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: 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: Legal/Collections

We are working out way down the Other Income vertical in our budget series and today we are going to explore Legal/Collections.

We are working out way down the Other Income vertical in our budget series and today we are going to explore Legal/Collections.

Legal/Collections Defined

These are charges that are assessed back to residents for attorney’s fees and or fees associated with collecting outstanding apartment related debts. That is to suggest if you hire an outside agency to levy and or collect debt on the behalf of your apartment community, then you can and should charge it back to the resident. And, the legal/collection line is where you would book that income.

Budget Strategy

This is another line item where the use of history as the best dictate is likely the best practice. There is no real way to determine exact velocity or exact amounts to budget. In the absence of that precision – it would be best to pull your last 12 or 24 months trailing and come up with some averages.

Your wishing for a cool-front to roll in multifamily manic,

M

Apartment Lease Termination Fees

What are lease termination fees? The fee is applied if a current resident decides to break their existing lease contract prior to the lease end date.

Apartment Lease termination feesIt’s time for another installment of our series on apartment budgeting. Today we are tackling the top of apartment lease termination fees.

Lease Termination Fees Defined

What are lease termination fees? The fee is applied if a current resident decides to break their existing lease contract prior to the lease end date. I have seen the fee vary in amounts – some as low as one months rent and others as high and two and one half times the amount of the monthly rent.

Budget Strategy

The apartment lease termination fee is a line item that you can simply use history to forecast forward. If you collected three of these fees last year, it is fair to say that you might do the same in the coming year. Or, if you have more history to pull from then do so. If you have three to five years of history, go back and consider the number of fees you collected over that time and simply average it out.

Once you have determined the number you have collected, space them out over the course of the year. Feel free to pick your months at random as there is no absolute way to predict when someone might need to break their lease.

Charge and Beware

This is likely the second most contested apartment related fee standing close behind late fees. A quick search yielded more than a few Q&A sites that advised everything from – pay it to challenge it.

The fee is perfect legal and it is agreed to at the time of the lease signing so feel compelled to stand your ground.

Your lovin’ other income multifamily manic,

M

Apartment Budgeting: Forfeited Security Deposit

Hope your Tuesday is off to a good start. I am still in the vein of Other Income as I venture through these budget installments.

Forfeited Security Deposit 

Defined: A fee taken when an applicant fails to follow through with physically moving into your community after they have been fully qualified to do so.

***As a note of clarity: the security deposit in the refundable portion of the deposit collected at the time you collect a signed application.

The justification for charging and collecting this fee is that you and your team have spent time and resource getting an application processed. That is to include completing the application, running credit and criminal background checks and calling the applicant to let them know that they are qualified.

If you do all of that only to have the applicant call you at the last-minute to cancel, you should be paid for your time. That is what the forfeiture of security deposit covers.

How much?

This various by market and sub-market and in some cases is governed by state and local laws so be sure to do your research.

For reference fees in the St. Louis Apartment Market range anywhere from $150 to $500 with extremes on either side.

Lease Application

Make absolutely certain that you clearly define this practice and the amounts you charge for it in your lease contract. Void of the language, you will have a tough time collecting on it. Make sure the language is in concert with the laws that govern such things in your respective markets. And, don’t be shy about collecting it. No matter how customer-centric you are – you don’t work for free.

That is it for this week – I have left some nuggets out of the conversation on the outside chance that we get some comments. So, let us know what you think if you have a free moment today.

Your lovin’ the budget series multifamily maniac,

M

Apartment NSF Fees

Apartment Budget Installment

NSF or Non-Sufficient Funds Fees are not uncommon thing in the world today. In fact they have been around for a very long bit of time. Simply defined, it is a fee for a returned check be it paid by electronic or paper method.

NSF Amounts

The amount can be anything within reason. I have seen them range from $25 to $125 depending on average rent rates, markets and sub-market primers.

Reason for NSF

The chief reason in my head is to shape behavior. Not to penalize. Suffice it to say – if a resident has to add $125+/- to their rent check, they will likely not do it twice. It will likely feel like an excessive amount and thus a penalty but it will shape the behavior you are after.

