Apartment Budgeting: Trash Income

Trash income is not a dirty business.

It’s time to talk trash. Not that recent election type trash. Not the fiscal cliff type trash. And, not your run of the mill sports trash talk. Albeit, that has its place and is fun when kept in good spirit. No – we are talking about making some income from your apartment communities trash collection.

Trash Income Defined

Trash income comes from charging back or passing through the expense that you incur for having your communities trash hauled away. And, RUBS Trash Incoeunlike water and sewer income – trash is not a regulated utility. That means you can charge back more than your monthly invoice. For reference, I have seen this number range anywhere from $3 to $8 per occupied unit per month.  I would highly recommend that you use a third-party utility billing firm to administer this for you. Typically, this is billed monthly with your water and sewer charges. The more sophisticated services include rents and other applicable fees on the same monthly billing statement.

Budget Strategy

This one is fairly straight forward and most budget models will have a formula baked in. If not, you can take your average number of occupied units over the course of the year and divide the total trash spend by that number to come up with an annual per unit number. You can then divide that number by 12 and the answer is the minimum number you should charge per month to recoup your cost. For example:

Community: 212 units – 94% forecasted 2013 occupancy – $12,000 trailing 12 months trash bill (forecasting zero increase for 2013).

212*94% = 201.4 average occupied units

$12,000/201.4 = $59.58

$59.58/12 = $4.97 per occupied unit

This is the minimum amount you would want to bill back in order to recoup the full cost of your annual trash bill. Now remember – trash is not a regulated utility. With that fact in mind, I think it prudent to charge more. In this example, I think $6 or $7 per occupied unit is completely in line.

In closing, increases in utility cost historically outpace rent increases. That said, it is would be borderline careless to not share that cost with the people who benefit from the services.

Your always looking for a way to maximize revenue multifamily maniac,

M

 

pic props: Tony Jacobson

 

 

 

Apartment Budgeting: Water Income

It is known as RUBS or Ratio Utility Billing Service.

It’s Tuesday and time for another installment of Apartment Budgeting. This week we talk water. We all know that utilities are likely the fastest growing line item in your annual budgets. And, if you haven’t tapped in to sharing this expense with residents – then read on. But, more important – act. If you have tapped in – please stick around and add to the discussion at the end. As I am sure to leave some important details or alternative angles out.

Water Income DefinedRUBS

It is known as RUBS or Ratio Utility Billing Service. And, water income  is just one piece of the picture. We will discuss the other pieces over the coming two weeks.

Water income is derived from taking your total monthly water bill, applying a ratio formula to it and then billing it back or passing it through to your residents. Now, it is much more complicated than that simple definition but you get the gist.

It is also much more complicated than simply splitting your water bill across the respective occupied units in a given month. And, don’t be tempted to take the easy way out and settle on billing a per unit type flat rate. It’s tempting to do it this way but trust me – it’s much better to partner with a company versed in this art we call RUBS.

*Item of particular merit about utility billing – this is a highly regulated business and you are not a utility company. Under no circumstance can you bill back or pass through a number that is in advance of your monthly bill. You will love not the consequence if you are caught.

There are a number of good companies out there to partner with. Our friends over at Appfolio Yardi and RealPage, just to name a few, offer it as an add-on to their respective property management software packages. Or, there are independents that focus 100% on utility billing. Either option is okay. I am personally a fan of working with your PM software provider.

Budgeting Strategy

This a bit more complicated than looking at trailing information. Given the fact that utility spends amplify at a pace far in advance of rent growth (save a few crazy good markets in the country) you will definitely want to pass the increases along. The billing will also ebb and flow with occupancy and a number of other factors.

In this case, it’s best to work with a really good accountant who can build a formula into your budget template that considers all the factors for you. I liken this to one of those math word problems that many of us struggled with back in elementary school. Email me if you need help with this one.

Next Week 

Next week we will be tapping the keys about sewer income – smelly as it may be…

Sending my thoughts and prayers to those who have been set back by the Super Storm,

M

 

Apartment Budgeting: Parking Income

Parking income is a way to add additional revenue and thus additional value to the bottom line.

