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: 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 – Application Fees

There are a generous number of other income items you can account for in an apartment budget. Other income also known as ancillary income is an opportunity to add value in the way of services that are above and beyond rent monies. From application fees to cable income to utility recovery, the chances to collect additional revenues are plentiful.

Application Fees

Application fees are typically charged per applicant and or one fee per married couple. More times than not it is determined by comparing and contrasting rates charged by comps in your respective markets. In my experience, I have seen these rates range from $30 to $50 per application. The fee is collected to offset the cost of doing credit and criminal background checks. And, it is collected at the time the application is submitted for processing. The fee is typically non-refundable but is sometimes waived if the application is approved with no conditions. In the latter case, it is considered a marketing cost and or a cost of doing business.

Analysis of Application Fees

You can discern some down and dirty information using the application fee amount in a given month. You can take the total application fees collected in a given month and divide it by the amount charged for an application and compare that number to the number of leases taken and or number of move ins for the month. It’s a back of the napkin way of making sure you have collected a fee for every lease or every move in. Any margin of error should show up in a concession or other concession line item.

Application Fees – Money Orders

There is a downside to collecting application fees. Over the years, I have seen it more times than I would like to admit. On-site team members take blank money orders, fill them out in their own names and cash them. They attempt to get away with it by writing the amount off to a concession or other concession. Just something to be aware of.

Your – always looking for ways to maximize value – multifamily maniac,

M

 

Apartment Budgets: Concessions

Welcome back for another installment on the subject of apartment budgeting. This week we are going to discuss the line items called concessions – new and concessions – renewals. Before we get started I have to admit some surprise. I did not think this kind of subject matter would spur much in the way of conversation but it truly has. And, we have posted some record numbers in the way of page views and the on and offline conversation has been very upbeat in nature. I have to give all the credit to Carin – one of our accounting team members at Mills Properties.

Up to this point we have discussed the main driver of revenue – rent. And, we have taken the time to walk through the ever complicated world of loss to lease for both new and renewed leases. And, just last week we penned about the quasi robber baron – vacancy loss. Let’s continue in the vein of loss this week with a discussion on the art of concession use.

Apartment Concessions 

Concessions are defined as credits (dollars) given to offset rent, application fees, move in fees and/or any other revenue line item. They are generally given at the time of move-in to offset physical moving costs such as those associated with cross-country movers or cross town movers. Concessions are also used at the time of renewal as a way of offsetting the cost of a rent increase or the addition of an ancillary expense [Read: utility billing, renter’s insurance, etc.]  to a new lease term.

They can be given up front or amortized across the life of the lease. They are also given during ‘oops’ moments. That is to suggest that if we drop the ball on the service side of things, we can give concessions as a way of saying sorry for the inconvenience. In short,  we can say they are used for marketing and with that comes any number of perspectives for and against the use of concessions.

That being said, we have left out a number of good points and as a result I am looking forward to the conversation.

Your, burning concessions off as fast as reasonably possible, multifamily maniac,

M