Tuesday, August 03, 2010

strange incentives in the rental business

I got my new apartment today. Met up with the super, signed the lease, wrote August rent cheque, got the keys. I've been busy this week with packing and numerous other details around the move.

The new place looks pretty good. The super put in a new floor in the bedroom. That's nice getting a new floor. It does remind me though of how upside down the incentives are in the rental business.

In renting, the worst, least profitable customers are treated the best; while the best and most profitable customers get the least consideration. New renters who have never done business with the landlord are far more likely to get new appliances, new flooring, repairs done, new carpet or a lease incentive such as 1 month free rent.

It's so strange because brand new tenants tend to be the least profitable. So the worst, least profitable customers are treated the best by the landlord typically.

Consider something like this. On January 1 in a building with 110 units. 100 are people who've all been there several years trouble free. 10 are brand new, just moving in. So existing people outnumber the new by a rate of 10:1.

Now in the next year, which group of people is more likely to generate one or more of these conditions.

- miss a rent payment
- an incident where the police are called to the building
- not be living there 1 year from now

Despite being outnumbered 10:1 the new people are in my opinion and observation more likely than the established tenants to be involved in these types of negative issues. Strangely they are generally treated better than the existing tenants.

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