BTR Pricing is a Marathon
August 31, 2025 was an historic date in my home town of Sydney. It was the first time a World Marathon Major took place in the southern hemisphere. Sydney joined Tokyo, Boston, London, Berlin, Chicago and New York as Marathon Major destinations.
As the runners were crossing the iconic Sydney Harbour Bridge, my son was discussing marathon strategies with his friends. One boy would have sprinted to the front, and from there he just had to stay ahead of anyone who tried to overtake him. Another friend observed that sprinting wasn’t sustainable, it would tire you out. “You are better off moving at a steady pace throughout the race”, he said. Each child, in turn, shared their own strategy and critiqued the others.
In the middle of the debate, I heard a ping on my phone. An email had come through. Sure enough, it was my weekly dose of BTR News. This article was of particular interest: it described how a recently launched East London BTR site had achieved 50% occupancy within 1 month.
The Operator CEO was extremely proud of this achievement. “To achieve 50% lease-up in under a month is a fantastic result…” she proclaimed.
So let me pose an important question: Is 50% occupancy within 1 month really worth crowing about? Should the CEO be hailing it as a “fantastic result”? Or is it more like my son’s friend who wanted to sprint to the front of the marathon pack?
At Price Wizard, we see a lot of BTR lease-up data. And in my experience, the ONLY way to achieve 50% occupancy in 1 month is to significantly under-price.
Just as my son’s friend’s flawed sprinting strategy would set him up for failure in the marathon, this BTR operator has set themselves up for significant issues in the coming months. Let me show you why.
The Data Tells the Story
I’ve made some reasonable assumptions here:
- 240 apartments in the building
- Lease up phase: 80 apartments per month over 3 months from Jan-25 to Mar-25
- 50% six-month leases, 50% twelve-month leases
- Rent was 60% of market rent. I can’t see any other way of filling the building in 3 months. Note that in reality, this building was 50% occupied after 1 month, so they might have charged even less than 60% of market rent.
Now let’s look at what happens when those leases start expiring. We’ll consider two scenarios.
Scenario 1: The Aggressive Recovery
Under this scenario, we try to correct course aggressively. We increase rent to 90% of market upon renewal – a 50% rent increase. I’ve assumed that 90% of leases will terminate as a result.
Here’s what the lease expiry profile looks like:
If you’re a Price Wizard client, you’ll recognise this chart immediately. If you’re not, let me tell you: this is one of the most important charts in an operations manager’s arsenal. If you aren’t producing this chart every month, you’re flying blind.
For this chart to be meaningful, you need to make assumptions about renewal likelihood based on factors like market rent movements, tenant rent increases, and lease duration. These factors are everything when it comes to predicting renewals.
Look at what emerges. Two massive problems:
Problem 1: The Famine Months
There are no vacancies and no leases expiring in the next 3 months. Even if demand is incredibly strong during this period, we have nothing to offer prospective tenants. Imagine having a queue of people willing to pay full price, and being unable to accommodate them. In the meantime, we continue to collect only 60% of market rent from our existing tenants. It’s like watching money walk past your front door while your hands are tied.
Problem 2: The Exodus
Nearly all tenants will terminate their leases upon renewal because they aren’t prepared to have their rent increased by 50%. Many can’t afford it. For others, the rent is psychologically “anchored” to what they’re currently paying. With so many leases terminating simultaneously, we’ll find ourselves back in the same position as when the project launched – high vacancies, panic pricing, and the whole vicious cycle starts again. All we’ve done is kick the can down the road.
Scenario 2: The Gentle Approach
Perhaps we could be more conservative? Under this scenario, we only increase rents by 10%, and we’re able to retain 70% of expiring leases. Market rents have also increased throughout the lease term, which means this cohort of tenants would still be paying only 65% of market rent going forward.
At least in this scenario we don’t lose our existing tenants. That’s progress, right?
Wrong. We still have two significant problems:
Problem 1: Still Nothing to Sell
Once again, we have nothing to offer new tenants in the next 3 months. That queue of full-price customers? Still there. Still walking away.
Problem 2: The Permanent Discount
We’re locking in sub-market rents for another entire lease cycle. At the end of that cycle, we’ll face the same dilemma: a choice between two bad options. This isn’t a strategy. It’s a trap with a 12-month delay mechanism.
A Better Way Forward
While it’s tempting to chase headlines with rapid lease-ups, this operator has chosen a sprint strategy in a marathon event. The result? They’ve committed themselves to 2-3 years of pain, sub-market rents, and difficult conversations with tenants facing massive increases or an entire portfolio locked into permanent discounts.
A better lease-up strategy isn’t rocket science:
- Lease up over 6-12 months rather than 3 months
- Price closer to market from day one
- Spread lease maturity dates to avoid concentration risk
Yes, this approach is slower. Yes, it’s less impressive in press releases. But here’s what it delivers: sustainable occupancy, market-rate pricing, manageable renewal cycles, and the ability to capture upside when demand is strong.
The Real Agenda
The operator in question has a publicly stated policy of “progressive dividends for its shareholders” – meaning dividends will increase over time. The easiest way to ensure dividends will increase over time is to start from a low base. And the best way to start from a low base is to sprint out of the blocks and create havoc in year two.
It can only get better from there.
So here’s my question for you: Are you running a sprint that makes headlines, or a marathon that makes money?
Greg Einfeld is the Founder and CEO of Price Wizard, helping BTR operators worldwide optimise their pricing strategies through data-driven approaches.
