TMD Pro, Crypto Update, & Resident Retention

release edition [026]

read time [4 minutes]

Welcome to The Multifamily Download, a weekly newsletter where I provide institutional insights to help you build an exceptional Multifamily career.

Today at a Glance:

TMD Pro: Subscribe today
Crypto: Is The Future Here?
Retention: Gross vs Net
Weekly Listen: David Schwartz

TMD Pro

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Crypto

Earlier this week, the Federal Housing Finance Administration Director William Pulte said in a post that he has instructed Fannie Mae and Freddie Mac to consider cryptocurrencies as part of a mortgage application.

By allowing cryptocurrencies to count as an asset, borrowers who have crypto holdings could be seen as being in better financial position to pay the mortgage, potentially increasing their chances of getting the loan.

The order instructed Fannie Mae and Freddie Mac to develop proposals that would allow lenders to consider cryptocurrencies, but it offered few other specific details.

Could cryptocurrencies be the future of asset-backed loan issuances?

Only time will tell, but my sense is that if Bitcoin (and other cryptocurrencies) continue to appreciate then holders of those crypto assets will be increasingly more reluctant to sell the asset.

Instead, crypto holders will look to lending options for liquidity and collateral.

With that said, it feels like this wave of deregulating cryptocurrencies is inevitable.

How do you think this will unfold?

Retention

Unfortunately, and unknowingly, many Multifamily operators analyze resident retention incorrectly.

According to this recent report from Berkadia, post-pandemic renewals are averaging 54.5% (shown below) versus 50.4% pre-pandemic, but graphs like these can be misleading because they always don't tell the whole story.

Most commonly, the resident renewal percentage is calculated as renewals divided by expiring leases.

For example, if there are 20 leases expiring in a month, and 10 sign renewals, then the renewal rate is 50%, right?

Well, not quite.

What about residents that moved out that month during their lease? ("Skip")

What about residents that were evicted for non-payment? ("Eviction")

What about residents that were not offered a renewal option? ("Non-renew")

What about residents that were month-to-month and finally moved out? ("MTM NTV")

In my opinion, the generic formula above (renewals / expiring leases) is only part of the picture, and is a "gross renewal percentage" figure.

The figure that matters, from both a physical occupany and economic occupany perspective, is what I call "net renewal percentage", which is exactly what you'd think: Total lease renewals / total move-outs.

Do this net renewal math for your asset(s) and see how it looks.

Ideally, the two percentages above (gross vs net) should be as tight as possible, and within 10% of each other.

Retaining residents that can't pay is never advisable, but, staying ahead of unforeseen move-outs with proactive management and clear communication will lead to better overall retention.

Weekly Listen

This week's listen is The Rent Roll Episode 40 hosted by Jay Parsons and joined by guest David Schwartz, the co-founder of Waterton, to discuss contrarian investing.

David and Jay talk about how a market can be favorable one day and then unfavorable the next, and also discuss the difference between a smart contrarian strategy versus a wild bet.

You can listen to the full episode here.