How to Budget for NSF Fees

Where you have trailing historical numbers, you can simply take a 12 month trailing average and plug that number for the forward-looking 12 months. Where you have no information, you can look for like kind assets in the market do per unit comparisons to come up with your averages [something I will define with more detail in future articles].

I leave it at that this week. NSF Fees are fairly straight forward but I have left some nuggets out in hopes that we pick them up in the comments.

Publicly Calling Out

Speaking of – I am going to reduce to a lower means of influencing by publicly calling out a member of our accounting team. I will only identify her as CK for now and I hope that she joins the conversation at some point as it was her idea to get the budget series started.

Your enjoying the weather today multifamily maniac,

M

Employee Rent Concessions

Employee Rent ConcessionThis week we are rounding out our budget concession discussion with the topic of employee concessions. People are the difference that make a difference in property management. I would argue that it is not location location location but rather people people people that make or break the present and future value of an asset. You can have the best location on planet earth with the worst people and you are guaranteed sub-par valuation. Relocate that asset to a B+ location and team it with A+ characters and you will have yourself a winner. It really is all about the people. And, employee rent concessions are one way of saying thank you.

Value in Responsive Service

Beyond the concept of reward, concessions can be looked at as incentive for an employee to live on-site. There are clear advantages to owners when an employee lives on-site. It lends well to responsive customer service, especially if that employee works on the service side. As an example, if you have an A/C go out after hours, he/she can provide rapid and responsive service. If you provide lock-out services; the idea of rapid response is a real plus. In the event of a major crisis, employees living on-site can act as first responders in the way of organize and deploying crisis  management protocols.

Things to Think About

I have seen this amount vary over the years and is certainly subject to ownership or property management protocols. It typically ranges from 15% to 100% and is credited monthly over the course of a lease term. It also typically carries a caveat in the way of an employee addendum that spells out strict concession payback and move-out protocols if the work relationship turns sour.

The biggest thing to consider is IRS implications. Always consult a good tax attorney when thinking about giving away money as I am certain our great Uncle will want his part.

Your – advocate of employee rent concessions – multifamily manic,

M

 

Apartment Budgets: Loss to Lease

Welcome back for another installment of the Apartment Budget series. Today we are going to talk about Loss to Lease. Interesting side note, I did a piece on this a number of years ago and to this day it remains the number one read article on this blog.

Before we get started, I wanted to post a note of clarity as it relates to my last entry – Apartment Budgets: Rental Income. Where I refer to Rental Income in that post – I am really talking about Gross Potential Rent as being the top line. You may also hear it referred to as GPR. In any event, I wanted to head off any confusion.

LTL

Now unless you have a brand new community in lease up, you will have in place leases that are very likely below the GPR. The primary reason being rent increases. Any time you increase rents you create a margin between the in place leases and the new increased GPR. This can occur in reverse and the impact to the LTL can go in reverse. That is to suggest that you can decrease the GPR and the margin or LTL becomes positive. Not a scenario you see to often as rents generally rise over time in lieu of decline over time.

Loss to Lease – New Move In

To put it simply; if you lease an apartment below the GPR, the discount is captured in a Loss to Lease – New Move In line item. To put some math to it; if your apartment’s GPR is $500 and you lease it for $450, the $50 reduction in rent is capture in the Loss to Lease – New Move In line item as a -$50 charge. And, it will exist for the life of the lease.

Loss to Lease – Renewals 

When leases come up for renewal and they are under the GPR number – the margin is by default in the current Loss to Lease line item. When the lease renews, if it is still under the GPR that new number gets captured in the Loss to Lease – Renewal line item. Putting some math to it. Suppose your apartment’s GPR is $500 and the current in place lease is $450 – you renew it at $475. The $25 margin is captured in Loss to Lease – Renewals.

Total Effective Rent

Once you have accounted for your losses related to in place, new and renewed leases under the current Gross Rent Potential – you come up with a Total Effective Rent. That is where we will pick up next week.

We have purposefully left out the analysis piece this week because I think it will fuel some crazy cool discussion. Hope to see you in the comment section below.

Your – lovin’ budgets – multifamily maniac,

M

 

#apartmentbudgeting: Think Value

Short and sweet budget tip for 2012…

When thinking about your marketing spends in 2012 think in terms of what will bring value to your ideal resident in lieu of what your absolute spends will be on print, internet, social media and the like.