The Big Players Use Computers & Software for Rental Pricing

An article in the New York Times this week discussed the tools used by the largest investors in rental properties in the analysis of rental markets and the determination of the maximum rents they can charge while maintaining occupancy. With rents up and vacancies down, many renters wonder just where that rental dollar amount comes from, and is it just whatever the landlord dreams up.

The country’s biggest landlords together own more than one million rental units. These companies for years have been using a couple of major software tools to set rental rates. Somewhat similar to the software that sets hotel room rates and prices airline tickets, this software uses hundreds of variables to set rental rates, including:

• market conditions
• seasonal trends
• competitor’s rental rates

These sophisticated software products allow the owners to set revenue targets, and crunch the numbers to give them options for lease lengths and rental amounts to keep units occupied and to allow them to hit their revenue targets. This is good for tenants as well. The options for renting any single unit can provide flexibility for the tenant in balancing rental rate with start date and the number of months on the lease.

The two most-utilized software packages are Rainmaker LRO (for Lease Rent Options) and YieldStar Price Optimizer from RealPage, Inc. Users of these software tools recognize that it’s the combination of rent and occupancy which produces revenue, and these tools help to optimize the relationship. While the cost of the products isn’t published, one major user states that it’s very affordable, at around $2/unit per month. That user manages 6000 units. There is a setup fee as well.

Some of the users are actually reducing lease periods to as short as one month because the software allows them to easily compute the increase that will make the short-term lease profitable. One example given was a $1200 per month unit leased out for a single month for $3000. The article states that all but one of the public REITs (Real Estate Investment Trusts) use a revenue management software package, and they all have some type of strategy for revenue management.

While these products are out of reach cost-wise for the small investor or owner of less than 3,000 units, the smaller owner can find out who is using them and study their rental pricing for planning their own strategies.