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: 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: Month to Month Premium

As for budgeting month to month fees; I would use twelve months of history as a way to forecast the future.

Back on track with our Tuesday Apartment Budgeting series. It seems I hit the publish button a little too soon last week so you got Tuesday on Sunday. My apologies for the disruption. This week we are talking about Month to Month Premiums.

Month to Month Premium Defined

Month to Month premium is also known as Month to Month Fee or simply a MTM fee. In essence, it is a convenience fee charged to a resident when their existing lease  expires without them having renewed it. I have seen the fee vary from $25 to $200 a month. The real point to the fee is to make it painful enough that someone would want to renew their lease instead of stay month to month. But, in the event that they need to be month to month, you want the fee to offset your risk. The risk being to many leases expiring in a given month.

Month to Month Budgeting Strategy

When you are sitting down each month to consider your exposure (leases expiring in the coming two to three months), you have to include your month to month leases. If you property is 100 units in size and you have five leases expiring in the month of August but you have five month to month leases then you really have ten expiring leases. Ten lease holders that could give you proper notice to vacate. That is ten percentage points of occupancy that you would have to cover. Not a pretty position to be in.

As for budgeting month to month fees; I would use twelve months of history as a way to forecast the future. The bigger thing you have to deal with as it relates to this line item is charge up. Many times this fee gets waived out of sympathy for the lease holders situation. Gentle reminder: we are in a business to make money and part of making money is pricing in a risk premium on items that have potential downside effects. Like the scenario above. So, charge the fee and collect it.

Your always considering the downside risk premium multifamily maniac,

M

Apartment CapX Budget Over Again

Is Your Apartment CapX Budget is Over Again.

The Apartment CapX Budget is Over Again? How many times have you heard that statement in some form of fashion? And, I am sure – if you are anything like me – you just can’t understand it. Nor, in all fairness, do you take the time to understand it because you have a million other things that need your attention. But, I do have an idea as to why…

Humans Make Mistakes

Simply put – humans make mistakes. And, or they are innately incapable (not a dig – just plain reality) of thinking about every little nuance of a project. Or, they are too confident in their ability to forecast. But, most of all there are just too many steps in the process. And, the more steps there are the more opportunity there is/are for mistakes.

Apartment Project Management 

A project is set up as a series of steps and each step has a probability of failure. With that in mind, I thought I would list a few examples of where exactly things can go wrong:

bad process, choice of vendor, equipment/mechanic, technology, your expectations are mis-communicated or not well understood, wrong leadership, wrong manager, inexperienced leader, poor choice of incentives, deciding to try something new, ordering the wrong product, product ordering mishaps, shipping delays, delivering the wrong product, weather, ignoring the canary in the coal mine, killing the canary in the coal mine (no canaries were harmed when writing this post), no tracking, loose tracking, leaning on our ability to track it in our heads.

And, the list goes on and on and on.

Solution: Fewer steps.

I think it is easy to assume that the weak link defines the extent of the success or the failure of the project. And, with all of these areas of opportunity for error – it’s no wonder that many times we come in over. But, still not acceptable in my head.

It’s a problem I am thinking through from an operational perspective. It’s one I think is solved with less steps and fewer people. And, I’m sure it will result in some posts along the way.

Hope your weekend is a crazy good one.

Your consistently thinking about apartment project management 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 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

Apartment Late Fees

Mike Brewer Apartment Late RentApartment late fees are applied to a resident’s account if they pay rent beyond a pre-defined grace period. Generally grace periods do not extend beyond the first five days of any given month. And, apartment late fees are generally levied in an amount calculated as a percentage of the base rent and or as a flat fee.

Due on First Late on Second

Now technically rent is always due on the first of any given month. Despite what your grace period is rent is due on the first of the month and late on the second. That does not mean that you are applying your late fee but it does mean that rent collection procedures should be in motion on the second day of every month. You are building habits here and this is a good one to master.

