Why Is the Property Industry Trading Risk for Occupancy?

Author

Franco Faraudo
December 27, 2024

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PROPMODO EXCLUSIVE

Over the past decade, the multifamily industry has seen bad debt expenses double as a result of prioritizing higher occupancy rates by lowering financial barriers to leasing. But is there a smarter solution?

Since the Great Recession, the multifamily rental industry has shifted its focus to prioritize occupancy over traditional risk mitigation strategies. This change stemmed from challenges in the late 2000s when renewal rents surpassed rents for new tenants, creating high turnover rates and threatening cash flow. To combat this, property operators reduced leasing barriers and lowered security deposit requirements, allowing a broader pool of renters—including those facing financial instability—to secure housing. While these measures successfully boosted occupancy rates, they also introduced long-term financial risks, such as increased bad debt expenses.

The financial trade-offs of this strategy have become evident over time. Occupancy rates improved, but the cost of bad debt has risen significantly, doubling from 2010 levels. Operators now face a dilemma: the benefits of higher occupancy are being outweighed by the growing financial burden of unpaid rent and move-out balances. For example, analysis of recent data shows that even modest gains in occupancy often result in a net financial loss due to elevated bad debt expenses.

To address these challenges, the industry is exploring new risk mitigation strategies, such as fraud detection and risk transfer solutions like surety bonds and lease insurance. These tools allow operators to maintain high occupancy levels while reducing financial exposure. By strategically combining enhanced fraud prevention with innovative risk transfer models, property managers can align occupancy goals with long-term financial stability, fostering ethical and sustainable growth in the multifamily sector.

Explore the full story about the multifamily industry’s struggle to balance risk and occupancy in today’s featured article. This article is free to read for the next 24 hours. Not a subscriber? Get unlimited access to all our exclusive content for just $25 for your first year using our special code: NEWYEAR. Sign up now!

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