Income for your parking spaces is key to adding valueWanted to pause a second to say thanks for all the feedback on the budgeting series – we (meaning you and me) seem to have a good thing going here.

We continue this week with the next line item in our apartment budget: Parking Income.

Parking Income Defined

Parking is an interesting subject. Interesting in the sense that one could posit that it should come included in the rent. While the other camp would suggest that it is an ancillary income and thus should be accounted for on a separate line item.

To define it simply – it is income derived from renting the right to use space in your parking lot or parking garage. That space could be reserved for exclusive use or the right to at very least have access to a space.

Budgeting Strategy

If you have a stabilized operation this is pretty simple. Look back at your twelve months of trailing history, consider rate increases and straight line it. Or, ebb and flow it with occupancy.

If you are in lease up – the work is a little more difficult and starts with a full market survey. Not unlike we do competitive surveys for assistance in pricing apartments – we do this to get a sense for pricing parking spaces. Now – no matter if you have a surface lot or a garage, I think it important to understand the pricing for both. And, I think it important to get a sense for what the barriers are.

I define barriers as the 3 block, 5 block and 10 block radius. I also lump in nearby walkable attractions be it football or baseball stadiums, museums or vibrant cityscapes. It all matters in your pricing and budgeting strategy. It really boils down to proximity with a bit of supply and demand layered over the top.

Once you have your market survey complete – you have to consider how quickly the spaces will get absorbed. If you have a plethora of spaces this is not an issue. But, if you have a dearth this is a big deal. You don’t want to sell out too soon. Neither do you want to get to the end and have left over inventory albeit I would prefer this to selling out to soon.

The key is paying close attention to what the market is telling you, be nimble and don’t be afraid to increase rates along the way.

Why Don’t We Include Parking in the Rent

I have asked this question no less than a dozen times and still to this day don’t know that I have a clear reason.

The top two reasons that I can recall off the top of my head are, 1. Tracking 2. Financing/valuation.

Would love to hear your feedback on the subject – until then…

Your apartment budgeting multifamily maniac,

M

 

 

 

Apartment Budgeting: Storage Income

One in Ten Americans Has a Self-Storage Unit

“Human laziness has always been a big friend of self-storage operators,” Derek Naylor, president of the consultant group Storage Marketing Solutions – New York Times article. I would say to my apartment friends – we/you need to get a piece of that action. Build garages not for parking cars but rather storing junk. Do some dual marketing – call it storage and or garage. It’s a place to put stuff and things.

Storage is such an epidemic that we now have Storage Wars (reality TV show) aimed at celebrating the agonies and lamenting the defeats of would be bidders. It also doubles as a back door way of marketing the self-storage business – a post for another day.

Storage Income Defined

Simply put – this is income that comes from those dusty old basement storage spaces that everyone tends to forget about.

Storage Income is a way to drive revenue to your bottom line. If your property has the space (basements are great for this) – consider the option of building out some simple caged space that people can use to store stuff. Or, if you already have it, just remember to market it. Price it to sell, create scarcity and urgency. Heck, give it away (for short stints) just to get people hooked on having it. Trust me, once they move their stuff in – as suggested above – they will be too lazy to move it out. Boom – you chance to get an extra $5 or so a month.

Budgeting Strategy

No real strategy here. Look at your trend lines over the trailing 24 months and get yourself an average. Use that average to straight line your storage income account and think about adding some inflation for the coming 12 months.

Any Other Thoughts On Storage Income?

Your having an amazing and over the top day multifamily maniac,

M

Apartment Budgeting: Telephone Income

Telephone income is a great way to add value to your real estate.

I have taken a bit of a pause here at MBG due in large part to Mills Properties budget season. Every year around this time we dive head first into a process that takes the better part of two plus months to complete. We do our best to space it out so that any one VP, RM or AM does not get creamed. And, in the same respect it does take a good deal of focused time to do a budget right. With that in mind, I want to get back to posting to the blog as it provides good therapy for the day-to-day hustle of property management.

