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 Budgeting: Damages

From time to time people vacate apartments and believe it or not they leave the space damaged. It could be anything from a cigarette burn on the kitchen counter top to fist hole in the bedroom wall. Whatever the case may be; it is considered damage and it can and should be charged for.

Damages DefinedMove Out Charges

Fees associated with damages made to an apartment. Charges are applied at the time of move out and are taken out of apartment security deposits. Nearly every company I have worked with and for has a standard set of charges that are applied for specific damages. For example, if the apartment is left full of trash and debris, most companies will charge a fee to bag (per bag) and remove it. If there are pet stains on the carpet – depending on the extent of the damage a charge will be levied. If it is extensive and the carpet has to be replaced charges might apply for a full carpet replacement. There really is no end to what you can charge for provided it is within reason and according to city, state and national law.

Budget Strategy

This one is fairly straight forward. The line is typically built on twelve months of trailing information given the fact that it can and will fluctuate over any bit of time. You take the full twelve months of trailing numbers, add them up and average them. You can then straight line the information. That is to suggest that you can use the average number to budget each month. Another strategy might be to average the numbers quarterly so as to catch seasonality. Either way is appropriate.

Your getting pumped for budget season multifamily maniac,

M

 

Pic Props to ITSOGS