Earlier this month I participated in a tour of a BTR site. I always enjoy visiting these sites – there’s so much you can pick up about the site, the operator, and the broader BTR industry. Just by walking around, observing, asking questions, and listening.
As I approached the building, I nearly tripped where a homeless man’s belongings had spilled into the middle of the footpath. Fortunately, I regained my balance and proceeded to the tour.
The guide opened with an apology: we wouldn’t be able to see any 1 bedroom apartments because they were all occupied. In contrast, there were multiple vacant 2 bedroom apartments available for viewing.
I felt a multitude of emotions all at once. From excitement (there is a pricing opportunity here!), through to disappointment for the operator (they are missing out on so much rental income). But most importantly, sadness (we have a housing crisis, but this building has lots of empty apartments). This could be so easily fixed with some pricing tweaks.
I wonder what the homeless man downstairs is thinking about the empty apartments.
Apartment 1: First Impressions
The first apartment had this layout:
My initial thought as I walked through the front door: “Wow, so much light, and a great outlook”. The living area hits you immediately: floor-to-ceiling windows, a balcony spanning the entire width, natural light flooding in. First impressions? Spectacular.
The remainder of the apartment was well presented and felt very homely. Then it was time to move on.
Apartment 2: Hidden Treasure
The next apartment had a very different layout:
As you walk in the door, all you see is a long corridor. It certainly wasn’t spectacular. It wasn’t pretty. I was ready to turn around and leave. But I’d come this far, so I kept walking to see what lay beyond the corridor.
What awaited me at the end was a large living/dining area with windows on two sides, water views, and even more light than the previous apartment. This was, without doubt, the pick of the two living areas.
At this point, a couple of tour participants started debating which apartment they preferred.
Here’s what they were comparing:
While the tour participants were each adamant about their preferences, there was no
consensus. Which is hardly surprising given the above table.
Which brings me to the point: Leasing agents might think they know how appealing an apartment is. They might think they know the value of an attribute. But in reality, all they can do is make a subjective judgement.
Because we’re all different, and we all have different preferences.
Yes, an agent’s judgement might get us into the right ballpark. But that’s as good as it gets.
And when it comes to pricing, ball park isn’t good enough.
The Only Way to Know
The only way to correctly compare one apartment’s value to another is to collect and analyse data. The good news is that BTR operators have this data. Dozens of prospective tenants coming through vacant apartments each week is an amazing source of data. Tenants deciding whether to renew their leases is also invaluable.
The question is: what are those BTR operators doing with their data?
The Real Cost
Back to those empty two-bedroom apartments. The building had 100% occupancy in one-bedrooms and multiple vacancies in two-bedrooms. That’s not just inefficient pricing. It’s leaving thousands of dollars (or pounds) on the table every single week.
And it’s exacerbating the housing shortage, just ask the homeless man downstairs what he thinks.
We have a housing crisis. The building has too many empty apartments. Money is being left on the table. And yet… this could all be so easily fixed with some simple pricing tweaks.
Greg Einfeld is the Founder and CEO of Price Wizard, helping BTR operators optimise their pricing strategies through data-driven approaches.