A Word On Grace

I am a strong advocate for doing away with grace periods all together. I have never understood the appeal to use them. To me, it suggests that it is okay to pay late . Why would you do such a disservice to your respective business? Moreover, you have entered a binding contract and have agreed to provide some level of value in exchange for the monthly payment that will be made to you. So, in my head, you should ask for it on the first. And, define it as late on the second whereby you apply late fees.

Apartment Late Fees 

I have seen several variations of late fee calculations. Presupposing rent is due on the first and late fees apply on the fourth – here are a few examples:

1. $50 on the fourth and $5 per day every day after until it is paid in full

2. $75 on the fourth. Another $75 on the tenth.

3. 10% on the fourth and $5 per day every day after until it is paid in full

That is just to name a few – there are very obviously hundreds of computations out there. The main point with penalties is behavior modification. Make the pain certain enough and people will very likely deviate away from it. Make it marginal and people will take advantage of it. Remember – for most of you there is a mortgage that has to be sufficed each month.

Your – advocating for no grace period – multifamily maniac,

M

 

Pic prop: flickr

 

Apartment Budgets: Rental Income

The Numbers

It all comes down to the numbers. Be it an operational spend or a big capital spend, it all comes back to a math problem to be considered and or solved. At that and the prompting of one of our accounting team members at Mills Properties, I will be dedicating Tuesday to the numbers.

Walking Through an Apartment Budget Top to Bottom

We are going to take apart one of our budgets by defining each and every line item, one at a time, over the next year or so. Yes, we really have that many line items. The thought is that over time we will, as a group, gain a very deep and thoughtful understanding of the line item definitions, relationships and things that drive each. We will learn tips and strategies to move income and expenses in the right directions.

Speaking Greek

Apartment BudgetsFull admission – numbers are not my favorite part of the multifamily business. I can do it. I understand the relationships. And, I know how to move them in the right directions. But, as much as I try, I am just not the analytic left brain thinker. I am as far from pragmatic and methodical as you can get. I am a right brain thinker, creative in nature and never like to do the same thing the same way twice. Numbers are the work side for me.

I say all that to say this, this will be as much an education for me as it will hopefully be for you. So, comment away. Call me on the carpet when I am off. Add to the conversation when you see fit. Do it under the premise that you will be helping tons of people get a confident understanding of our financial game plans.

Apartment Rental Income

Item of note: I am working from a non-revenue management model.

This is the top line. This is where it all starts. Some call it market rent, others call in the pixie dust sprinklers as the line is really meaningless.

Rental Income can be defined as the maximum rents at 100% occupancy. It’s the number you would collect if every single unit were physically occupied and everyone paid their rent at the full value of the lease.

Where do we derive the number? It really is made up. In all fairness it is predicated on your comps in the market place. We like to think of our comps as the three to five communities that you lose the most leases to. I like to think we make the market and the comps predicate their tops lines accordingly. Whatever the case, it’s a market generated number.

When does it change? It can move down but more often than not it moves up. It is predicated on a good number of factors to include broader things like the economy, jobs and household formations. Or more minutely on the classic supply and demand factors set inside of seasonality. And, it is down on a unit type basis. If you are very highly occupied in a specific unit type then you should raise. If you have tons of inventory with little to no demand – you keep the rents neutral. That last sentence might drive you to think you should lower rent. And, in some management companies that would be a true statement. For us, we leave it in place and compete with concession – which we will discuss in a future post.

What is the fastest way to move this line item up-up-up? By being remarkable.

Perspectives

I have left a number of perpectives out of this post and maybe treaded on others – please keep the discussion going in the comments section below. My accounting friends will love you for it and I will thank you for the education.

Your, digging into apartment budgets, multifamily maniac,

M

 

#apartmentbudgeting: Shop the Comps

Just another quick tip before you kick off another season of multifamily budgeting

Shop your comps – not for the reason of selling to meet their level of product or service but rather as a way of discovering ways to sell beyond their offerings.

Your budget should reflect not what it takes to compete but rather what it takes to crush. Or, what it takes to create a completely different experience for people to fall in love with.

Happy budgeting…