Today’s topic is telephone income.

Telephone Income Defined

Telephone Income is derived from a couple of different sources. Roughly twenty years ago plus or minus, it came from the likes of AT&T and or other local providers. Our on site sales teams would offer to transfer existing phone service or they would initiate the call for new service to be set up. For that, the property received a commission. It didn’t amount too much but it was income.

Around the same time, at least according to my aging memory, revenue share models arrived on the scene. Similar to cable and internet shares, in exchange for exclusive marketing rights, the providers gave the property owners a piece of the revenue. The share amount was equal to your ability to negotiate. These amounts started to mean something in the way of overall property value. Not huge but something nevertheless.

Cell phone towers changed all that. Providers would come in, especially in the case of high-rise buildings, and pay huge lump sums with ongoing payments. They would erect cell phone towers on your building and or land, sign mega long contracts (10 years plus) and be on their merry way. Huge deal when it came to adding value to your real estate.

I have likely left out a few income angles so feel free to fill in the blanks. And, thank you ahead of time.

Budgeting Strategy

This line item is a bit different from the prior line items. That is in terms of straight lining the income based on history. Because the income is based on contractual terms and agreements you can plug the income. That is to suggest that sometimes the payments are made annually, quarterly or monthly. And, they are specific in amount. Whatever the case, review your contracts, make note of the payment amounts and months they are to be paid and enter accordingly.

Refreshing

It’s good to be writing again. I really miss this part of my world. In the same respect, it felt good to take a pause.

Your looking forward to rockin’ the world today multifamily maniac,

M

Apartment Budgeting: Internet Income

Internet Income is the topic of our apartment budgeting series this week. Are you sharing in the revenue?

Continuing along with the Apartment Budgeting series today. The topic this week is Internet Income. This provides another opportunity to share in the revenues created by your allowance for exclusive marketing access.

Internet Income Defined

Internet Income can be defined in a very simple way –  it is revenue share from your local Internet Service Provider (ISP). Not unlike revenue share from cable companies – you have to give up some exclusivity. That is to suggest that you have to provide exclusive marketing opportunities to the provider in exchange for the share of revenue. Item of note: Don’t confuse exclusive marketing with exclusive access. In essence, the only thing you want to give up is the ability for one company to market their services exclusively. It will not mean that your resident is limited in their choice. And, choice is a good thing. Good for residents and good for owners.

For apartment owners, internet revenue share comes in a couple of different forms:

1. An upfront per door fee.

2. A percentage of monthly revenues generated from total collections on billable subscriptions. More simply said, collecting a percentage of every dollar that your resident base pays to the internet provider.

3. A combination of both. You may get a lower per door fee and a higher percentage of share. Or, a lower percentage share and a higher per door fee.

4. Bulk – you buy internet for every door in the community for a base rate and then resell it for a profit. For example: you buy it for $15 per door and sell it for $25 and keep the $10 margin for yourself.

When it comes to negotiating a deal – I would recommend consulting with a guy like Mike Whaling. He has the expertise to negotiate the best possible revenue sharing opportunities that first and foremost provide your resident base with the best possible choices in service.

*One item of note – I’ve not lived in a market where internet revenues were shared with property owners. Therefore, I don’t have a lot to share in the way of norms.

**Another item of note – As the internet becomes more ubiquitous sharing opportunities might move to smart phone carries in lieu of cable/internet providers.

Internet Income Budget Strategy

This is a math problem any way you look at it. And, it is all predicated on penetration otherwise known as subscriptions. One thing to consider is the economy as a whole. The reason being that people get behind on the their internet bills just like they get behind on their rent. Except in this case, internet is likely something that is easily sacrificed where a home is not.

My best advice is to call your ISP representative and ask him/her to run a twelve month trailing report for you property and like kind properties. Use that to look forward and consider any stop service percentages that might be included.

 

Your always looking for ancillary income multifamily maniac,

M

 

 

Apartment Budgeting: Washer and Dryer Income

The goal in my head is to get a $10 to $15 per set per month share of the revenue.

