our construction costs. However, owing to the lack of new construction in the immediate vicinity, I had to go farther afield to find these comps. While I was working on this, a broker friend of mine called me to see how I was doing with the development. When I explained my cost problem and the solution – higher rents – he shared his opinion with me: “I don’t think you can get those kinds of rents in that community!”
“I sure hope you’re wrong,” I replied. “I already broke ground!” The development went on to be a success and we got the higher rents, but sometimes it takes courage.
You Can Run But You Can’t Hide
Years earlier, I owned a small apartment building and passed along a modest rent increase. One resident got mad and moved out. She moved to an apartment complex in the neighboring community. A few years later, I bought that apartment complex too. You can run but you can’t hide!
No one knows what the future holds, but if history is a guide, it’s likely to cost more than anticipated. Surviving the inevitable surprises and booms and busts means being vigilant about protecting your profit margins. Therefore, raise your prices. Raise them high, raise them now.