by Rowland Hobbs
Delinquencies are one of the rental housing industry’s most persistent challenges. Late or absent rent payments cause significant financial risk for properties and pose major operational disruptions that impact residents and operators alike. From friction between onsite associates and residents to bad debt and negative impacts to the bottom line, delinquencies contribute to some of the biggest hurdles the industry is up against.
A balancing act
Operators are faced with a tremendous challenge when delinquencies rise in their communities. Balancing resident satisfaction and occupancy with financial stability is a difficult task when every resident pays rent on time. But if residents are perpetually paying rent late or sporadically, that challenge is greatly amplified, especially when each dollar of rent is already being spread thin to cover an array of expenses.
According to the National Apartment Association, roughly 39 cents of every dollar is allocated towards paying the mortgage for a property, 10 cents is reserved for capital expenditures, such as HVAC replacement, and 14 cents is spent on property taxes, which funds essential services like public schools, police and firefighters. With an additional 27 cents earmarked for ongoing maintenance, utilities, insurance and payroll expenses, owners are left with about 9 cents from every dollar of rent paid.
In an effort to stretch their strict budgets further and navigate an extremely volatile economic setting, operators are now leveraging financial incentives to promote positive resident behaviors, such as paying rent in full and on time every month.
Incentive innovation driving renter behavior
While there is no shortage of innovative approaches to addressing this age-old challenge, financial incentives are revolutionizing how operators address rent delinquency in their communities.
Financial incentives are growing in popularity as it reduces conventional concession costs while simultaneously diminishing rent delinquencies among residents. Through financial incentives, residents receive ongoing, tangible benefits that elevates their overall quality of life.
Based on internal data, offering Cash Back as a financial amenity to residents reduced delinquencies at Class A communities (44.6%), Class B (35.3%) and Class C (37.9%).
Offering something such as Cash Back reinforces the importance of paying rent on time and boosts residents satisfaction, which inturn leads to optimal occupancy rates and a community filled with long-term residents.
Good resident behavior benefits everyone
For years, operators have been looking for ways to encourage positive resident behavior but rarely do those efforts end up working out in their favor, let alone benefit everybody involved. However, with the implementation of Cash Back incentives, operators are finding the results to be advantageous all-around.
Beyond strengthening associate/resident relationships, Cash Back gives residents a financial confidence that permeates through the community. Financially sound residents that can and want to pay their rent each month add tremendous value to a property as they establish a reliable stream of income for the community.
The quest for effective delinquency remedies has never been an easy one. But emerging innovations that offer financial incentives are reshaping how operators confront and mitigate delinquency. Not only does providing residents Cash Back for paying rent in full and on time increase NOI, such incentives also support a more sustainable community for everybody.