One of the least spoken about but critical topics in multifamily investing is lease-ups. So, what exactly are they?
This blog aims to cover what a lease-up is, what goes into one, why it is crucial, and other essential things to consider.
What is a lease up?
Lease-ups are the process of finding the right tenant for a unit or units. They typically occur once a unit is identified as available at the end of a lease term or after renovations/construction.
Lease-ups are a critical timeframe for operators as it signifies the amount of time needed to market, identify, screen, and put a tenant in place. During this timeframe, the management team will establish the brand (if it is not already established), market the property and unit effectively, and ensure the property is priced competitively.
What all goes into a lease up?
Like many things in life, timing is everything, and lease-ups are no different. The best time to do lease-ups is when people are moving. Most people move between May and September; thus, these are the prime lease-up months. That is not to say that you cannot find a tenant during the other times of the year, but this timeframe is historically more active.
Marketing is vital. Great media content on several online platforms is a must to market the units effectively. In addition, most tenants want to see and even do a virtual tour of the unit before physically coming to see it. Having these options can mean all the difference.
Screening might be the most critical elements of lease-ups. Usually, minimum requirements are needed to submit an application, such as a minimum credit score, monthly income, and criminal history. However, understanding your minimum requirements is understanding your level of risk. Meaning if you accept lower standards, you may fill your vacancies quicker, but your tenant risk profile (likelihood of eviction) may also be higher. The key is balancing requirements that match your property class level and your acceptable risk level.
Why are lease-ups important?
Lease ups take time, and time is money in real estate. So, if you have empty units for long periods, you are essentially affecting your bottom line or your net operating income. Additionally, you want to keep your average occupancy stabilized above 90%.
This will ensure that you keep all exit strategies open by keeping the property’s value high. Finally, getting the right tenant on time is critical to avoiding breaks in a lease, turnover costs, and other associated costs of poor screening techniques that could affect the entire investment.
Conclusion
Although lease-ups sound relatively easy to define and maybe even execute, they require a lot of work and are one of the most essential aspects of operating a multifamily investment. Therefore, if you are investing with an operator, ensure that they have a solid lease-up process in place or are actively involved with the property management team.
Do You Want To Learn More?
RIZE Equity is a private multifamily investment firm, and we work with accredited investors to help them achieve their long-term investment goals through high-quality multifamily investments in the Southeastern U.S. If you would like to learn more about our investment strategy, we invite you to visit our website at www.rizeequity.com/invest and schedule a free no-obligation appointment with us. Also, check out our free passive investor’s guide on investing in multifamily at www.rizeequity.com/passive
About the author: Sean Cullen is the founding partner and Director of Business Operations at RIZE Equity Group LLC, a privately held real estate investment company that helps current/former professional athletes, veterans, and business professionals create generational wealth through smart multifamily investments.