It’s Tuesday and we are back with another installment of Apartment Budgeting. Today we are writing about income opportunities as it relates washers and dryer income. Believe it or not this is an area where you can make a little ancillary income with just a little amount of effort.

Washer and Dryer Income DefinedLaundry Room at Countryside Townhomes

This is money your community makes when you help someone lease a washer and dryer for their apartment. We are presupposing you have washer and dryer hook-ups in your apartments. If you do, simply find a local appliance provider that is willing to lease direct to your resident(s) while providing you a share of the revenue. Or, you lease the machines from the provider and re-lease them to your residents for an up charge. I personally like the first option better – less risk. It’s not a ton of money but every dollar counts.

The goal in my head is to make at least $10 to $15 per set per month depending on where you are in the country. Be it through the vendor revenue share option or your up-charging the resident, the aim is $10 to $15 per month.

Budgeting Strategy

If your lease program is already in place, this is a simple exercise of running out your current income based on your trailing information. If you are starting up a program, I would be conservative in the first year. And, use a conservative ramp up schedule for future years. Maybe start with two to five sets of machines depending on the level of interest you think you can generate. And, ramp up at the same pace unless demand allows for a more aggressive schedule.

Marketing Washers and Dryers

This is grass-roots kind of stuff whereby word of mouth is likely your most powerful medium. Get the conversation started by providing information in all of your marketing materials to include any print and all internet. Make sure your leasing team makes it a part of their programming. Give the first set away in lieu of any leasing special you might be offering.

It’s not huge money but again, every dollar counts when budgeting and running a multifamily community.

Your really liking ancillary income opportunities multifamily maniac,

M

Apartment Budgeting: Laundry Income

Laundry Income can otherwise be termed as revenue share.

To continue with our Apartment Budgeting conversations; this week we are penning on the subject of Laundry Income.Apartment Budgets Laundry Income

Laundry Income Defined

Laundry Income can otherwise be termed as revenue share. This comes in the form of upfront concessions given at the time of contract signing. Or, in the way of refurbishment of your laundry facility. In addition to the aforementioned, one can negotiate a long-term share of washer and dryer collections. The payments can be set to arrive monthly or quarterly.

There are an endless number of ways that these contracts can be negotiated ranging from the vendor coming out-of-pocket to completely update your laundry facility to paying for a small share. In lieu of that, you can negotiate for a larger share of the ongoing revenue and forego the upfront incentives. You really have to consider this on a case by case basis. And, if you don’t know which way is best – reach out and ask.

Laundry Income Budgeting Strategy

If you are setting up anew – request a collection analysis from your vendor of choice. Ask them to pull trailing data from a comp that is similar in size and demographic. Consider drivers that could cause differences in your property versus another. Drivers such as; in unit washers and dryer connections, in unit washers and dryers present in select units, usability of room (is it centralized or located in the basements of each building), number of machines in the room, etc.. All things should be considered to give you a fair idea of what to budget.

If you are set and forecasting the new year – consider your most recent twelve to eighteen months trailing. Consider any foreseeable causes for disruption to up or downside. And, consider your timing. Plug the numbers accordingly.

Laundry Income Marketing Strategy

Not to over stress the marketing is everything mantra but it really is and producing Laundry Income is no different. Make sure you rooms are dialed in multiple times throughout the day. Make sure that the floors are swept and mopped. Make sure the folding tables are clean and free of clutter. Make sure the trash cans are emptied regularly. Make sure the machines are clean to include the lent traps. And, make sure the lighting is 100% working 100% of the time.

And, by all means – hand out free tokens or swipe cards from time to time. Host a – do your laundry for free – happy hour every Wednesday night. Call is Duds and Suds – they bring the duds you supply the suds. Make it social. Have T-shirt folding races. Have the neatest fitted sheet folding contest. Blow it all out on Facebook. Share the love of duds and suds. Above all – give people are reason to love the laundry room so that they come back and spend money using your machines.

