Behavioral Economics: The Science of Paying Rent

by Kris Rudeegraap

Retailers and businesses know that allowing consumers to delay payment can dramatically increase their willingness to buy. National retailers such as Best Buy even have their own in-house credit card to entice users to buy their products now and pay at a later time. So why isn’t this principle applied to the multifamily industry?

Comparing the psychological purchasing behavior of buying a new television with that of where to rent is more similar than you may think. If a renter was standing at an intersection and there were two apartment communities with very similar amenities and price points, but one apartment community accepted credit cards while the other did not, then the willingness of a renter to make an immediate decision is obvious ” go with the one that accepts credit cards.

The benefits of an apartment community accepting credit cards are noticeably clear; renters can move into an apartment immediately rather than waiting to save for the deposit, renters can earn airline miles which can we redeemed for traveling expenses, and best of all renters can easily make their payment online or via mobile phone – 24 hours a day, 7 days a week.

Another principle to understand is the mental accounting that affects decision making. When renters pay with a paper check, which is directly withdrawn from their bank account, they associate that payment negatively, as can be proven when asking any renter if they like paying rent. Now compare that with a renter who paid by credit card who is earning airline miles and managing their money more efficiently. The time value of money comes into play which makes future payments less costly than immediate ones. Now all of a sudden they like paying their rent by credit card and the benefits that accompany it.

An additional behavioral targeting technique that is used by the most savvy property management firms is the ability to harness the power of the default option. The evidence is overwhelming that presenting one option as a default increases the chance it will be chosen. If you are not already accepting e-payments via credit cards and e-checks then you are far behind your competition. If you are already accepting e-payments then instead of just accepting all forms of payment, make the default option credit card or e-check and watch the results. Many innovative property managers are taking this one step further and requiring residents to pay their rent electronically by inking it into the lease terms on the rental agreement. Renters don’t need tons of options, and when given something by default, it becomes more valuable than just another option.

Technology is creating new opportunities that benefit both renters and property management firms. When behavioral economics is applied to electronic rent collection, the results are astounding. Employing the techniques mentioned above can produce operating efficiencies and administrative cost savings that directly benefit your bottom line. It’s a lot easier than it sounds, so get started today before your competitors do!

Kris Rudeegraap is Marketing Coordinator for RentPayment, which provides a complete electronic payment service for properties to accept credit/debit cards and electronic checks for rent and security deposits, and check scanning services. For more information visit, email Kris at [email protected] or call 1-866-289-5977 ext 212.

American Apartment Owners Association offers discounts on products and services for landlords related to your real estate investment including REAL ESTATE FORMS, tenant debt collection, tenant background checks, insurance and financing. Find out more at joinaaoa.
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