Your lovin’ laundry income multifamily maniac,

M

Prop pics: Apartment Therapy

Apartment Budgeting: Corporate Rent Premium

Corporate Rent Premiums are convenience fees added to your Apartment’s Market Rent.

Over the last couple of weeks we have discussed premiums that apply to such things as Month to Month Leases and Short Term Leases. Today we take a similar angle in the Apartment Budgeting Series as we are penning on the subject of Corporate Rent Premium. In the spirit of consistency, we will start by putting some definition around the term and then we will dig into some budget strategy and possibly some thoughts on marketing.The Boulders at Katy Trail in Missouri

Corporate Rent Premium Defined

Corporate Rent Premiums are convenience fees added to your Apartment’s Market Rent. It is a little bit different from the last two fees that we penned about. In this case,  apartments are generally leased and paid for by third-party agencies.  National Corporate Housing and Oakwood are a few examples of the aforementioned third parties. You, in a sense, up charge the agency for the convenience of getting out of the lease(s) with just a standard 30 or 60 day notice.

I have seen the fee applied by way of flat rates and/or percentages with upsides of $300 or 10% of the market rate.

Corporate Rent Premium Budget Strategy

Like all other rent premiums this can be a tricky thing to budget for and it definitely something you want to control. To budget, I would refer to a twelve month trailing all the while considering current economic conditions. If the economy as a whole is downtrodden that the likely hood of a boom of corporate leases landing in your lap is between nil and none. If the economy is gaining traction and or booming you will likely see this business experience an uptick. But, it is always open-ended.

Remember to control this. I can’t tell you how many times I have sat in an owner’s meeting trying to remind them of their generosity in giving up 20% of their unit count to a corporate housing provider only to have that provider pull the rug out from under them. How quickly it becomes the other’s guys hot potato to deal with and explain. 5% is a good number to manage. 10% is pushing the risk handle. Anything beyond that is pure gamble in my book.

Corporate Housing Marketing Strategy

No ballyhoo with this one. It’s a simple down to earth Dale Carnegie approach to getting your foot in the door. Do a little research and find out what the owners and account executives grapple with. What are the biggest problems that they deal with? What keeps them up at night? What rattles their brain(s)? Get into that in the way of solutions. Solutions that you can play into their real-time business transactions and make sure your company and community are associated in some way. Be swift with any help that you can give to them. And, don’t be shy about asking for the business.

Your always looking for some premium to rent multifamily maniac,

M

Apartment Budgeting: Lease/Short Term Premium

Back for another week of budget talk. Hope this past week has been over the top and amazing for all of you. If  not, you have a whole life of potential in front of you so don’t fret too much. Last week we talked about Month to Month Premiums and this week are moving on to Apartment Budgeting: Lease/Short Term Premium.

Lease/Short Term Premium Defined

Lease/Short Term Premium is a fee that is added to any lease that is less than the desired six, nine or twelve month lease that most of us non-revenue management practitioners desire. Call is a fee of convenience if you will. It allows a resident to have flexibility in the way of getting out of the lease contract without any lease break penalties. It is a simple month to month premium that you tack on at the initiation of the lease term.

I have seen this fee applied in the way of a flat fee ranging from $50 to $100/mo. And, I have seen it applied as a percentage of the lease rate ranging from 5% to 10%/mo.

Lease/Short Term Premium Budgeting StrategyPremium for short term apartment lease

I typically consult a twelve month trailing report to determine what my forward-looking twelve month budget number should be. This is again one of those fees that is very hard to budget for given the fact that is simply random in nature. Unless you are located in a somewhat urban area with a propensity to attract corporate type clientele, you will rarely book income to this line item.

Marketing Short Term Leases

Don’t forget that everything is marketing. And, this line item should prompt you to look for marketing opportunities. Use Short Term Leases as a bullet point on your website. But, don’t get too crazy as you don’t want to create unwanted exposure. But, it would not be a bad idea to let two to three percent of your unit count produce some extra revenue.

Your looking for opportunity in every line item multifamily maniac,

M